Penn Foster 06101101 Financial Accounting (Part 10) Questions 1ֲ0: Select the one best answer to each question. Base your answers to questions 1ֳ on the following information: On February 1 2004 the Foose Corporation issued $300 000 worth of bonds; the bonds were dated February 1 2004 and they sold for $303 600. Maturity date for this issue is February 1 2024. Interest is to be paid semiannually on July 31 and January 31. The interest rate is 6% and interest coupons are to be used. REQUIRED: Using the form provided at the back of this unit prepare journal entries to record the bond issuance and the interest accrual on July 31. Then answer questions 1ֳ. DO NOT send the journal form to us. 1. The journal entry to record the bond issue is A. Cash 303 600 Bonds Payable 303 600 B. Cash 303 600 Bonds Payable 300 000 Premium on Bonds Payable 3 600 C. Bonds Payable 303 600 Cash 300 000 Premium on Bonds Payable 3 600 D. Cash 300 000 Bonds Payable 300 000 2. What is the amortization of the bond premium from February 1 to July 31? (Assume that straight-line amortization is used.) A. $15 B. $60 C. $90 D. $150 3. The entry to record the accrued interest on July 31 2004 would be A. Bond Interest Expense 9 000 Bond Interest Payable 9 000 B. Bond Interest Payable 9 000 Bond Interest Expense 9 000 C. Bond Interest Expense 6 000 Bond Interest Payable 6 000 D. Bond Interest Payable 6 000 Bond Interest Expense 6 000 Base your answers to questions 4ַ on the following information: The XYZ Company issued the following bonds: Face Value of Bonds Interest Rate on Bonds % Issuance Price Time from Issuance Date to Maturity Date Bond A 800 000 6% 102 20 years Bond B 800 000 5% 97 20 years REQUIRED: Using the form provided at the back of this unit determine the total cost to borrow and the amount of interest expense which should be reported annually for Bond A and Bond B. Then answer questions 4ַ. DO NOT send the work form to us. 4. The annual reported interest expense for Bond A is A. $40 000. B. $41 200. C. $47 200. D. $88 400. 5. For Bond B the annual reported interest expense is A. $40 000. B. $41 200. C. $47 200. D. $88 400. 6. The total cost to borrow for Bond A amounts to A. $800 000. B. $816 000. C. $824 000. D. $944 000. 7. For Bond B the total cost to borrow is A. $824 000. B. $816 000. C. $800 000. D. $776 000. Base your answers to questions 8ֱ0 on the following information: MAHONEY CORPORATION Post-Closing Trial Balance As of December 31 20X0 Cash 30 800 Union Bankash Reserved for Bond Interest Payment 2/1/20X1 1 400 Sinking Fund Cash 1 000 Notes Receivable 18 200 Equipment 180 000 Inventory 50 000 Land 40 000 Sinking Fund Securities 12 000 Discount on Mortgage Bonds Payable 2 000 Investment،ong-Term 30 000 Accumulated Depreciation 40 000 Bond Interest Payable 1 400 Premium on Debenture Bonds Payable 1 000 Salaries Payable 18 000 First Mortgage Bond Payable 80 000 Payroll Taxes Payable 8 000 Capital Stock 76 000 Debenture Bonds Payable 50 000 Accounts Payable 42 000 Retained Earnings 49 000 365 400 365 400 The amount of retained earnings $49 000 should be included as part of the StockholdersҠEquity section. REQUIRED: Using the method illustrated in Figure 6 of your text prepare a balance sheet as of December 31 20X0 on the forms provided at the back of this unit. Then answer questions 8ֱ0. DO NOT send the work forms to us. 8. The total current liabilities for the Mahoney Corporation are A. $51 000. B. $68 000. C. $69 400. D. $78 000. 9. In which section of the balance sheet should the accumulated depreciation account be shown? A. Current asset B. Plant or fixed asset C. Current liability D. Deferred charge 10. The Sinking Fund Cash account is properly classified as a A. current asset. B. plant asset. C. current liability. D. long-term investment. Base your answer to question 11 on the following information: The Skies Company reported net income of $58 200 for the year ended December 31 20X0. An analysis of the firmӳ books and related records disclosed that certain adjustments were not made at year end; therefore reported net income was incorrect. The following errors and omissions were made. a. Accrued interest earned on investments amounted to $205 but the amount wasnӴ recorded. b. Depreciation of $370 on machinery wasnӴ recorded. c. Rent revenue of $220 was received in advance and credited to the Rent Revenue account. d. Semiannual bond payable interest of $1 820 was paid but the amount wasnӴ recorded. e. The unexpired insurance premium at year end totaled $440. The total insurance premium was debited to the Insurance Expense account during the year. f. Office supplies expense for the year amounted to $690. The firm debits an asset account whenever office supplies are purchased. The entry for supplies used must be made at year end. REQUIRED: Prepare a statement for the year ended December 31 20X0 to show the corrected net income taking into account the adjustments listed. Use the form at the back of this unit. Then answer question 11. DO NOT send your work form to us. 11. The corrected net income for the year after adjustments would be A. $55 525. B. $55 745. C. $57 140. D. $57 345. Base your answer to question 12 on the following information: The account balances for the Sterling Company are as follows: a. Marketable Securities $100 000 b. Bonds Payable due 1/1/20X8 525 000 c. Cash 100 000 d. Equipment 350 000 e. Mortgage Payable due 7/1/20X9 750 000 f. Accumulated Depreciationuilding 200 000 g. Copyright 75 000 h. Capital 800 000 i. Accounts Payable 500 000 j. Accumulated Depreciationquipment 100 000 k. Land 200 000 l. Merchandise Inventory 375 000 m. Note Payable due 6/1/20X2 250 000 n. Building 1 000 000 o. Accounts Receivable 925 000 REQUIRED: Using the given account balances prepare a balance sheet for the Sterling Company as of December 31 20X1. A work form is provided at the back of this unit. Be sure all accounts are classified properly and then answer question 12. DO NOT send your work form to us. 12. The current ratio for the Sterling Company is A. 1.5 to 1. B. 2.0 to 1. C. 2.3 to 1. D. 3.0 to 1. 13. GM Company bonds paying 10% interest are sold at 105. What can you assume about the going rate of interest for bonds similar to GMӳ at the time that the GM bonds were issued? A. The going rate of interest was lower than the stated rate of interest on the bonds. B. The going rate of interest was equal to the stated rate of interest on the bonds. C. The going rate of interest was higher than the stated rate of interest on the bonds. D. CanӴ tell without more information. 14. Bonds with a face value of $100 000 and bearing interest at 4% are sold on July 1 at 98 plus accrued interest. The bonds are dated April 1. Semiannual interest is due on October 1 and April 1. The selling price of the bonds is A. $98 000. B. $99 000. C. $100 000. D. $102 000. 15. A companyӳ financial statements for one period can more accurately be compared with those of another period when the accounting principles are A. conservative. B. objective. C. consistent. D. material. 16. The costs of purchasing wastebaskets for the office should not be reported as an asset because of A. going concern restrictions. B. lack of substantiating objective evidence. C. materiality. D. conservatism. 17. Chemical Bank decides to issue $100 000 of 10-year bonds with a stated interest rate of 10% compounded semiannually. The market rate for similar bonds is 8% compounded semiannually. What should the bonds be sold for (to the nearest dollar)? (Refer to present value Tables 1 and 2.) A. $100 000 B. $102 000 C. $108 961 D. $113 592 18. On January 1 Theismann Inc. a football manufacturer issues $100 000 of its authorized bonds at 98. The bonds mature in 10 years and contain a call price provision at 105 effective three years after issuance. At the end of three years Theismann calls the bonds at the call price of 105. The gain or loss on retirement of the bonds is A. $1 400 gain. B. $1 400 loss. C. $6 400 gain. D. $6 400 loss. Base your answers to questions 19ֲ0 on the following information: On 31 March 20X1 John Moresky purchased seven 20-year $1 000 Unocal bonds which pay 8% interest on January 1 and July 1. In addition to the accrued interest Moresky paid a $750 premium for the bonds. 19. Moreskyӳ total outlay for the purchase of the Unocal bonds was A. $6 250. B. $7 750. C. $7 890. D. $8 030. 20. What is the total amount of the premium amortized in each six-month period? (Assume that straight-line depreciation is used.) A. $18.75 B. $19.50 C. $37.50 D. $75
