Question

1. Bonds with a face value of $1,000,000 are sold at 98. What is the journal entry to record the sale of the bonds?

1. Cash                                                         1,000,000

            Gain on Sale of Bonds                                             20,000

            Bonds Payable                                                        980,000

2. Cash                                                             980,000

Loss on Sale of Bonds                                 20,000

            Bonds Payable                                                     1,000,000

3. Cash                                                             980,000

            Bonds Payable                                                        980,000

4. Cash                                                          1,000,000

            Bonds Payable                                                      1,000,000

2. A corporation has Bonds Payable with a face value of $1,000,000 and an amortized cost

( carrying value ) of $985,000. If the corporation redeems the bonds at 97.5, what is the gain or loss on redemption?

1. $10,000 loss
2. $10,000 gain
3. $25,000 loss
4. $25,000 gain

3. A bond with a face value of $300,000 is redeemed at 103 when the amortized cost ( carrying value ) of the bond is $315,000. The journal entry to record the redemption would include:
4. A loss on bond redemption of $6,000
5. A gain on bond redemption of $6,000
6. A gain on bond redemption of $9,000
7. A loss on bond redemption of $9,000

4. Merchant Corporation issues 10 year bonds on January 1, 2019. The bonds have a face value of $100,000, a contractual interest rate of 15% and pay interest semi-annually on January 1^st and July 1^st. The bonds were sold for $117,205 based on a market interest rate of 12%. On July 1^st, 2019, how much interest expense would Merchant record ( round to the nearest dollar )?
5. $7,032
6. $7,500
7. $8,790
8. $14,065

5. What effect does selling bonds at a premium have?

1. It raises the market interest rate above the contractual interest rate
2. It attracts investors who are willing to accept a lower rate of interest than on similar bonds
3. It causes the total cost of borrowing to be higher than the bond interest paid
4. It causes the total cost of borrowing to be lower than the bond interest paid

Answer 1

Bonds with a face value of $1,000,000 are sold at 98. What is the journal entry to record the sale of the bonds?

B.

Cash                                                             980,000

Loss on Sale of Bonds                                 20,000

            Bonds Payable                                                     1,000,000

A corporation has Bonds Payable with a face value of $1,000,000 and an amortized cost

( carrying value ) of $985,000. If the corporation redeems the bonds at 97.5, what is the gain or loss on redemption?

A. $10,000 loss

(985000-975000)

A bond with a face value of $300,000 is redeemed at 103 when the amortized cost ( carrying value ) of the bond is $315,000. The journal entry to record the redemption would include:

1. A loss on bond redemption of $6,000

(300000*103% - 315000 = -6000)

Merchant Corporation issues 10 year bonds on January 1, 2019. The bonds have a face value of $100,000, a contractual interest rate of 15% and pay interest semi-annually on January 1^st and July 1^st. The bonds were sold for $117,205 based on a market interest rate of 12%. On July 1^st, 2019, how much interest expense would Merchant record ( round to the nearest dollar )?

1. $7032

($117205*12%*1/2)

What effect does selling bonds at a premium have?

C. It causes the total cost of borrowing to be higher than the bond interest paid