Q1: For each of the following independent situations, circle the letter representing the best answer.

1) On January 1, 2017, Cote Limited issues a $27,232, 5% 3-year note payable. The note calls for three annual payments of $10,000, blended principal and interest. The first payment is to be made on December 31, 2017. On December 31, 2018, Cote will report interest expense of a) $1,000. b) $1,362. c) $930. d) $10,000

2) The contractual rate of interest is always stated as a(n) a) monthly rate. b) daily rate. c) semi-annual rate.

d) annual rate.

3) Bonds Coupon Bombardier 7.350 The contractual interest rate of the Bombardier bonds is a) less than the market rate of interest. b) greater than the market rate of interest. c) equal to the market rate of interest. d) not determinable.

4) Bonds Coupon Maturity Date Bid $ Yield % Bombardier 7.350 Dec. 22/26 103.12 6.35 On the day of trading referred to above, a) the bond will mature on Dec. 22 or Dec. 26.

b) bonds with market prices of $7.35 were traded. c) the bond is selling for 103.12% of face value. d) the bond sold for $6.35.

5) . If the market rate of interest is greater than the contractual rate of interest, bonds will sell a) at a premium. b) at face value.

c) at a discount. d) only after the stated rate of interest is increased.

Maturity Date Dec. 22/26

Bid $ 103.12

Yield % 6.35

1

6) $5 million, 5%, 10-year bonds are issued at face value. Interest will be paid semi- annually. When calculating the market price of the bond, the present value of a) $500,000 received for 10 periods must be calculated. b) $5 million received in 10 periods must be calculated.

c) $5 million received in 20 periods must be calculated. d) $250,000 received for 10 periods must be calculated.

7) Torrez Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2017, at 97. The journal entry to record the issue will show a a) debit to Cash for $1,000,000. b) credit to Discount on Bonds Payable for $30,000.

c) credit to Bonds Payable for $1,000,000. d) debit to Cash for $970,000.

8) On January 1, 2017, $1,000,000, 5-year, 5% bonds, were issued for $957,349. The interest rate in effect when the bonds were issued was 6%. Interest is paid semi- annually on January 1 and July 1. What would be the amount of discount amortized on January 1, 2018?

a) $2,000 b) $4,700 c) $3,832 d) $7,710

9) A corporation issued $200,000, 10%, 5-year bonds on January 1, 2017 for $216,222 which reflects an effective-interest rate of 8%. Interest is paid semi-annually on January 1 and July 1. The amount of bond interest expense to be recognized on July 1, 2017, is a) $10,000.

b) $8,000. c) $10,811. d) $8,649.

10) A $300,000 bond was retired at 98 when the amortized cost of the bond was $296,000. The entry to record the retirement would include a a) gain on bond redemption of $4,000. b) loss on bond redemption of $2,000.

c) loss on bond redemption of $4,000. d) gain on bond redemption of $2,000.

11) Which of the following is not a principal characteristic of the partnership form of business organization? a) mutual agency b) association of individuals

c) limited liability d) limited life

12) Piccard is investing in a partnership with Borg. Piccard contributes equipment that originally cost $ 21,000, has a carrying amount of $ 14,000, and a fair value of $ 16,000. The entry that the partnership makes to record Piccards initial contribution includes a a) debit to Equipment for $ 14,000.

b) debit to Equipment for $ 21,000. c) debit to Equipment for $ 16,000. d) credit to Accumulated Depreciation for $ 7,000.

13) Jody Johnson and Ben Bear formed a partnership on September 1. Jody contributed cash of $ 100,000 and furniture with a cost of $ 50,000 and fair value of $ 28,000. Ben contributed cash of $ 70,000 and equipment with a cost of $ 75,000 and a fair value of $ 50,000. The appropriate amount to be credited to each partners capital account on September 1 is

a) J. Johnson, Capital = $ 128,000; B. Bear, Capital = $ 120,000. b) J. Johnson, Capital = $ 150,000; B. Bear, Capital = $ 145,000. c) J. Johnson, Capital = $ 150,000; B. Bear, Capital = $ 120,000. d) J. Johnson, Capital = $ 128,000; B. Bear, Capital = $ 145,000.

14) The Peppa and Duggy partnership agreement stipulates that profits and losses will be shared equally after salary allowances of $ 80,000 for Peppa and $ 40,000 for Duggy. At the beginning of the year, Peppa's capital account had a balance of $ 80,000, while Duggy's capital account had a balance of $ 70,000. Profit for the year was $ 100,000. The balance of Duggy's capital account at the end of the year after closing is

a) $ 70,000. b) $ 40,000. c) $ 120,000. d) $ 100,000.

15) Frodo and Merry share partnership profits and losses in the ratio of 6:4. Frodo's capital account balance is $ 80,000 and Merrys capital account balance is $ 50,000. Pippen is admitted to the partnership by investing $ 90,000 and is to receive a 25% ownership interest. Frodo, Merry, and Pippen's capital balances after Pippen's investment will be

Frodo Merry Pippen

a) $ 80,000 b) $ 101,000 c) $ 99,000 d) $ 97,500

$ 50,000 $ 64,000 $ 66,000 $ 67,500

$ 90,000. $ 55,000. $ 55,000. $ 55,000.

Q2: On June 30, 2017, Layton, Inc. sold $1,200,000 (face value) of bonds. The bonds are dated June 30, 2017, pay interest semi-annually on December 31 and June 30, and will mature on June 30, 2020. The following schedule was prepared by the accountant for 2017:

Semi-annual Interest Period

Dec 31, 2017

Instructions

Interest to Interest be Paid Expense

$36,000 $45,484

Amortization $9,484

Unamortized Amount $62,906 53,422

Bond Amortized cost $1,137,094 1,146,578

On the basis of the above information, answer the following questions. (Round your answer to the nearest dollar or percent.)

a) What is the contractual rate of interest for this bond issue? (1 mark)

b) What is the market rate of interest for this bond issue? (1 mark)

c) Prepare the journal entry to record the sale of the bond issue on June 30, 2017.

(1 mark)

d) Prepare the journal entry to record the payment of interest and amortization on December 31, 2017 (2 marks)