On January 1 of Year 1, Congo Express Airways issued $2,500,000 of 5% bonds that pay interest semiannually on January 1 and July 1.

On January 1 of Year 1, Congo Express Airways issued $2,500,000 of 5% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $2,260,000 and the market rate of interest for similar bonds is 6%. The bond premium or discount is being amortized at a rate of $8,000 every six months. The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:

Multiple Choice

  • $150,000.
  • $109,000.
  • $141,000.
  • $70,500.
  • $125,000.

A company issued 9.0%, 5-year bonds with a par value of $260,000. The market rate when the bonds were issued was 10.0%. The company received $249,961.74 cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is:

Multiple Choice

  • $11,700.00.
  • $12,537.99.
  • $12,498.09.
  • $23,400.00.
  • $25,036.08.

A corporation issued 8% bonds with a par value of $1,190,000, receiving a $58,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is:

Multiple Choice

  • $0.
  • $11,900 gain.
  • $11,900 loss.
  • $46,700 gain.
  • $46,700 loss.

Adonis Corporation issued 10-year, 7% bonds with a par value of $160,000. Interest is paid semiannually. The market rate on the issue date was 6%. Adonis received $171,906 in cash proceeds. Which of the following statements is true?

Multiple Choice

  • Adonis must pay $160,000 at maturity and no interest payments.
  • Adonis must pay $171,906 at maturity and no interest payments.
  • Adonis must pay $160,000 at maturity plus 20 interest payments of $5,600 each.
  • Adonis must pay $171,906 at maturity plus 20 interest payments of $5,600 each.
  • Adonis must pay $160,000 at maturity plus 20 interest payments of $4,800 each.

On January 1, a company issued and sold a $399,000, 9%, 10-year bond payable, and received proceeds of $394,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is:

Multiple Choice

  • Debit Bond Interest Expense $17,955; debit Discount on Bonds Payable $250; credit Cash $18,205.
  • Debit Bond Interest Expense $17,955; credit Cash $17,955.
  • Debit Bond Interest Expense $35,910; credit Cash $35,910.
  • Debit Bond Interest Expense $18,205; credit Cash $17,955; credit Discount on Bonds Payable $250.
  • Debit Bond Interest Expense $17,705; debit Discount on Bonds Payable $250; credit Cash $17,955.

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