Accounting Homework

CPA Questions - Show work or discuss results.

1. The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest

A. Less the present value of all future interest payments at the rate of interest stated on the bond.

B. Plus the present value of all future interest payments at the rate of interest stated on the bond.

C. Plus the present value of all future interest payments at the market (effective) rate of interest.

D. Less the present value of all future interest payments at the market (effective) rate of interest.

4. The following information pertains to Camp Corp’s issuance of bonds on July 1, 2013:

Face amount $800,000

Terms 10 years

Stated interest rate 6%

Interest payment dates annually on July 1

Yield 9%

At 6% At 9%

Present value of $1 for 10 periods 0.558 0.422

Future value of $1 for 10 periods 1.791 2.367

Present value of ordinary annuity

Of $1 for 10 periods 7.360 6.418

What should be the issue price of each $1,000 bond?

A. $700

B. $807

C. $864

D. $1,000

5. For a bond issue that sells for less than its face value, the market rate of interest is

A. Higher than the rate stated on the bond.

B. Dependent on the rate stated on the bond.

C. Equal to the rate stated on the bond.

D. Less than the rate stated on the bond.

7. On January 1, 2008, Fox Corp. issued 1,000 of its 10%, $1,000 bonds for $1,040,000. These bonds were to mature on January 1, 2018, but were callable at 101 any time after December 31, 2011. Interest was payable semiannually on July 1 and January 1. On July 1, 2013, Fox called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Fox’s gain or loss in 2013 on this early extinguishment of debt was

A. $8,000 gain

B. $10,000 loss

C. $ 12,000 gain

D. $ 30,000 gain

8. On April 30, 2013, Witt Corp had outstanding 8%, $1,000,000 face amount, convertible bonds maturing on April 30, 2021. Interest is payable on April 30 and October 31. On April 30, 2013, all these bonds were converted into 40,000 shares of $20 par common stock. On the date of conversion:

*Unamortized bond discount was $30,000

*Each bond had a market price of $1,080

*Each share of stock had a market price of $28

Using the book value method, how much of a gain or loss should be recognized?

A. $0

B. $150,000

C. $110,000

D. $30,000

10. Ray Corp issued bonds with face amount of $200,000. Each $1,000 bond contained detachable stock warrants for 100 shares of Ray’s common stock. Total proceeds from the issue amounted to $240,000. The market value of each warrant was $2, and the market value of the bonds without the warrants was $196,000. The bonds were issued at a discount of (rounding the allocation percentage to two decimal places):

A. $0

B. $800

C. $4,000

D. $33,898

CMA Questions 1, 2, and 3. Show work or discuss results.

Question 1 and 2 are based on the following information. On January 1, Mathew Company issued 7% term bonds with a face amount of $1,000,000 due in 8 years. Interest is payable semiannually on January 1 and July 1. On the date of issue, investors were willing to accept an effective interest rate of 6%.

1. The bonds were issued on January 1 at

A. A premium

B. An amortized value

C. Book value

D. A discount

2. Assume the bonds were issued on January 1 for $1,062,809. Using the effective interest amortization method, Mathew Company recorded interest expense for the 6 months ended June 30 in the amount of

A. $35,000

B. $70,000

C. $63,769

D. $31,884

3. A bond issue sold at a premium is valued on the statement of financial position at the

A. Maturity value

B. Maturity value plus the unamortized portion of the premium

C. Cost at the date of investment

D. Maturity value less the unamortized portion of the premium

14 – 1. On January 1, 2013, Instaform, Inc. issued 10% bonds with a face amount of $50 million, dated January 1. The bonds mature in 2032 (20 years). The market yield for the bonds of similar risk and maturity is 12%. Interest is paid semiannually.

Required:

1. Determine the price of the bonds at January 1, 2013, and prepare the journal entry to record their issuance by Instaform.

2. Assume the market rate was 9%. Determine the price of the bonds at January 1, 2013, and prepare the journal entry to record their issuance by Instaform.

14 – 3. On January 1, 2013, Bradley Recreation Products issued $100,000, 9%, four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at $96,768 to yield an annual return on 10%.

Required:

1. Prepare an amortization schedule that determines interest at the effective interest rate.

14 – 31. At January 1, 2013, Transit Developments owed First City Bank Group $600,000 under an 11% note with three years remaining to maturity. Due to financial difficulties, Transit was unable to pay the previous year’s interest. First City Bank Group agreed to settle Transit’s debt in exchange for land having a fair value of $450,000. Transit purchased the land in 2009 for $325,000.

Required:

1. Prepare the journal entry(s) to record the reconstructing of the debt by Transit Developments.