PRACTICAL ACCOUNTING – Part 1 Bonds Payable

BONDS PAYABLE Serial Bonds

3. Glen Corporation had the following long-term debt:
Sinking fund bonds, maturing in installments $1,100,000
Industrial revenue bonds, maturing in installments 900,000
Subordinated bonds, maturing on a single date 1,500,000
The total of the serial bonds amounted to
TYPES OF BONDS A: $1,500,000 C: $2,400,000
Term Bonds B: $2,000,000 D: $3,500,000 Wiley 11
1. Blue Corp.'s December 31, 2000 balance sheet contained the following items in the long-term
liabilities section: 51. Miller Enterprises had the following long-term debt:
9.25% registered debentures, callable in 11 years, due in 16 years $700,000 Sinking fund bonds, maturing in installments .......... $1,100,000
9.25% collateral trust bonds, convertible into common stock beginning Industrial revenue bonds, maturing in installments .... 900,000
in 2009, due in 19 years 600,000 Subordinated bonds, maturing on a single date ......... 1,500,000
10% subordinated debentures ($30,000 maturing annually beginning The total of the serial bonds amounted to (E)
in 2006) 300,000 A. $900,000. C. $2,000,000.
What is the total amount of Blue's term bonds? (E) B. $1,500,000. D. $2,400,000. S, S & S
A. $600,000 C. $1,000,000
B. $700,000 D. $1,300,000 AICPA 1192 Issue of Bonds at a Premium
Issue Price
2. York Corp.’s December 31, 2001 balance sheet contained the following items in the long-term Semi-annual interest payment
liabilities section: 41. The market price of a $400,000, ten-year, 12% (pays interest semiannually) bond issue sold to
9¾% registered debentures, callable in 2012, due in 2017 $1,400,000 yield an effective rate of 10% is (M)
9½% collateral trust bonds, convertible into common stock A. $449,156. C. $453,308.
beginning in 2010, due in 2020 1,200,000 B. $449,850. D. $748,944. K, W & W
10% subordinated debentures ($60,000 maturing annually
beginning in 2007) 600,000 63. White Sox Corporation issued $200,000 of 10-year bonds on January 1. The bonds pay
What is the total amount of York’s term bonds? (E) interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of
A. $1,200,000 C. $2,000,000 interest at the time the bonds are sold is 8 percent, what will be the issuance price of the
B. $1,400,000 D. $2,600,000 AICPA 1192 bonds? (M)
A. $175,078 C. $215,902
Debenture Bonds B. $211,283 D. $227,183 S, S & S
50. Littleton Corp. had the following long-term debt at December 31:
Collateral trust bonds, having securities of unrelated corporations as security $250,000 4. Downing Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2010 on January 1,
Bonds unsecured as to principal 150,000 2010. The bonds pay interest semiannually on June 30 and December 31. The bonds are
The debenture bonds amounted to (E) issued to yield 5%. What are the proceeds from the bond issue?
A. $0. C. $250,000. A. $5,000,000 C. $5,218,809
B. $150,000. D. $400,000. S, S & S B. $5,216,494 D. $5,217,308 KW&W 1e
RPCPA, AICPA, CMA & CIA Examination Questions Page 1 of 6
PRACTICAL ACCOUNTING – Part 1 Bonds Payable
Present value of 1 .558 .508
5. Everhart Company issues $10,000,000, 6%, 5-year bonds dated January 1, 2010 on January Present value of an annuity of 1 7.360 7.024
1, 2010. The bonds pays interest semiannually on June 30 and December 31. The bonds are The discount at the date of bond issuance would be (E)
issued to yield 5%. What are the proceeds from the bond issue? A. $ 0 C. $ 6,180
A. $10,000,000 C. $10,437,618 B. $ 96 D. $21,168 NB&J 11e
B. $10,432,988 D. $10,434,616 KW&W 1e
Issue Price
6. Moore Industries manufactures exercise equipment. Recently the vice president of operations Quoted Price Given
of the company has requested construction of a new plant to meet the increasing demand for 7. On June 30, 2001, Huff Corp. issued 1,000 of its 8%, $1,000 bonds at 99. The bonds were
the company's exercise equipment. After a careful evaluation of the request, the board of issued through an underwriter to whom Huff paid bond issue costs of $35,000. On June 30,
directors has decided to raise funds for the new plant by issuing $2,000,000 of 11% bonds on 2001, Huff should report the bond liability at (E)
March 1, 2010, due on March 1, 2025, with interest payable each March 1 and September 1. A. $955,000 C. $1,000,000
At the time of issuance, the market interest rate for similar financial instruments is 10%. What B. $990,000 D. $1,025,000 AICPA 1190
is the selling price of the bonds? (M1**)
A. $1,269,776 C. $2,153,730 Issue of Bonds at Face Value in between Interest Dates
B. $1,690,970 D. $2,220,000 Kieso 13e Accrued Interest on Date of Issuance
80. RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year
Bond Premium bonds dated January 1, 2006, with interest payable on January 1 and July 1 of each year. If
Selling Price Given the bonds were issued on April 1, 2006, the amount of accrued interest on the date of sale is
10. Lindsey Corporation issued $800,000 of 12%, 20-year bonds at 110 on January 1, 1986. The A. $2,500. C. $10,000.
bonds pay interest on January 1 and July 1. Lindsey will use the straight-line amortization B. $5,000. D. $20,000. S, S & S
method. What is the amount of the bond premium associated with the issue? (E)
A. 12% of $800,000 D. $80,000 Proceeds
B. 12% of $880,000 E. $8,000 1 month after interest payment date
C. $880,000 Flamholtz & Diamond 8. A company issues 10-year bonds with a face value of $1,000,000, dated January 1, 2001 and
bearing interest at an annual rate of 12% payable semiannually on January 1 and July 1. The
Issue of Bonds at a Discount full interest amount will be paid each due date. The market rate of interest on bonds of similar
Discount risk and maturity, with the same schedule of interest payments, is also 12%. If the bonds are
6. On January 1, 1986 Mondray Corporation issued $900,000 of 14%, 12-year bonds at 96. The issued on February 1, 2001, the amount the issuing company receives from the buyers of the
bonds pay interest on January 1 and July 1. Mondray will use straight-line amortization. What bonds on that date is (E)
is the amount of the bond discount associated with Mondray’s issue? (E) A. $990,000 C. $1,010,000
A. 14% of $900,000 D. $36,000 B. $1,000,000 D. $1,020,000 CIA 0595 IV-19
B. 14% of $864,000 E. $3,600
C. $864,000 Flamholtz & Diamond 2 months after interest payment date
9. On March 1, 2010, Harbour Corporation issued 10% debentures dated January 1, 2010, in the
48. A $300,000, ten-year, 6% bond issue was sold to yield 7% interest payable annually. Actuarial face amount of $1,000,000, with interest payable on January 1 and July 1. The debentures
information for 10 periods is as follows: were sold at par and accrued interest. How much should Harbour debit to cash on March 1,
6% 7% 2010?
RPCPA, AICPA, CMA & CIA Examination Questions Page 2 of 6
PRACTICAL ACCOUNTING – Part 1 Bonds Payable
A: $ 966,667 C: $1,016,667 should Stice report as bonds payable?
B: $ 983,333 D: $1,033,333 Wiley 11 A. 5,150,000 C. 5,450,000
B. 5,300,000 D. 5,600,000 Siy
Proceeds & interest expense
10. On June 1, Year One, Braxton Company issues $100,000 in bonds payable with a stated 39. On January 1, 2009, Tamera Company issued 8,000 of its 12%, P1,000 face value bonds for
annual interest rate of 9 percent at face value plus accrued interest. These bonds pay interest P8,600,000, including accrued interest. The bonds are dated October 1, 2008, mature on
every February 1 and August 1. What amount does Braxton receive and what interest expense October 1, 2018 and pay interest annually on October 1. The bonds were issued through an
is recognized for Year One? underwriter to whom Tamera paid bond issue cost of P150,000. On January 1 2009, what
A Braxton receives $101,500 and interest expense for Year One is recognized as $5,250 should Tamera report as bonds payable?
B Braxton receives $101,500 and interest expense for Year One is recognized as $8,250 A. 8,000,000 C. 8,300,000
C Braxton receives $103,000 and interest expense for Year One is recognized as $5,250 B. 8,210,000 D. 8,450,000 Siy
D Braxton receives $103,000 and interest expense for Year One is recognized as $8,250
Proceeds, no bond issue costs
Issue of Bonds at a Premium in between Interest Dates 1-month after
Accrued Interest on Date of Issuance 79. If a $1,000, 9 percent, 10-year bond was issued at 103 plus accrued interest one month after
23. Fritzy Bubble Gum, Inc. issued P1,000,000 peso bonds, 12%, 20-year bonds at 102 plus the authorization date, how much cash did the issuer receive? (E)
accrued interest on February 1, 1992. The bonds are dated January 1, 1992 and pay interest A. $992.50 C. $1,030.00
semiannually every June 30 and December 31. The premium is to be amortized using the B. $1,007.50 D. $1,037.50 S, S & S
straight-line method over the period during which the bonds are outstanding. Bond issue costs
totaled P50,000. Accrued interest on bond issuance date is Proceeds, with bond issue costs
A. C. 2-months after
B. P10,000 D. RPCPA 0593 11. Alfred issued 9%, ten-year bonds dated January 1, 2010, with a face value of $100,000 at 102
plus accrued interest on March 1, 2010. Alfred amortizes premiums and discounts using the
Initial Carrying Amount straight-line method. Expenses connected with the issue totaled $5,000 and were deducted in
Quoted price given arriving at the net proceeds. The entry to record the issue would include a debit to Cash for
24. Fritzy Bubble Gum, Inc. issued P1,000,000 peso bonds, 12%, 20-year bonds at 102 plus A. $ 97,000 C. $102,000
accrued interest on February 1, 1992. The bonds are dated January 1, 1992 and pay interest B. $ 98,500 D. $103,500 NB&J 11e
semiannually every June 30 and December 31. The premium is to be amortized using the
straight-line method over the period during which the bonds are outstanding. Bond issue costs 12. On March 1, 2010, Cain Corp. issued at 103 plus accrued interest 200 of its 9%, $1,000
totaled P50,000. Carrying value of bonds on issuance date is (E) bonds. The bonds are dated January 1, 2010, and mature on January 1, 2020. Interest is
A. P1.02M C. payable semiannually on January 1 and July 1. Cain paid bond issue costs of $10,000. Cain
B. D. RPCPA 0593 should realize net cash receipts from the bond issuance of
A: $199,000 C: $209,000
Proceeds given B: $206,000 D: $216,000 AICPA 1190
38. On January 1, 2009, Stice Company issued 5,000 of its 12%, P1,000 face value bonds for
P5,600,000, including accrued interest. The bonds are dated October 1, 2008, mature on 18. On March 1, 1983, Melon Corp. issued at 103 plus accrued interest, one hundred of its 15%,
October 1, 2018 and pay interest annually on October 1. The bonds were issued through an P1,000 bonds. The bonds are dated January 1, 1983 and mature on January 1, 1993.
underwriter to whom Stice paid bond issue cost of P150,000. On January 1 2009, what Interest is payable semi-annually on January 1 and July 1. Melon paid bond issue costs of
RPCPA, AICPA, CMA & CIA Examination Questions Page 3 of 6
PRACTICAL ACCOUNTING – Part 1 Bonds Payable
P6,000. Proceeds, with bond issue costs
Melon would realize net cash receipts from the bond issuance of (M) 15. On March 1, 2003, Luuk Company issued 8,000 of its P1,000 face value bonds at 95 plus
A. P99,500 C. P105,500 accrued interest. Luuk Company paid bond issue cost of P500,000. The bonds were dated
B. P103,000 D. P109,500 RPCPA 1084 November 1, 2002, mature on November 1, 2012, and bear interest at 12% payable
semiannually on November 1 and May 1. What amount did Luuk receive from the bond
3-months after issuance? (E**)
13. On February 1, 2009, Artistry Company issued 5,000 of its P1,000 face value bonds at 110 A. 7,420,000 C. 7,920,000
plus accrued interest. Artistry Company paid bond issue cost of P200,000. The bonds were B. 7,600,000 D. 7,100,000 CPAR 4143
dated November 1, 2008, mature on November 1, 2018, and bear interest at 10% payable
semiannually on November 1 and May 1. What is the net amount received by Artistry from the 1. On March 1, 2011, Tiaong Company issued 10,000 of its P1,000 face value bonds at 95 plus
bond issuance? (M) accrued interest. Tiaong Company paid bond issue cost of P1,000,000. The bonds were
A. 5,300,000 C. 5,500,000 dated November 1, 2010, mature on November 1, 2020, and bear interest at 12% payable
B. 5,425,000 D. 5,625,000 Siy semiannually on November 1 and May 1. The net amount that Tiaong receive from the bond
issuance is
4-months after A. P8,500,000 C. P9,500,000
14. On March 1, 2012, Eavesdropper Company issued 5,000 of its P1,000 face value bonds at B. P8,900,000 D. P9,900,000 Cabarles
110 plus accrued interest. The entity paid bond issue cost of P300,000. The bonds were dated
November 1, 2011, mature on November 1, 2021, and bear interest at 12% payable AMORTIZATION TABLE
semiannually on May 1 and November 1. What net amount was received from the bond Nominal Interest Rate
issuance on March 1, 2012? (M) Issued at a premium
A. 5,200,000 C. 5,500,000 16. Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2003. They have a ten-
B. 5,400,000 D. 5,700,000 CPAR 1012 year term and pay interest semiannually. This is the partial bond amortization schedule for the
bonds.
10-months after Effective Decrease Outstanding
Issue of Bonds at a Discount in between Interest Dates Payment Cash Interest in Balance Balance
Initial carrying amount 11,487,747
40. On December 31, 2008, Trina Company issued at 98, five thousand of 10%, P1,000 face 1 400,000 344,632 55,368 11,432,379
value bond. The interest is payable semiannually on June 30 and December 31. The bonds 2 400,000 342,971 57,029 11,375,350
were issued through an underwriter to whom Trina paid bond issue cost of P200,000. On 3 400,000 341,261 58,739 11,316,611
December 31, 2008, Trina Company should report bond liability at (E) 4 400,000
A. 4,700,000 C. 5,000,000 What is the stated annual rate of interest on the bonds? (E)
B. 4,900,000 D. 5,100,000 Siy A. 3%. C. 6%.
B. 4%. D. 8%. S, S & T
35. Nazzi, Inc. sold $400,000 of its 9%, five-year bonds dated January 1, 2010, on May 1, 2010,
for $393,000 plus accrued interest. Interest is paid on January 1 and July 1 and straight-line
amortization is used. The net liability for the bonds after recording the sale would be (E)
A. $393,000 C. $407,700
B. $400,000 D. $408,000 NB&J 11e
RPCPA, AICPA, CMA & CIA Examination Questions Page 4 of 6
PRACTICAL ACCOUNTING – Part 1 Bonds Payable
Total Interest Expense semiannually on June 30 and December 31. What amount of accrued interest payable should
Issued at a Discount Beau report in its September 30, 2001 balance sheet? (M1*)
66. The total interest expense on a $200,000, 10 percent, 10-year bond issued at 95 would be (E) A. $9,000 C. $24,000
A. $190,000. C. $200,000. B. $18,000 D. $27,000 AICPA 1193
B. $195,000. D. $210,000. S, S & S
57. On November 1, 2012, Jevilyn Company issued P800,000 of its ten-year, 8% term bonds
65. The total interest expense on a $300,000, 10 percent, 10-year bond issued at 95 would be (D) dated October 1, 2012. The bonds were sold to yield 10%, with total proceeds of P700.000
A. $290,000. C. $300,000. plus accrued interest. Interest is paid every April 1 and October 1. What amount should be
B. $295,000. D. $315,000. S&S 18e reported for interest payable on December 31,2012? (M1*)
A. 10,667 C. 16,000
Interest Payable B. 11,667 D. 17,500 CPAR 1012
Issued on interest date
3 months outstanding 20. On November 1, 2003, Emmanuela Company issued P20,000,000 of its 10-year, 8% term
17. On December 31, 2010, Wall Corp. issued $100,000 maturity value, 10% bonds for $100,000 bonds dated October 1, 2003. The bonds were sold to yield 10%, with total proceeds of
cash. The bonds are dated December 31, 2010, and mature on December 31, 2020. Interest P18,000,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount
will be paid semiannually on June 30 and December 31. In Wall’s September 30, 2011 should Emmanuela report for interest payable in its December 31, 2003 balance sheet? (M1*)
balance sheet, the amount of accrued interest expense should be A. 360,000 C. 450,000
A: $ 2,500 C: $ 7,500 B. 400,000 D. 500,000 CPAR
B: $ 5,000 D: $10,000 AICPA 1189
21. On November 1, 2003, Mason Corp. issued $800,000 of its ten-year, 8% term bonds dated
18. On January 31, 2011, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The October 1, 2003. The bonds were sold to yield 10%, with total proceeds of $700,000 plus
bonds are dated December 31, 2010, and mature on December 31, 2020. Interest will be paid accrued interest. Interest is paid every April 1 and October 1. What amount should Mason
semiannually on June 30 and December 31. What amount of accrued interest payable should report for interest payable in its December 31, 2003 balance sheet? (M1*)
B report in its September 30, 2011, balance sheet? (M) A. $10,667 C. $16,000
A. $18,000. C. $48,000. B. $11,667 D. $17,500 AICPA 1192
B. $36,000. D. $54,000. S&S 6e
Interest Payment
31. On January 31, 1997, Margan Corp. issued P600,000 maturity value, 12% bond for P600,000 Bonds Issued at a Premium
cash. The bonds are dated December 31, 1996, and mature on December 31, 2006. Interest 11. Lindsey Corporation issued $800,000 of 12%, 20-year bonds at 110 on January 1, 1986. The
will be paid semi-annually on June 30 and December 31. What amount of accrued interest bonds pay interest on January 1 and July 1. Lindsey will use the straight-line amortization
payable should Margan report in its September 30, 1997 balance sheet? method. How much cash will the bondholders receive on July 1, 1986? (E)
A. P18,000 C. P40,000 A. $2,000 D. $48,000
B. P36,000 D. P54,000 RPCPA 0597 B. $42,000 E. $50,000
C. $46,000 Flamholtz & Diamond
Issued between interest dates
3 months outstanding Bonds Issued at a Discount
19. On January 31, 2001, Beau Corp. issued $300,000 maturity value, 12% bonds for $300,000 Annual payment
cash. The bonds are dated December 31, 2000 and mature in ten years. Interest will be paid 22. On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, that
RPCPA, AICPA, CMA & CIA Examination Questions Page 5 of 6
PRACTICAL ACCOUNTING – Part 1 Bonds Payable
mature in five years. The bonds were issued for $96,207 to yield 10%, resulting in a bond B. $1,900. D. $2,040. S&S 6e
discount of $3,793. Evangel uses the effective interest method of amortizing bond discount.
Interest on the bonds is payable annually on December 31. What is the amount of interest to
be paid at the end of the first year?
A. $8,659. C. $9,621.
B. $9,000. D. $10,000.
68. On January 1, 2006, Deily Corporation issued $500,000 of 10 percent, 10-year bonds at 88.5.
Interest is payable on December 31. If the market rate of interest was 12 percent at the time
the bonds were issued, how much cash was paid for interest in 2006? (E)
A. $44,250 C. $53,100
B. $50,000 D. $60,000 S, S & S
Semi-annual payment
7. On January 1, 1986 Mondray Corporation issued $900,000 of 14%, 12-year bonds at 96. The
bonds pay interest on January 1 and July 1. Mondray will use straight-line amortization. How
much cash will the bondholders receive on July 1, 1986? (E)
A. $1,500 D. $64,500
B. $61,500 E. $129,000
C. $63,000 Flamholtz & Diamond
23. Auerbach Inc. issued 4% bonds on October 1, 2011. The bonds have a maturity date of
September 30, 2021 and a face value of $300 million. The bonds pay interest each March 31
and September 30, beginning March 31, 2012. The effective interest rate established by the
market was 6%. How much cash interest does Auerbach pay on March 31, 2012? (M)
A. $6.0 million C. $12.0 million
B. $9.0 million D. $18.0 million S&S 6e
STRAIGHT-LINE METHOD OF AMORTIZATION
Interest expense, without bond issue cost
Bonds Issued at a Premium
First three months
24. Cramer Company sold 5-year, 8% bonds on October 1, 2011. The face amount of the bonds
was $100,000, while the issue price was $102,000. Interest is payable on April 1 of each year.
The fiscal year of Cramer Company ends on December 31. How much interest expense will
Cramer Company report in its December 31, 2011, income statement (assume straight-line
amortization)? (E)
A. $1,778. C. $2,000.
RPCPA, AICPA, CMA & CIA Examination Questions Page 6 of 6