PRACTICAL ACCOUNTING Part 1

BONDS PAYABLE
TYPES OF BONDS
Term Bonds
1. Blue Corp.'s December 31, 2000 balance sheet contained the following items in the long-term
liabilities section:
9.25% registered debentures, callable in 11 years, due in 16 years
$700,000
9.25% collateral trust bonds, convertible into common stock beginning
in 2009, due in 19 years
600,000
10% subordinated debentures ($30,000 maturing annually beginning
in 2006)
300,000
What is the total amount of Blue's term bonds? (E)
A. $600,000
C. $1,000,000
B. $700,000
D. $1,300,000
AICPA 1192
2. York Corp.s December 31, 2001 balance sheet contained the following items in the long-term
liabilities section:
9% registered debentures, callable in 2012, due in 2017
$1,400,000
9% collateral trust bonds, convertible into common stock
beginning in 2010, due in 2020
1,200,000
10% subordinated debentures ($60,000 maturing annually
beginning in 2007)
600,000
What is the total amount of Yorks term bonds? (E)
A. $1,200,000
C. $2,000,000
B. $1,400,000
D. $2,600,000
AICPA 1192
Debenture Bonds
50. Littleton Corp. had the following long-term debt at December 31:
Collateral trust bonds, having securities of unrelated corporations as security $250,000
Bonds unsecured as to principal
150,000
The debenture bonds amounted to (E)
A. $0.
C. $250,000.
B. $150,000.
D. $400,000.
S, S & S
RPCPA, AICPA, CMA & CIA Examination Questions

Serial Bonds
3. Glen Corporation had the following long-term debt:
Sinking fund bonds, maturing in installments
Industrial revenue bonds, maturing in installments
Subordinated bonds, maturing on a single date
The total of the serial bonds amounted to
A: $1,500,000
C: $2,400,000
B: $2,000,000
D: $3,500,000

51. Miller Enterprises had the following long-term debt:

Sinking fund bonds, maturing in installments ..........
Industrial revenue bonds, maturing in installments ....
Subordinated bonds, maturing on a single date .........
The total of the serial bonds amounted to (E)
A. $900,000.
C. $2,000,000.
B. $1,500,000.
D. $2,400,000.

Bonds Payable

$1,100,000
900,000
1,500,000

Wiley 11

$1,100,000
900,000
1,500,000

S, S & S

Issue of Bonds at a Premium

Issue Price
Semi-annual interest payment
41. The market price of a $400,000, ten-year, 12% (pays interest semiannually) bond issue sold to
yield an effective rate of 10% is (M)
A. $449,156.
C. $453,308.
B. $449,850.
D. $748,944.
K, W & W

63. White Sox Corporation issued $200,000 of 10-year bonds on January 1. The bonds pay
interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of
interest at the time the bonds are sold is 8 percent, what will be the issuance price of the
bonds? (M)
A. $175,078
C. $215,902
B. $211,283
D. $227,183
S, S & S

4. Downing Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2010 on January 1,
2010. The bonds pay interest semiannually on June 30 and December 31. The bonds are
issued to yield 5%. What are the proceeds from the bond issue?
A. $5,000,000
C. $5,218,809
B. $5,216,494
D. $5,217,308
KW&W 1e

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PRACTICAL ACCOUNTING Part 1

5. Everhart Company issues $10,000,000, 6%, 5-year bonds dated January 1, 2010 on January
1, 2010. The bonds pays interest semiannually on June 30 and December 31. The bonds are
issued to yield 5%. What are the proceeds from the bond issue?
A. $10,000,000
C. $10,437,618
B. $10,432,988
D. $10,434,616
KW&W 1e
6. Moore Industries manufactures exercise equipment. Recently the vice president of operations
of the company has requested construction of a new plant to meet the increasing demand for
the company's exercise equipment. After a careful evaluation of the request, the board of
directors has decided to raise funds for the new plant by issuing $2,000,000 of 11% bonds on
March 1, 2010, due on March 1, 2025, with interest payable each March 1 and September 1.
At the time of issuance, the market interest rate for similar financial instruments is 10%. What
is the selling price of the bonds? (M1**)
A. $1,269,776
C. $2,153,730
B. $1,690,970
D. $2,220,000
Kieso 13e
Bond Premium
Selling Price Given
10. Lindsey Corporation issued $800,000 of 12%, 20-year bonds at 110 on January 1, 1986. The
bonds pay interest on January 1 and July 1. Lindsey will use the straight-line amortization
method. What is the amount of the bond premium associated with the issue? (E)
A. 12% of $800,000
D. $80,000
B. 12% of $880,000
E. $8,000
C. $880,000
Flamholtz & Diamond
Issue of Bonds at a Discount
Discount
6. On January 1, 1986 Mondray Corporation issued $900,000 of 14%, 12-year bonds at 96. The
bonds pay interest on January 1 and July 1. Mondray will use straight-line amortization. What
is the amount of the bond discount associated with Mondrays issue? (E)
A. 14% of $900,000
D. $36,000
B. 14% of $864,000
E. $3,600
C. $864,000
Flamholtz & Diamond
48. A $300,000, ten-year, 6% bond issue was sold to yield 7% interest payable annually. Actuarial
information for 10 periods is as follows:
6%
7%
RPCPA, AICPA, CMA & CIA Examination Questions

Present value of 1
.558
Present value of an annuity of 1
7.360
The discount at the date of bond issuance would be (E)
A. $
0
C. $ 6,180
B. $
96
D. $21,168

Bonds Payable

.508
7.024

NB&J 11e

Issue Price
Quoted Price Given
7. On June 30, 2001, Huff Corp. issued 1,000 of its 8%, $1,000 bonds at 99. The bonds were
issued through an underwriter to whom Huff paid bond issue costs of $35,000. On June 30,
2001, Huff should report the bond liability at (E)
A. $955,000
C. $1,000,000
B. $990,000
D. $1,025,000
AICPA 1190

Issue of Bonds at Face Value in between Interest Dates

Accrued Interest on Date of Issuance
80. RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year
bonds dated January 1, 2006, with interest payable on January 1 and July 1 of each year. If
the bonds were issued on April 1, 2006, the amount of accrued interest on the date of sale is
A. $2,500.
C. $10,000.
B. $5,000.
D. $20,000.
S, S & S

Proceeds
1 month after interest payment date
8. A company issues 10-year bonds with a face value of $1,000,000, dated January 1, 2001 and
bearing interest at an annual rate of 12% payable semiannually on January 1 and July 1. The
full interest amount will be paid each due date. The market rate of interest on bonds of similar
risk and maturity, with the same schedule of interest payments, is also 12%. If the bonds are
issued on February 1, 2001, the amount the issuing company receives from the buyers of the
bonds on that date is (E)
A. $990,000
C. $1,010,000
B. $1,000,000
D. $1,020,000
CIA 0595 IV-19

2 months after interest payment date

9. On March 1, 2010, Harbour Corporation issued 10% debentures dated January 1, 2010, in the
face amount of $1,000,000, with interest payable on January 1 and July 1. The debentures
were sold at par and accrued interest. How much should Harbour debit to cash on March 1,
2010?

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PRACTICAL ACCOUNTING Part 1

A: $ 966,667
B: $ 983,333

C: $1,016,667
D: $1,033,333
Wiley 11

Proceeds & interest expense

10. On June 1, Year One, Braxton Company issues $100,000 in bonds payable with a stated
annual interest rate of 9 percent at face value plus accrued interest. These bonds pay interest
every February 1 and August 1. What amount does Braxton receive and what interest expense
is recognized for Year One?
A Braxton receives $101,500 and interest expense for Year One is recognized as $5,250
B Braxton receives $101,500 and interest expense for Year One is recognized as $8,250
C Braxton receives $103,000 and interest expense for Year One is recognized as $5,250
D Braxton receives $103,000 and interest expense for Year One is recognized as $8,250
Issue of Bonds at a Premium in between Interest Dates
Accrued Interest on Date of Issuance
23. Fritzy Bubble Gum, Inc. issued P1,000,000 peso bonds, 12%, 20-year bonds at 102 plus
accrued interest on February 1, 1992. The bonds are dated January 1, 1992 and pay interest
semiannually every June 30 and December 31. The premium is to be amortized using the
straight-line method over the period during which the bonds are outstanding. Bond issue costs
totaled P50,000. Accrued interest on bond issuance date is
A.
C.
B. P10,000
D.
RPCPA 0593
Initial Carrying Amount
Quoted price given
24. Fritzy Bubble Gum, Inc. issued P1,000,000 peso bonds, 12%, 20-year bonds at 102 plus
accrued interest on February 1, 1992. The bonds are dated January 1, 1992 and pay interest
semiannually every June 30 and December 31. The premium is to be amortized using the
straight-line method over the period during which the bonds are outstanding. Bond issue costs
totaled P50,000. Carrying value of bonds on issuance date is (E)
A. P1.02M
C.
B.
D.
RPCPA 0593
Proceeds given
38. On January 1, 2009, Stice Company issued 5,000 of its 12%, P1,000 face value bonds for
P5,600,000, including accrued interest. The bonds are dated October 1, 2008, mature on
October 1, 2018 and pay interest annually on October 1. The bonds were issued through an
underwriter to whom Stice paid bond issue cost of P150,000. On January 1 2009, what
RPCPA, AICPA, CMA & CIA Examination Questions

should Stice report as bonds payable?

A. 5,150,000
B. 5,300,000

C. 5,450,000
D. 5,600,000

Bonds Payable

Siy

39. On January 1, 2009, Tamera Company issued 8,000 of its 12%, P1,000 face value bonds for
P8,600,000, including accrued interest. The bonds are dated October 1, 2008, mature on
October 1, 2018 and pay interest annually on October 1. The bonds were issued through an
underwriter to whom Tamera paid bond issue cost of P150,000. On January 1 2009, what
should Tamera report as bonds payable?
A. 8,000,000
C. 8,300,000
B. 8,210,000
D. 8,450,000
Siy

Proceeds, no bond issue costs

1-month after
79. If a $1,000, 9 percent, 10-year bond was issued at 103 plus accrued interest one month after
the authorization date, how much cash did the issuer receive? (E)
A. $992.50
C. $1,030.00
B. $1,007.50
D. $1,037.50
S, S & S

Proceeds, with bond issue costs

2-months after
11
.
Alfred issued 9%, ten-year bonds dated January 1, 2010, with a face value of $100,000 at 102
plus accrued interest on March 1, 2010. Alfred amortizes premiums and discounts using the
straight-line method. Expenses connected with the issue totaled $5,000 and were deducted in
arriving at the net proceeds. The entry to record the issue would include a debit to Cash for
A. $ 97,000
C. $102,000
B. $ 98,500
D. $103,500
NB&J 11e

12. On March 1, 2010, Cain Corp. issued at 103 plus accrued interest 200 of its 9%, $1,000
bonds. The bonds are dated January 1, 2010, and mature on January 1, 2020. Interest is
payable semiannually on January 1 and July 1. Cain paid bond issue costs of $10,000. Cain
should realize net cash receipts from the bond issuance of
A: $199,000
C: $209,000
B: $206,000
D: $216,000
AICPA 1190

18. On March 1, 1983, Melon Corp. issued at 103 plus accrued interest, one hundred of its 15%,
P1,000 bonds. The bonds are dated January 1, 1983 and mature on January 1, 1993.
Interest is payable semi-annually on January 1 and July 1. Melon paid bond issue costs of

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PRACTICAL ACCOUNTING Part 1

P6,000.
Melon would realize net cash receipts from the bond issuance of (M)
A. P99,500
C. P105,500
B. P103,000
D. P109,500
RPCPA 1084

3-months after
13. On February 1, 2009, Artistry Company issued 5,000 of its P1,000 face value bonds at 110
plus accrued interest. Artistry Company paid bond issue cost of P200,000. The bonds were
dated November 1, 2008, mature on November 1, 2018, and bear interest at 10% payable
semiannually on November 1 and May 1. What is the net amount received by Artistry from the
bond issuance? (M)
A. 5,300,000
C. 5,500,000
B. 5,425,000
D. 5,625,000
Siy
4-months after
14. On March 1, 2012, Eavesdropper Company issued 5,000 of its P1,000 face value bonds at
110 plus accrued interest. The entity paid bond issue cost of P300,000. The bonds were dated
November 1, 2011, mature on November 1, 2021, and bear interest at 12% payable
semiannually on May 1 and November 1. What net amount was received from the bond
issuance on March 1, 2012? (M)
A. 5,200,000
C. 5,500,000
B. 5,400,000
D. 5,700,000
CPAR 1012
10-months after
Issue of Bonds at a Discount in between Interest Dates
Initial carrying amount
40. On December 31, 2008, Trina Company issued at 98, five thousand of 10%, P1,000 face
value bond. The interest is payable semiannually on June 30 and December 31. The bonds
were issued through an underwriter to whom Trina paid bond issue cost of P200,000. On
December 31, 2008, Trina Company should report bond liability at (E)
A. 4,700,000
C. 5,000,000
B. 4,900,000
D. 5,100,000
Siy
35. Nazzi, Inc. sold $400,000 of its 9%, five-year bonds dated January 1, 2010, on May 1, 2010,
for $393,000 plus accrued interest. Interest is paid on January 1 and July 1 and straight-line
amortization is used. The net liability for the bonds after recording the sale would be (E)
A. $393,000
C. $407,700
B. $400,000
D. $408,000
NB&J 11e
RPCPA, AICPA, CMA & CIA Examination Questions

Bonds Payable

Proceeds, with bond issue costs

15. On March 1, 2003, Luuk Company issued 8,000 of its P1,000 face value bonds at 95 plus
accrued interest. Luuk Company paid bond issue cost of P500,000. The bonds were dated
November 1, 2002, mature on November 1, 2012, and bear interest at 12% payable
semiannually on November 1 and May 1. What amount did Luuk receive from the bond
issuance? (E**)
A. 7,420,000
C. 7,920,000
B. 7,600,000
D. 7,100,000
CPAR 4143

1. On March 1, 2011, Tiaong Company issued 10,000 of its P1,000 face value bonds at 95 plus
accrued interest. Tiaong Company paid bond issue cost of P1,000,000. The bonds were
dated November 1, 2010, mature on November 1, 2020, and bear interest at 12% payable
semiannually on November 1 and May 1. The net amount that Tiaong receive from the bond
issuance is
A. P8,500,000
C. P9,500,000
B. P8,900,000
D. P9,900,000
Cabarles

Cash

Effective
Interest

Decrease
in Balance

S, S & T

Outstanding
Balance
11,487,747
11,432,379
11,375,350
11,316,611

AMORTIZATION TABLE
Nominal Interest Rate
Issued at a premium
16. Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2003. They have a tenyear term and pay interest semiannually. This is the partial bond amortization schedule for the
bonds.
Payment

1
400,000
344,632
55,368
2
400,000
342,971
57,029
3
400,000
341,261
58,739
4
400,000
What is the stated annual rate of interest on the bonds? (E)
A. 3%.
C. 6%.
B. 4%.
D. 8%.

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PRACTICAL ACCOUNTING Part 1

Total Interest Expense
Issued at a Discount
66. The total interest expense on a $200,000, 10 percent, 10-year bond issued at 95 would be (E)
A. $190,000.
C. $200,000.
B. $195,000.
D. $210,000.
S, S & S
65. The total interest expense on a $300,000, 10 percent, 10-year bond issued at 95 would be (D)
A. $290,000.
C. $300,000.
B. $295,000.
D. $315,000.
S&S 18e
Interest Payable
Issued on interest date
3 months outstanding
17. On December 31, 2010, Wall Corp. issued $100,000 maturity value, 10% bonds for $100,000
cash. The bonds are dated December 31, 2010, and mature on December 31, 2020. Interest
will be paid semiannually on June 30 and December 31. In Walls September 30, 2011
balance sheet, the amount of accrued interest expense should be
A: $ 2,500
C: $ 7,500
B: $ 5,000
D: $10,000
AICPA 1189
18. On January 31, 2011, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The
bonds are dated December 31, 2010, and mature on December 31, 2020. Interest will be paid
semiannually on June 30 and December 31. What amount of accrued interest payable should
B report in its September 30, 2011, balance sheet? (M)
A. $18,000.
C. $48,000.
B. $36,000.
D. $54,000.
S&S 6e
31. On January 31, 1997, Margan Corp. issued P600,000 maturity value, 12% bond for P600,000
cash. The bonds are dated December 31, 1996, and mature on December 31, 2006. Interest
will be paid semi-annually on June 30 and December 31. What amount of accrued interest
payable should Margan report in its September 30, 1997 balance sheet?
A. P18,000
C. P40,000
B. P36,000
D. P54,000
RPCPA 0597
Issued between interest dates
3 months outstanding
19. On January 31, 2001, Beau Corp. issued $300,000 maturity value, 12% bonds for $300,000
cash. The bonds are dated December 31, 2000 and mature in ten years. Interest will be paid
RPCPA, AICPA, CMA & CIA Examination Questions

Bonds Payable

semiannually on June 30 and December 31. What amount of accrued interest payable should
Beau report in its September 30, 2001 balance sheet? (M1*)
A. $9,000
C. $24,000
B. $18,000
D. $27,000
AICPA 1193

57. On November 1, 2012, Jevilyn Company issued P800,000 of its ten-year, 8% term bonds
dated October 1, 2012. The bonds were sold to yield 10%, with total proceeds of P700.000
plus accrued interest. Interest is paid every April 1 and October 1. What amount should be
reported for interest payable on December 31,2012? (M1*)
A. 10,667
C. 16,000
B. 11,667
D. 17,500
CPAR 1012

20. On November 1, 2003, Emmanuela Company issued P20,000,000 of its 10-year, 8% term
bonds dated October 1, 2003. The bonds were sold to yield 10%, with total proceeds of
P18,000,000 plus accrued interest. Interest is paid every April 1 and October 1. What amount
should Emmanuela report for interest payable in its December 31, 2003 balance sheet? (M1*)
A. 360,000
C. 450,000
B. 400,000
D. 500,000
CPAR

21. On November 1, 2003, Mason Corp. issued $800,000 of its ten-year, 8% term bonds dated
October 1, 2003. The bonds were sold to yield 10%, with total proceeds of $700,000 plus
accrued interest. Interest is paid every April 1 and October 1. What amount should Mason
report for interest payable in its December 31, 2003 balance sheet? (M1*)
A. $10,667
C. $16,000
B. $11,667
D. $17,500
AICPA 1192

Interest Payment
Bonds Issued at a Premium
11. Lindsey Corporation issued $800,000 of 12%, 20-year bonds at 110 on January 1, 1986. The
bonds pay interest on January 1 and July 1. Lindsey will use the straight-line amortization
method. How much cash will the bondholders receive on July 1, 1986? (E)
A. $2,000
D. $48,000
B. $42,000
E. $50,000
C. $46,000
Flamholtz & Diamond

Bonds Issued at a Discount

Annual payment
22. On January 1, Evangel Company issued 9% bonds in the face amount of $100,000, that

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PRACTICAL ACCOUNTING Part 1

mature in five years. The bonds were issued for $96,207 to yield 10%, resulting in a bond
discount of $3,793. Evangel uses the effective interest method of amortizing bond discount.
Interest on the bonds is payable annually on December 31. What is the amount of interest to
be paid at the end of the first year?
A. $8,659.
C. $9,621.
B. $9,000.
D. $10,000.
68. On January 1, 2006, Deily Corporation issued $500,000 of 10 percent, 10-year bonds at 88.5.
Interest is payable on December 31. If the market rate of interest was 12 percent at the time
the bonds were issued, how much cash was paid for interest in 2006? (E)
A. $44,250
C. $53,100
B. $50,000
D. $60,000
S, S & S
Semi-annual payment
7. On January 1, 1986 Mondray Corporation issued $900,000 of 14%, 12-year bonds at 96. The
bonds pay interest on January 1 and July 1. Mondray will use straight-line amortization. How
much cash will the bondholders receive on July 1, 1986? (E)
A. $1,500
D. $64,500
B. $61,500
E. $129,000
C. $63,000
Flamholtz & Diamond
23. Auerbach Inc. issued 4% bonds on October 1, 2011. The bonds have a maturity date of
September 30, 2021 and a face value of $300 million. The bonds pay interest each March 31
and September 30, beginning March 31, 2012. The effective interest rate established by the
market was 6%. How much cash interest does Auerbach pay on March 31, 2012? (M)
A. $6.0 million
C. $12.0 million
B. $9.0 million
D. $18.0 million
S&S 6e
STRAIGHT-LINE METHOD OF AMORTIZATION
Interest expense, without bond issue cost
Bonds Issued at a Premium
First three months
24. Cramer Company sold 5-year, 8% bonds on October 1, 2011. 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, 2011, income statement (assume straight-line
amortization)? (E)
A. $1,778.
C. $2,000.
RPCPA, AICPA, CMA & CIA Examination Questions

B. $1,900.

D. $2,040.

Bonds Payable

S&S 6e

Page 6 of 6