Chapter 10 Question Review1Chapter 10 QuestionsMultiple Choice1.a.b.c.d.Bonds that may be exchanged for common stock at the option of the bondholders are calledoptions.stock bonds.convertible bonds.callable bonds.2. Ramano Company issued 1,000,000 of 10%, 10-year bonds at 96. Assuming straight-lineamortization and annual interest payments, how much bond interest expense is recorded on the nextinterest date?a. 100,000b. 104,000c. 96,000d. 102,0003. Ramano Company issued 1,000,000 of 10%, 10-year bonds at 102. Assuming straight-lineamortization and annual interest payments, how much bond interest expense is recorded on the nextinterest date?a. 100,000b. 102,000c. 98,000d. 104,0004.a.b.c.d.The contractual interest rate on a bond is often referred to as thecallable rate.the maturity rate.market rate.stated rate.5.a.b.c.d.If the market interest rate for a bond is higher than the stated interest rate, the bond will sell ata premium.a discount.par.either a discount or premium.6. On January 1, 20X1, 3,000,000, 10-year, 10% bonds, were issued for 2,910,000. Interest is paidannually on January 1. If the issuing corporation uses the straight-line method to amortize discount onbonds payable, the annual amortization amount isa. 29,100.b. 9,000.c. 2,424.d. 750.
Chapter 10 Question Review27. West County Bank agrees to lend Drake Builders Company 400,000 on January 1. Drake BuildersCompany signs a 400,000, 6%, 6-month note. What is the adjusting entry required if Drake BuildersCompany prepares financial statements on March 30?a. Interest Expense . 12,000Interest Payable.12,000b. Interest Expense . 12,000Cash .12,000c. Interest Expense . 6,000Interest Payable.6,000d. Interest Payable. 6,000Interest Expense .6,0008.a.b.c.d.The journal entry to record the issuance and proceeds of a note would includea debit to notes payablea debit to interest expensea credit to interest expensea debit to cash9.a.b.c.d.Bonds with a face value of 500,000 and a quoted price of 97¼ have a selling price of 486,250. 485,125. 485,013. 487,500.10. Bonds with a face value of 500,000 and a quoted price of 102¼ have a selling price ofa. 601,125.b. 510,125.c. 510,013.d. 511,250.11. Morgan Company does not ring up sales taxes separately on the cash register. Total receipts forFebruary amounted to 38,160. If the sales tax rate is 6%, what amount must be remitted to the statefor February's sales taxes?a. 2,290b. 2,160c. 2,152d. It cannot be determined.
Chapter 10 Question Review312. Gomez Corporation issues 900, 10-year, 8%, 1,000 bonds dated January 1, 2017, at 96. The journalentry to record the issuance will show aa. debit to Cash of 900,000.b. credit to Discount on Bonds Payable for 36,000.c. credit to Bonds Payable for 864,000.d. debit to Cash for 864,000.13. Five thousand bonds with a face value of 1,000 each, are sold at 102. The entry to record the issuanceisa. Cash . 5,100,000Bonds Payable .5,100,000b. Cash . 5,000,000Premium on Bonds Payable . 100,000Bonds Payable .c. Cashd. Cash5,100,000. 5,100,000Premium on Bonds Payable .Bonds Payable .100,0005,000,000. 5,100,000Discount on Bonds Payable .Bonds Payable .100,0005,000,00014. The interest charged on a 100,000 note payable, at the rate of 10%, on a 60-day note would bea. 1,667.b. 10,000.c. 6,000.d. 16,667.15. Unearned Rent Revenue isa. a contra account to Rent Revenue.b. a revenue account.c. reported as a current liability.d. debited when rent is received in advance.
Chapter 10 Question Review4EXERCISES1. Steiner Sales Company has the following selected accounts after posting adjusting entries:Accounts Payable 65,000Notes Payable, 3-month50,000Accumulated Depreciation—Equipment 14,000Notes Payable, 5-year, 6%80,000Payroll Tax Expense4,000Interest Payable3,000Mortgage Payable120,000Sales Taxes Payable38,000Prepare the current liability section of Steiner Sales Company's balance sheet, assuming 15,000 of themortgage is payable next year.2. Peterson Company billed its customers a total of 840,000 for the month of November. The totalincludes a 5% state sales tax.(a)Determine the proper amount of revenue and sales taxes to report for the month.(b)Prepare the general journal entry to record the revenue and related liabilities for the month.DateDebitCredit
Chapter 10 Question Review53.On January 1, 20X1, Hannigan Company issued bonds with a face value of 600,000. The bonds carrya stated interest of 7% payable each January 1.(a)Prepare the journal entry for the issuance assuming the bonds are issued at 97.Date(b)DebitCreditPrepare the journal entry for the issuance assuming the bonds are issued at 102.DateDebitCredit4.On March 1, Cooper Company borrows 80,000 from New National Bank by signing a 6-month, 6%,interest-bearing note.Prepare the necessary entries below associated with the note payable on the books of CooperCompany.(a)Prepare the entry on March 1 when the note was issued.DateDebitCredit(b)Prepare any adjusting entries necessary on June 30 in order to prepare the semiannualfinancial statements. Assume no other interest accrual entries have been made.(c)DateDebitCreditDateDebitCreditPrepare the entry to record payment of the note at maturity.
Chapter 10 Question Review65.Renfro Company issued 300,000 of 8%, 10-year bonds at 102. Interest is paid annually, and thestraight-line method is used for amortization. Assume that the market rate for similar investments is 7%.The bonds are issued on the date of the bonds.a.What amount was received for the bonds?b.How much interest is paid each interest period?c.What is the premium amortization for the first interest period?d.How much interest expense is recorded on the first interest date?e.What is the carrying value of the bonds after the first interest date?6.On January 1, 20X1, Powell Corporation issued 600,000, 5%, 5-year bonds dated January 1, 20X1, at95. The bonds pay annual interest on January 1. The company uses the straight-line method ofamortization and has a calendar year end.Prepare all the journal entries that Powell Corporation would make related to this bond issue throughJanuary 1, 20X2 (including December 31, 20X1). Be sure to indicate the date on which the entries wouldbe made.DateDebitCredit
Chapter 10 Question Review77. Presented below are two independent situations:(a)Morten Corporation purchased 480,000 of its bonds on June 30, 2017, at 102 and immediatelyretired them. The carrying value of the bonds on the retirement date was 431,100. The bonds payannual interest and the interest payment due on June 30, 2017, has been made and recorded.(b)McEvoy, Inc., purchased 330,000 of its bonds at 96 on June 30, 2017, and immediately retiredthem. The carrying value of the bonds on the retirement date was 321,000. The bonds pay annualinterest and the interest payment due on June 30, 2017, has been made and recorded.For each of the independent situations, prepare the journal entry to record the retirement or conversionof the bonds.(a)DateDebitCreditDateDebitCredit(b)
Chapter 10 Question Review8Chapter 10 SolutionsMultiple Choice Solutions1. C2. B3. C4. D5. B6. B7. C8. D9. A10. D11. B12. D13. C14. A15. CExercise Solutions1. STEINER SALES COMPANYCurrent LiabilitiesCurrent portion of long-term debt 15,000Notes payable, 3-month50,000Accounts payable65,000Sales taxes payable38,000Interest payable3,000Total current liabilities 171,000Mort. Pay(cur. Par.) N/P A/P sal. tax. Pay. int. pay.)2.(a) 840,000 1.05 800,000 is the total sales revenue. 800,000 .05 OR 840,000 - 800,000 40,000 is the state sales tax liability.(b)DateAccounts ReceivableSales RevenueSales Taxes PayableDebit840,000Credit800,00040,000
Chapter 10 Question Review9Chapter 10 Solutions (Cont.)Exercise Solutions (Cont.)3.(a)Cash ( 600,000 0.97)Discount on Bonds PayableBonds PayableDateJan. 1Debit582,00018,000Credit600,000(b)Cash ( 600,000 1.02)Bonds PayablePremium on Bonds PayableDateJan. 1Debit612,000Credit600,00012,0004.(a)CashNotes PayableDateMar. 1Debit80,000Credit80,000(b)Interest ExpenseInterest Payable ( 80,000 6% (4 12))DateJun. 30Debit1,600Credit1,600(c)Notes PayableInterest PayableInterest Expense ( 80,000 6% (2 12))Cash( 80,000 6% (6 12))DateSept. 1Debit80,0001,600800Credit82,400
Chapter 10 Question Review10Chapter 10 Solutions (Cont.)Exercise Solutions (Cont.)5.a.b.c.d.e. 306,000 24,000 600 23,400 305,400( 300,000 1.02). (Face val. 102%)( 300,000 .08)[( 306,000 – 300,000)/10]. [(Face val. 102%) – face val.] 10( 24,000 – 600)( 306,000 – 600) (Face val. 102%) – [(face val. 102%) – face val.) 10]6.Cash ( 600,000 .95)Discount on Bonds PayableBonds Payable(To record sale of bonds at a discount)Interest Expense ( 600,000 x 0.05) ( 30,000 5)Discount on Bonds PayableInterest Payable ( 600,000 0.05)(To record annual accrued bond interest and amortization ofbond discount)Interest PayableCash(To record payment of bond interest liability)DateJan. 120x1Debit570,00030,000Credit600,000Dec. 3120x136,000Jan. 120X230,00060030,00030,000
Chapter 10 Question Review11Chapter 10 Solutions (Cont.)Exercise Solutions (Cont.)7.(a)Bonds PayableLoss on Bond RedemptionDiscount on Bonds Payable ( 480,000 – 431,100)Cash ( 480,000 1.02)DateJun. 30Debit480,00058,500Credit48,900489,600(b)Bonds PayableDiscount on Bonds Payable ( 330,000 – 321,000)Gain on Bond RedemptionCash ( 330,000 96%)DateJun. 30Debit330,000Credit9,0004,200316,800
Chapter 10 Question Review 6 5. Renfro Company issued 300,000 of 8%, 10-year bonds at 102. Interest is paid annually, and the straight-line method is used for amortization. Assume that the market rate for similar investments is 7%. The bonds are issued on the date of the bonds. a. What amount was received for the bonds? b.