On January 1, 2015, Lorry Manufacturing Company purchased equipment from Wales

Inc. There was no established market price for the equipment which has an 8 year life
and no salvage value. Lorry gave Wales a £105,000 zero-interest-bearing note payable
in 3 equal annual installments of £35,000, with the first payment due December 31,
2015. The prevailing rate of interest for a note of this type is 8%. The present value of
the note at 8% was £90,199. Assuming that Lorry uses the straight-line method of
depreciation, what amounts will be reported in the company’s 2015 income statement for
interest expense and depreciation expense for the note and equipment?
Select one:
a. £7,216; £11,275 n
b. £7,216; £30,066
c. £8,400; £13,125
d. £1,750; £8,750
Kant Corporation retires its $100,000 face value bonds at 102 on January 1, following
the payment of interest. The carrying value of the bonds at the redemption date is
$96,250. The entry to record the redemption will include a?
Select one:
a. debit of $5,750 to Loss on Extinguishment of Debt.
b. debit of $96,250 to Bonds Payable. N
c. debit of $3,750 to Bonds Payable.
d. credit of $3,750 to Gain on Extinguishment of Debt.
On January 1, 2015, Solis Co. issued its 10% bonds in the face amount of $3,000,000,
which mature on January 1, 2020. The bonds were issued for $3,405,000 to yield 8%,
resulting in bond premium of $405,000. Solis uses the effective-interest method of
amortizing bond premium. Interest is payable annually on December 31. At December
31, 2015, the carrying value of the bonds should be?
Select one:
a. $3,377,400. N
b. $3,304,500.
c. $3,364,500.
d. $3,405,000
At the beginning of 2015, Winston Corporation issued 10% bonds with a face value of
$600,000. These bonds mature in five years, and interest is paid semiannually on June
30 and December 31. The bonds were sold for $555,840 to yield 12%. Winston uses a
calendar-year reporting period. Using the effective-interest method of amortization, what
amount of interest expense should be reported for 2015 (Round your answer to the
nearest dollar)?
Select one:
a. $66,901 n
b. $66,500
c. $66,700
d. $68,832
On January 1, 2015, Jantzen Company sold land to Dansko Company. There was no
established market price for the land. Dansko gave Jantzen a CHF2,400,000 Zero-
interest-bearing note payable in three equal annual installments of CHF800,000 with the
first payment due December 31, 2015. The note has no ready market. The prevailing
rate of interest for a note of this type is 10%. The present value of a CHF2,400,000 note
payable in three equal annual installments of CHF800,000 at a 10% rate of interest is
CHF1,989,600. The note will be reported on Dansko’s 2015 statement of financial
position at a carrying value of?
Select one:
a. CHF1,989,600
b. CHF2,400,000
c. CHF2,126,400
d. CHF2,188,560 n
On July 1, 2015, Spear Co. issued 1,000 of its 10%, $1,000 bonds at 99 plus accrued
interest. The bonds are dated April 1, 2015 and mature on April 1, 2025. Interest is
payable semiannually on April 1 and October 1. What amount did Spear receive from the
bond issuance?
Select one:
a. $990,000
b. $1,015,000 n
c. $1,000,000
d. $965,000
In a debt extinguishment in which the debt is continued with modified terms and the
carrying value of the debt is more than the fair value of the debt?
Select one:
a. a loss should be recognized by the debtor.
b. no interest expense should be recognized in the future.
c. a new effective-interest rate must be computed.
d. a gain should be recognized by the debtor. N
All of the following are differences between IFRS and U.S. GAAP in according for
liabilities except?
Select one:
a. When a bond is issued at a discount, U.S. GAAP records the discount in a separate
contra-liability account. IFRS records the bond net of the discount.
b. U.S. GAAP, but not IFRS uses the term “provisions” for contingent liabilities which are
accrued. N
c. Under IFRS, bond issuance costs reduces the carrying value of the debt. Under U.S.
GAAP, these costs are recorded as an asset and amortized to expense over the term of
the bond.
d. U.S. GAAP, but not IFRS uses the term “troubled debt restructurings.”
In a debt settlement in which the debt is continued with modified terms, a gain should be
recognized at the date of settlement whenever the?
Select one:
a. carrying amount of the debt is less than the total future cash flows.
b. present value of the debt is greater than the present value of the future cash flows. N
c. carrying amount of the debt is greater than the present value of the future cash flows.
d. present value of the debt is less than the present value of the future cash flows.
On October 1, 2015 Bartley Corporation issued 5%, 10-year bonds with a face value of
$500,000 at 108 (a 4% yield). Interest is paid on October 1 and April 1, with any
premiums or discounts amortized on an effective-interest basis. Bond interest expense
reported on the December 31, 2015 income statement of Bartley Corporation would be?
Select one:
a. $6,250
b. $6,750
c. $10,800
d. $5,400 n
On June 30, 2015, Omara Co. had outstanding 8%, $3,000,000 face amount, 15-year
bonds maturing on June 30, 2025. Interest is payable on June 30 and December 31.
The unamortized amount of the bond discount on June 30, 2015 was $135,000. On June
30, 2015, Omara acquired all of these bonds at 94 and retired them. What net carrying
amount should be used in computing gain or loss on this early extinguishment of debt?
Select one:
a. $3,000,000.
b. $2,955,000.
c. $2,865,000. N
d. $2,820,000.
 Carr Corporation retires its $100,000 face value bonds at 105 on January 1, following
the payment of interest. The carrying value of the bonds at the redemption date is
$103,745. The entry to record the redemption will include a?
Select one:
a. debit of $103,745 to Bonds Payable. N
b. credit of $1,255 to Gain on Extinguishment of Debt.
c. debit of $3,745 to Bonds Payable.
d. credit of $3,745 to Loss on Extinguishment of Debt
Bond issuance costs, including the printing costs and legal fees associated with the
issuance, should be?
Select one:
a. reported as an expense in the period the bonds mature or are retired.
b. accumulated in a deferred charge account and amortized over the life of the bonds.
c. recorded as a reduction in the carrying value of bonds payable. N
d. expensed in the period when the debt is issued.
A debt instrument with no ready market is exchanged for property whose fair value is
currently indeterminable. When such a transaction takes place?
Select one:
a. the directors of both entities involved in the transaction should negotiate a value to be
assigned to the property.
b. the present value of the debt instrument must be approximated using an imputed interest
rate. N
c. it should not be recorded on the books of either party until the fair value of the property
becomes evident.
d. the board of directors of the entity receiving the property should estimate a value for the
property that will serve as a basis for the transaction
Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years
from date of issue. If the bonds were issued at a premium, this indicates that?
Select one:
a. the effective yield or market rate of interest exceeded the stated (nominal) rate.
b. no necessary relationship exists between the two rates.
c. the market and nominal rates coincided.
d. the nominal rate of interest exceeded the market rate N
A ten-year bond was issued in 2013 at a discount with a call provision to retire the
bonds. When the bond issuer exercised the call provision on an interest date in 2015,
 the carrying amount of the bond was less than the call price. The amount of bond liability
removed from the accounts in 2015 should have equaled the?
Select one:
a. carrying amount.
b. call price less unamortized discount.
c. face amount. N
d. call price.
Bonds for which the owners’ names are not registered with the issuing corporation are
called?
Select one:
a. debenture bonds.
b. bearer bonds. N
c. term bonds.
d. secured bonds
Many companies believe that off-balance-sheet financing?
Select one:
a. can enhance the quality of its financial position and perhaps permit credit to be obtained
more readily and at less cost. N
b. is in violation of IFRS.
c. is attempting to conceal the debt from shareholders by having no information about the
debt included in the balance sheet.
d. wishes to confine all information related to the debt to the income statement and the
statement of cash flows.
The covenants and other terms of the agreement between the issuer of bonds and the
lender are set forth in the?
Select one:
a. registered bond.
b. bond indenture. N
c. bond coupon.
d. bond debenture
In a debt extinguishment in which the debt is settled by a transfer of assets with a fair
value less than the carrying amount of the debt, the debtor would recognize?
Select one:
a. a gain on the settlement. N
b. a loss on the settlement.
c. no gain or loss on the settlement.
d. None of these answer choices are correct.
Franzia Company issues €10,000,000, 7.8%, 20-year bonds to yield 8% on July 1, 2015.
Interest is paid on July 1 and January 1. The proceeds from the bonds are $9,802,073.
The balance reported in the bonds payable account on the December 31, 2015
statement of financial position?
Select one:
a. €9,806,322
b. €9,804,156 n
c. €9,802,073
d. €10,000,000
The interest rate written in the terms of the bond indenture is known as the?
Select one:
a. nominal rate only.
b. coupon rate, nominal rate, or stated rate. N
c. stated rate only.
d. coupon rate only.
On January 1, Patterson Inc. issued $5,000,000, 9% bonds for $4,695,000. The market
rate of interest for these bonds is 10%. Interest is payable annually on December 31.
Patterson uses the effective-interest method of amortizing bond discount. At the end of
the first year, Patterson should report bonds payable of?
Select one:
a. $4,725,500.
b. $258,050.
c. $4,714,500. N
d. $4,745,000.