QUESTION 1

On January 1, 2013, an investor paid $291,000 for bonds with a face amount of $300,000. The stated rate of interest is 8% while the current market rate of interest is 10%. Using the effective interest method, how much interest income is recognized by the investor in 2013 (assume annual interest payments and amortization)? 

$23,280.

$29,100.

$24,000.

$30,000.
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QUESTION 2

Eagle Company issued 10-year bonds at 96 during the current year. In the year-end financial statements, the discount should be:

Reported as an intangible asset.

Included in revenue for the year of sale.

Deducted from bonds payable.

Added to bonds payable.
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QUESTION 3

Cramer Company sold five-year, 8% bonds on October 1, 2013. The face amount of the bonds was $100,000, while the issue price was $102,000. Interest is payable on April 1 of each year. The fiscal year of Cramer Company ends on December 31. How much interest expense will Cramer Company report in its December 31, 2013, income statement (assume straight-line amortization)? 

$2,000

$1,900

$1,778

$2,040
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QUESTION 4

On January 1, 2013, an investor paid $291,000 for bonds with a face amount of $300,000. The contract rate of interest is 8% while the current market rate of interest is 10%. Using the effective interest method, how much interest income is recognized by the investor in 2014 (assume annual interest payments and amortization)?

$23,280.

$25,140.

$29,100.

$29,610.
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QUESTION 5

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is 11%. These bonds will sell at a price that is: 

Equal to $500,000.

More than $500,000.

Less than $500,000.

The answer cannot be determined from the information provided.
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QUESTION 6

On January 31, 2013, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The bonds are dated December 31, 2012, and mature on December 31, 2022. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should B report in its September 30, 2013, balance sheet? 

$18,000.

$36,000.

$54,000.

$48,000.
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QUESTION 7

On January 1, 2013, Legion Company sold $200,000 of 10% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $177,000, priced to yield 12%. Legion records interest at the effective rate. Legion should report bond interest expense for the six months ended June 30, 2013, in the amount of: 

$8,850

$10,000

$10,620

$12,000
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