Question

25/ A company borrowed $40,300 cash from the bank and signed a 3-year note at 10% annual interest. The present value of an annuity factor for 3 years at 10% is 2.4869. The present value of a single sum factor for 3 years at 10% is .7513. The annual annuity payments equal:

Multiple Choice

$30,277.39.

$16,204.91.

$40,300.00.

$53,640.36.

$100,222.07.

26/ A company issued 9%, 15-year bonds with a par value of $590,000 that pay interest semiannually. The market rate on the date of issuance was 9%. The journal entry to record each semiannual interest payment is:

Multiple Choice

Debit Bond Interest Expense $26,550; credit Cash $26,550.

Debit Bond Interest Expense $53,100; credit Cash $53,100.

Debit Bond Interest Payable $39,333; credit Cash $39,333.

Debit Bond Interest Expense $540,000; credit Cash $540,000.

No entry is needed, since no interest is paid until the bond is due.

27/ A company issued 5-year, 8% bonds with a par value of $99,000. The company received $96,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

Multiple Choice

$8,330.60.

$3,754.70.

$4,165.30.

$3,960.00.

$7,920.00.

28/ A company issues 7% bonds with a par value of $200,000 at par on January 1. The market rate on the date of issuance was 6%. The bonds pay interest semiannually on January 1 and July 1. The cash paid on July 1 to the bond holder(s) is:

Multiple Choice

$14,000.

$12,000.

$7,000.

$6,000.

$0.

Answer 1

Answer 25 is B.

Value of Note = $40,300
Annual Interest Rate = 10%
Time Period = 3 years

Annual Payment * PV of an Annuity of $1 (3%, 10) = $40,300
Annual Payment * 2.4869 = $40,300
Annual Payment = $16,204.91

Answer 26 is A.

Face Value of Bonds = $590,000
Annual Coupon Rate = 9%
Semiannual Coupon Rate = 4.5%
Semiannual Coupon = 4.5%*$590,000 = $26,550

Journal Entry to record semiannual interest payment is:
Debit Bond Interest Expense             $26,550
Credit Cash                                            $26,550

Answer 27 is C.

Face Value of Bonds = $99,000
Proceed from issue = $96,947

Discount on Issue = $99,000 - $96,947
Discount on Issue = $2,053

Semiannual Period to maturity = 10

Semiannual Amortization of Discount = $2,053 / 10
Semiannual Amortization of Discount = $205.30

Annual Coupon Rate = 8%
Semiannual Coupon Rate = 4%
Semiannual Coupon = 4%*$99,000 = $3,960

Semiannual Interest Expense = Semiannual Coupon + Semiannual Amortization of Discount
Semiannual Interest Expense = $3,960 + $205.30
Semiannual Interest Expense = $4,165.30

Answer 28 is C.

Face Value of Bonds = $200,000
Annual Coupon Rate = 7%
Semiannual Coupon Rate = 3.5%
Semiannual Coupon = 3.5%*$200,000 = $7,000

So, cash paid to bond holders on July 1 is $7,000