learning objective 11 3 questions 1 bond discounts are amortized by taking the diffe 4306206

learning objective 11 3 questions 1 bond discounts are amortized by taking the diffe 4306206

Learning Objective 11.3 Questions

1) Bond discounts are amortized by taking the difference between the

A) interest based on the effective interest rate and the interest based on the coupon interest rate.

B) interest based on the nominal interest rate and the interest based on the coupon interest rate.

C) interest based on the stated rate of interest and the interest based on the coupon interest rate.

D) interest based on the effective interest rate and the interest based on the market rate of interest.

E) interest based on the nominal interest rate and the interest based on the stated rate of interest.

2) If bonds are purchased at less than face value, then the amortization of the discount ________ the interest revenue of the investors.

A) increases

B) decreases

C) does not change

D) increases or decreases depending on the current market rate

E) Cannot be determined without more information

3) If bonds are purchased at more than face value, then the amortization of the premium ________ the interest revenue of the investors.

A) increases or decreases depending on the current market rate

B) increases

C) decreases

D) does not change

E) Cannot be determined without more information

4) On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment, 20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10% coupon rate, and pay interest semi-annually every June 30 and December 31. What is the journal entry to be made by Soothing Massage Company on January 1, 2X13, if the bonds were purchased at a price to yield 12%?

A) Investment in Bonds 9,543.40

Cash 9,543.40

B) Investment in Bonds 11,037.28

Cash 11,037.28

C) Investment in Bonds 17,705.90

Cash 17,705.90

D) Investment in Bonds 20,000.00

Cash 20,000.00

E) Investment in Bonds 22,492.64

Cash 22,492.64

5) On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment, 20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10% coupon rate, and pay interest semi-annually every June 30 and December 31. What is the journal entry to be made by Soothing Massage Company on January 1, 2X13, if the bonds were purchased at a price to yield 8%?

A) Investment in Bonds 14,108.10

Cash 14,108.10

B) Investment in Bonds 17,507.76

Cash 17,507.76

C) Investment in Bonds 20,000.00

Cash 20,000.00

D) Investment in Bonds 22,718.30

Cash 22,718.30

E) Investment in Bonds 25,912.90

Cash 25,912.90

6) On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment, 20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10% coupon rate, and pay interest semi-annually every June 30 and December 31. If the bonds were purchased by Soothing Massage Company to yield 12% and were acquired for $17,705.90, what is the journal entry to be made by Soothing Massage Company with respect to interest on June 30, 2X13?

A) Cash 1,000.00

Investment in Bonds 62.35

Interest Revenue 1,062.35

B) Cash 1,000.00

Investment in Bonds 1,200.00

Interest Revenue 2,200.00

C) Cash 1,200.00

Investment in Bonds 137.65

Interest Revenue 1,062.35

D) Cash 1,200.00

Investment in Bonds 200.00

Interest Revenue 1,000.00

E) Cash 2,000.00

Investment in Bonds 124.71

Interest Revenue 2,124.71

7) On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment, 20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10% coupon rate, and pay interest semi-annually every June 30 and December 31. If the bonds were purchased by Soothing Massage Company to yield 12%, and were acquired for $17,705.90, what is the interest revenue to be recognized by Soothing Massage Company with respect to the interest to be received on December 31, 2X13?

A) $1,200.00

B) $1,062.35

C) $1,066.10

D) $1,000.00

E) $2,124.71

8) On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment, 20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10% coupon rate, and pay interest semi-annually every June 30 and December 31. If the bonds were purchased by Soothing Massage Company to yield 8%, and were acquired for $22,718.30, what is the journal entry to be made by Soothing Massage Company with respect to interest on June 30, 2X13?

A) Cash 800.00

Investment in Bonds 200.00

Interest Revenue 1,000.00

B) Cash 800.00

Investment in Bonds 335.92

Interest Revenue 1,135.92

C) Cash 1,000.00

Investment in Bonds 91.27

Interest Revenue 908.73

D) Cash 1,000.00

Investment in Bonds 200.00

Interest Revenue 800.00

E) Cash 2,000.00

Investment in Bonds 182.54

Interest Revenue 1,817.46

9) On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment, 20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10% coupon rate, and pay interest semi-annually every June 30 and December 31. If the bonds were purchased by Soothing Massage Company to yield 8% and were acquired for $22,718.30, what is the interest revenue to be recognized by Soothing Massage Company with respect to interest on December 31, 2X13?

A) $1,817.46

B) $905.08

C) $908.73

D) $1,000.00

E) $800.00

10) On January 1, 2X13, Soothing Massage Company acquired, as a long-term investment, 20 bonds with a face value of $1,000 each. The bonds have a 10-year life, a 10% coupon rate, and pay interest semi-annually every June 30 and December 31. If the bonds were purchased by Soothing Massage Company to yield 12% and were acquired for $17,705.90, what journal entry would Soothing Massage Company make on June 30, 2X13, if the company sold the bonds for $18,000.00? Assume the bonds were sold after Soothing Massage Company properly recorded the receipt of the June 30, 2X13, interest payment.

A) Cash 18,000.00

Loss on Disposal of Bonds 2,000.00

Investment in Bonds 20,000.00

B) Cash 18,000.00

Loss on Disposal of Bonds 905.90

Investment in Bonds 18,905.90

C) Cash 18,000.00

Gain on Disposal of Bonds 94.10

Investment in Bonds 17,905.90

D) Cash 18,000.00

Gain on Disposal of Bonds 231.75

Investment in Bonds 17,768.25

E) Cash 18,000.00

Gain on Disposal of Bonds 294.10

Investment in Bonds 17,705.90

11) If a company calls a bond early and the carrying value of the bond is less than the cash received by the investor for the bond, the difference for the issuing company

A) decreases bonds payable.

B) increases bonds payable.

C) is not recognized.

D) is a gain.

E) is a loss.

12) The investor will debit Investment in Bonds when the premium on a held-to-maturity security is amortized.

13) Although the issuer of bonds typically keeps a separate account for unamortized discounts and premiums, investors do not.

14) If an investor acquires a 10% long-term bond at a price that yields the investor 12%, interest revenue will decrease over the life of the bond.

15) The investor will increase Interest Revenue when the discount on a held-to-maturity security is amortized.

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