Multiple Choice

1. Bonds that may be exchanged for common stock at the option of the bondholders are called

a. options.

b. stock bonds.

c. convertible bonds.

d. callable bonds.

2. Ramano Company issued OMR1,000,000 of 10%, 10-year bonds at 96. Assuming straight-line

amortization and annual interest payments, how much bond interest expense is recorded on the next

interest date?

a. OMR100,000

b. OMR104,000

c. OMR96,000

d. OMR102,000

3. Ramano Company issued OMR1,000,000 of 10%, 10-year bonds at 102. Assuming straight-line

amortization and annual interest payments, how much bond interest expense is recorded on the next

interest date?

a. OMR100,000

b. OMR102,000

c. OMR98,000

d. OMR104,000

4. The contractual interest rate on a bond is often referred to as the

a. callable rate.

b. the maturity rate.

c. market rate.

d. stated rate.

5. If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at

a. a premium.

b. a discount.

c. par.

d. either a discount or premium.

6. On January 1, 20X1, OMR3,000,000, 10-year, 10% bonds, were issued for OMR2,910,000. Interest is paid

annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on

bonds payable, the annual amortization amount is

a. OMR29,100.

b. OMR9,000.

c. OMR2,424.

d. OMR750.

7. Bonds with a face value of OMR500,000 and a quoted price of 97 have a selling price of

a. OMR486,250.

b. OMR485,125.

c. OMR485,013.

d. OMR487,500.

8. Bonds with a face value of OMR500,000 and a quoted price of 102 have a selling price of

a. OMR601,125.

b. OMR510,125.

c. OMR510,013.

d. OMR511,250

12. Gomez Corporation issues 900, 10-year, 8%, OMR1,000 bonds dated January 1, 2017, at 96. The journal

entry to record the issuance will show a

a. debit to Cash of OMR900,000.

b. credit to Discount on Bonds Payable for OMR36,000.

c. credit to Bonds Payable for OMR864,000.

d. debit to Cash for OMR864,000.

13. Five thousand bonds with a face value of OMR1,000 each, are sold at 102. The entry to record the issuance

is

a. Cash .................................................................................5,100,000

Bonds Payable ......................................................................... 5,100,000

b. Cash .................................................................................5,000,000

Premium on Bonds Payable ....................................................100,000

Bonds Payable ......................................................................... 5,100,000

c. Cash .................................................................................5,100,000

Premium on Bonds Payable .................................................... 100,000

Bonds Payable ......................................................................... 5,000,000

d. Cash .................................................................................5,100,000

Discount on Bonds Payable..................................................... 100,000

Bonds Payable ......................................................................... 5,000,000

3. On January 1, 20X1, Hannigan Company issued bonds with a face value of OMR600,000. The bonds carry a stated interest of 7% payable each January 1.

(a) Prepare the journal entry for the issuance assuming the bonds are issued at 97.

(b) Prepare the journal entry for the issuance assuming the bonds are issued at 102. 4. On March 1, Cooper Company borrows OMR80,000

5. Renfro Company issued OMR300,000 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. 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 OMR600,000, 5%, 5-year bonds dated January 1, 20X1, at 95. The bonds pay annual interest on January 1. The company uses the straight-line method of amortization and has a calendar year end.

Prepare all the journal entries that Powell Corporation would make related to this bond issue through

January 1, 20X2 (including g December 31, 20X1). Be sure to indicate the date on which the entries would be made.