Name  

Date  

Quiz 3-LT Liabilities(TT) Score  

1. ABC Company sold $2,000,000, 12%, 20-year bonds on Jan 1, 2018. The bonds were dated
Janua y 1, 2018, and pay interest on Janua y 1 and July 1. ABC Company uses the straight-
line method to amo tize bond premium or discount. The bonds were sold at 104. Assume no
interest is acc ued on June 30 or Dec 31. The accounts are adjusted and closed on
September 30. The jou nal ent y passed to record issuance of bonds on Janua y 1, 2018,
will be:
A Cash 2,080,000
Bonds Payable 2,080,000

B Cash 2,080,000
Bonds Payable 2,000,000
Premium on Bonds 80,000

C Cash 2,080,000
Bonds Payable 2,000,000
Gain on Sale of Bonds 80,000

D Cash 2,000,000
Premium on Bonds 80,000
Bonds Payable 2,080,000

2. ABC Company sold $2,000,000, 12%, 20-year bonds on Jan 1, 2018. The bonds were dated
Janua y 1, 2018, and pay interest on Janua y 1 and July 1. ABC Company uses the straight-
line method to amo tize bond premium or discount. The bonds were sold at 104. Assume no
interest is acc ued on June 30 or Dec 31. The accounts are adjusted and closed on
September 30. The jou nal ent y passed to record payment of interest on July 1, 2018, will be:
A Bond Interest Expense 120,000
Cash 12% of 4,000,00/2 120,000

B Bond Interest Expense 124,800

Cash(12% of 2,080,000/2 124,800

C Bond Interest Expense 118,000

Premium on Bonds 2,000
Cash(6% interest on par only) 120,000

D Bond Interest Expense 120,000

Premium on Bonds 2,000
Cash(6% interest + premium) 122,000
3. ABC Company sold $2,000,000, 12%, 20-year bonds on Jan 1, 2018. The bonds were dated
Janua y 1, 2018, and pay interest on Janua y 1 and July 1. ABC Company uses the straight-
line method to amo tize bond premium or discount. The bonds were sold at 104. Assume no
interest is acc ued on June 30 or Dec 31. The accounts are adjusted and closed on
September 30. The jou nal ent y passed on September 30, 2018, will be:
A Bond Interest Expense 124,800
Premium on Bonds 4,800
Cash 120,000

B All the other three options are inco rect

C Bond Interest Expense 120,000

Bond Interest Payable 120,000
D Bond Interest Expense 60,000
Premium on Bonds 1,000
Bond Interest Payable 61,000

4. ABC Company sold $2,000,000, 12%, 20-year bonds on Jan 1, 2018. The bonds were dated
Janua y 1, 2018, and pay interest on Janua y 1 and July 1. ABC Company uses the straight-
line method to amo tize bond premium or discount. The bonds were sold at 104. Assume no
interest is acc ued on June 30 or Dec 31. The accounts are adjusted and closed on
September 30. The jou nal ent y passed on Janua y 1, 2019, will be:
A Bond Interest Payable 60,000
Bond Interest Expense 59,000
Premium on Bonds 1,000
Cash 120,000

B Bond Interest Expense 120,000

Cash 120,000

C Bond Interest Expense 60,000

Bond Interest Payable 60,000
Premium on Bonds 2,000
Cash 122,000

D Bond Interest Expense 120,000

Premium on Bonds 2,000
Cash 122,000

5. Mile Hi Corporation issues 10-year bonds with a matu ity value of $200,000. If the bonds are
issued at 104, this indicates that:       
A the contractual interest rate on the bonds exceeds the market interest rate of similar types of
bonds.

B the market interest rate on similar types of bonds exceeds the contractual interest rate.

C Mile Hi Corporation is financially ve y strong.

D the market p ice of the bond will increase in the future.

6. On Janua y 1, Mile Hi Corporation issues $500,000, 5-year, 12% bonds at 96 with interest
payable on July 1 and Janua y 1. What is the ca ying value of the bonds at the end of the
first year?
A $484,000.

B $488,000.

C $472,000.

D $496,000.

7. On Janua y 1, Mile Hi Corporation issues $500,000, 5-year, 12% bonds at 96 with interest
payable on July 1 and Janua y 1. What will be the ca ying value of the bonds at the time of
matu ity if similar types of bonds are offe ing an interest rate of 9% at that time?
A It will be more than the par value.

B It will be less than the par value.

C It will be equal to the par value.

D it will depend on the value of similar bonds available in the market, so it cannot be predicted at
the time of issuance.

8. Sky Hi Corporation issues a $497,000, 10% 3-year mo tgage note on Janua y 1. The note will
be paid in three annual installments of $200,000, each payable at the end of the year. What is
the amount of interest expense that should be recognized by the Corporation in the second
year?
A $16,567.

B $49,700.

C $34,670.

D All the other three options are inco rect

9. The te m used for bonds that are unsecured is:

A callable bonds.

B junk bonds.

C debenture bonds.

D bearer bonds.