1.

A bond indenture is

a. a contract between the corporation issuing the bonds and the underwriters
selling the

bonds

b. a contract between the corporation issuing the bonds and the

bond trustee, who is acting on behalf of the bondholders.

c. the amount due at the maturity date of the bonds

d. the amount for which the corporation can buy back the bonds prior to the
maturity date

8. Sinking Fund Income is reported in the income statement as

a. gain on sinking fund transactions

b. other income

c. income from operations

d. extraordinary

9. On June 1, P400,000 of bonds were purchased as a long-term investment

at 101 and P500 was paid as the brokerage commission. If the bonds bear
interest at 12%, which is paid semiannually on January 1 and July 1, what is
the total cost to be debited to the investment account?

a. 401,500

b. 400,000

c. 403,500

d. 404,500

10. When a corporation issues bonds, the price that buyers are willing to
pay for the bonds does not depend on which of the following below

a. market rate of interest

b. face value of the bonds

c. denominations the bonds are sold

d. periodic interest to be paid on the bonds

14. The balance in Discount on Bonds Payable that is applicable to bonds due
in 2020 would be reported on the balance sheet in the section entitled

a. intangible assets

b. current assets

c. long-term liabilities

d. current liabilities

16. If bonds payable are not callable, the issuing corporation

a. must get special permission from the SEC to repurchase them

b. is more likely to repurchase them if the interest rates increase

c. cannot repurchase them before maturity

d. can repurchase them in the open market

21. The cash and securities comprising a sinking fund established to redeem
bonds at maturity in 2020 should be classified on the balance sheet as

a. current assets

b. intangible assets

c. investments

d. fixed assets

28. A legal document that indicates the name of the issuer, the face value of
the bond and such other data is called

a. a bond indenture.

b. convertible bond.

c. trading on the equity.

d. a bond certificate.

29. A corporation would not be successfully trading on equity if it gathered

funds by

a. issuing common stock

b. issuing bonds

c. issuing notes
d. issuing preferred stock

30. The account Investment in Bonds is reported

a. at cost as a long-term asset

b. at cost as a long-term asset less Discount on Bond Investments or plus

Premium on Bond Investments

c. at fair market value because that is all that is required

d. at cost as a long-term liability along with the current portion reported as a

current

liability

36. If bonds are initially sold at a discount and the straight line method of
amortization is used, interest expense in the earlier years

a. Will be less than the coupon rate of interest.

b. Will be less than what it would have been had the scientific method of
amortization

been used

c. Will be the same as what it would have been had the scientific method of
amortization

been used

d. Will exceed what it would have been had the scientific method of
amortization been

used

39. If you elect to not take a discount on trade credit, the effective interest
rate on the funds thus obtained __________ as the time you take to pay
increases

a. remains constant

b. falls

c. falls first, then rises

d. rises

42. Debtors are interested in the times-interest-earned ratio because they

want to
a. know what rate of interest the corporation is paying

b. be sure their debt is backed by collateral

c. have adequate protection against a potential drop in earnings jeopardizing

their interest

payments

d. know the tax effect of lending to a corporation

48. When callable bonds are redeemed below carrying value

a. Retained Earnings is credited

b. Loss on Redemption of Bonds is debited

c. Gain on Redemption of Bonds is credited

d. Retained Earnings is debited

60. Long-term debt that matures within one year and is to be converted into
stock should be reported

a. as noncurrent

b. in a special section between liabilities and stockholders’ equity

c. as noncurrent and accompanied with a note explaining the method to be

used in its

liquidation

d. as a current liability

62. Cedric Company issues P10,000,000 face value of bonds at 96 on January

1, 2009. The bonds are dated January 1, 2009, pay interest semiannually at
8% on June 30 and December 31, and mature in 10 years. Straight-line
amortization is used for discounts and premiums. On September 1, 2012,
P6,000,000 of the bonds are called at 102 plus accrued interest. What gain
or loss would be recognized on the called bonds on September 1, 2012?

a. P453,333 loss

b. P360,000 loss

c. P272,000 loss

d. P600,000 loss
65. An entity neglected to amortize the premium on outstanding bonds
payable. What is the effect of the failure to record premium amortization on
interest expense and bond carrying value, respectively?

a. Understate and overstate

b. Overstate and understate

c. Understate and understate

d. Overstate and overstate

67. Balance sheet and income statement data indicate the following:

Bonds payable, 8% (issued 1990, due 2015) P1,200,000

Preferred 8% stock, P100 par (no change during the year) 200,000

Common stock, P50 par (no change during the year) 1,000,000

Income before income tax for year 320,000

Income tax for year 80,000

Common dividends paid 60,000

Preferred dividends paid 16,000

What is the number of times bond interest charges were earned (round to
two decimal

places)?

a. 4.33

b. 5.67

c. 3.24

d. 3.50

69. In current accounting practice, the valuation method used for bonds
payable is

a. Historical cost

b. Discounted cash flow valuation at current yield rate

c. Maturity amount

d. Discounted cash flow valuation at yield rate at issuance

70. On January 1, 2011, Garry Co. redeemed its 15-year bonds of P2,500,000
par value for 102. They were originally issued on January 1, 1999 at 98 with
a maturity date of January 1, 2014. The bond issue costs relating to this
transaction were P150,000. Garry amortizes discounts, premiums, and bond
issue costs using the straight-line method. What amount of loss should Garry
recognize on the redemption of these bonds (ignore taxes)?

a. 0

b. 90,000

c. 60,000

d. 50,000

76. The proceeds from bonds issued with nondetachable share warrants shall
he accounted for

a. Partly as bonds payable and partly as shareholders’ equity

b. Entirely as bonds payable

c. Partly, us unearned revenue and partly as bonds payable

d. Entirely as shareholders' equity

77. Which of the following is true of accrued interest on bonds that are sold
between interest dates?

a. The accrued interest will be paid to the seller when the bonds mature

b. The accrued interest is computed at the effective rate

c. The accrued interest is extra income to the buyer

d. None of the abov

89. On its December 31, 2010 balance sheet, Ren Corp. reported bonds
payable of P6,000,000 and related unamortized bond issue costs of
P320,000. The bonds had been issued at par. On January 2, 2011, Ren retired
P3,000,000 of the outstanding bonds at par plus a call premium of P70,000.
What amount should Ren report in its 2011 income statement as loss on
extinguishment of debt (ignore taxes)?

a. 160,000

b. 230,000

c. 70,000
d. 0

91. Which of the following is true for a bond maturing on a single date when
the effective

interest method of amortizing bond discount is used?

a. Interest expense remains constant each 6 month period

b. Interest expense as a percentage of the bond’s book value varies from

period to period

c. Interest expense increases each 6 month period

d. Nominal interest rate exceeds effective interest rate

carrying amount of the bond was less than the call price. The amount of
bond liability removed from the accounts in 2011 should have equaled the

a. call price

b. call price less unamortized discount

c. face amount less unamortized discount

d. face amount plus unamortized discount

107. An entity incurred printing and engraving, and registration cost in

selling bonds. What

will be the effect of these costs on the interest rate of the bonds?

a. It will decrease the effective interest rate

b. It will increase the effective interest rate.

c. It will have no effect on either effective or nominal interest rate.

d. It will increase the nominal interest rate.

108. Selling the bonds at a premium has the effect of

a. increasing the amount of cash paid for interest each 6 months.

b. causing the total cost of borrowing to be higher than the bond interest
paid.

c. raising the effective interest rate above the stated interest rate.

d. causing the total cost of borrowing to be lower than the bond interest paid.
111. Which of the following is not an advantage of issuing bonds instead of
common stock?

a. Tax savings result

b. Earnings per share on common stock may be lower.

c. Stockholder control is not affected.

d. Income to common shareholders may increase.

114. Note disclosures for long-term debt generally include all of the following
except

a. call provisions and conversion privileges

b. restrictions imposed by the creditor

c. names of specific creditors

d. assets pledged as security

120. Willy Co. took advantage of market conditions to refund debt. This was
the fourth

refunding operation carried out by Willy within the last three years. The
excess of the

carrying amount of the old debt over the amount paid to extinguish it should
be reported as

a. part of continuing operations

b. gain, net of income taxes

c. loss, net of income taxes

d. deferred credit to be amortized over the life of the new debt

121. A corporation issues for cash P1,000,000 of 8%, 20-year bonds, interest
payable annually, at a time when the market rate of interest is 7%. The
straight-line method is adopted for the amortization of bond discount or
premium. Which of the following statements is true?

a. The carrying amount increases from its amount at issuance date to

P1,000,000 at

maturity.
b. The amount of annual interest expense decreases as the bonds approach
maturity.

c. The amount of annual interest paid to bondholders increases over the 20-
year life of the

bonds.

d. The carrying amount decreases from its amount at issuance date to

P1,000,000 at

maturity.

122. Which of the following must be disclosed relative to long-term debt

maturities and

sinking fund requirements?

a. The amount of future payments for sinking fund requirements and long-
term debt

maturities during each of the next five years

b. The amount of scheduled interest payments on long-term debt during

each of the next

five years

c. The present value of future payments for sinking fund requirements and
long-term debt

maturities during each of the next five years

d. The present value of scheduled interest payments on long-term debt

during each of the

next five years

127. When the market rate of interest was 11%, Welch Corporation issued
P100,000, 8%, 10-year bonds that pay interest semiannually. Using the
straight-line method, the amount of discount or premium to be amortized
each interest period would be

a. 17,926

b. 4,000

c. 896
d. 1,793

128. An entity neglected to amortize the discount on outstanding bonds

payable. What is the effect of the failure to record discount amortization on
interest expense and bond carrying value, respectively?

a. Overstate and understate

b. Overstate and overstate

c. Understate and understate

d. Understate and overstate

135. How would the amortization of premium on bonds payable affect each
of the following?

a. Carrying value of the bond (Decrease); Net income (Decrease)

b. Carrying value of the bond (Increase); Net income (Increase)

c. Carrying value of the bond (Decrease); Net income (Increase)

d. Carrying value of the bond (Increase); Net income (Decrease)

137. A bond issued on June 1 of the current year has interest payment dates
of April 1 and

October 1. Bond interest expense for the current year ended December 31 is
for a period of

a. 3 months

b. 7 months

c. 6 months

d. 4 months

141. A corporation called an outstanding bond obligation four years before

maturity. At that

time there was an unamortized discount of P300,000. To extinguish this debt,

the company

had to pay a call premium of P100,000. Ignoring income tax considerations,

how should

these amounts be treated for accounting purposes?

a. Charge P400,000 to a loss in the year of extinguishment

b. Amortize P400,000 over four years

c. Either amortize P400,000 over four years or charge P400,000 to a loss

immediately,

whichever management selects

d. Charge P100,000 to a loss in the year of extinguishment and amortize

P300,000 over four

years

140. On January 1, 2004, Allan Corporation issued P4,500,000 of 10% ten-

year bonds at 103. The bonds are callable at the option of Allan at 105. Allan
has recorded amortization of the bond premium on the straight-line method
(which was not materially different from the effective-interest method). On
December 31, 2010, when the fair market value of the bonds was 96, Allan
repurchased P1,000,000 of the bonds in the open market at 96. Allan has
recorded interest and amortization for 2010. Ignoring income taxes and
assuming that the gain is material, Allan should report this reacquisition as:

a. a loss of P61,000

b. a gain of P61,000

c. a gain of P49,000

d. a loss of P49,000

148. How would the amortization of discount on bonds payable affect each of
the following?

a. Carrying value of bond (Decrease); Net income (Decrease)

b. Carrying value of bond (Increase); Net income (Increase)

c. Carrying value of bond (Decrease); Net income (Increase)

d. Carrying value of bond (Increase); Net income (Decrease)

152. When bonds are retired prior to maturity with proceeds from a new
bond issue,any gain or loss from the early extinguishment of debt should be

a. Amortized over the remaining original life of the retired bond issue

b. Amortized over the life of the new bond issue

c. Recognized in income from continuing operations in the period of
extinguishment

d. Recognized in retained earnings in the period of extinguishment

153. On January 1 of the current year, an entity issued bonds at a discount.

The entity incorrectly used the straight line method instead of the effective
interest method to amortize the discount. How were the following amounts,
as of December 31 of the current year affected by the error?

a. Bond carrying amount (Understated); Retained earnings (Understated)

b. Bond carrying amount (Understated); Retained earnings (Overstated)

c. Bond carrying amount (Overstated); Retained earnings (Understated)

d. Bond carrying amount (Overstated); Retained earnings (Overstated)

154. What is the effective interest rate of a bond measured at amortized

cost?

a. The stated rate of the bond

b. The interest rate currenly charged by the entity or by others for similar
bond

c. The interest rate that exactly discounts estimated future cash payments
through the

expected life of the bond or when appropriate, a shorter period to the net
carrying

amount of the bond

d. The basic risk-free interest rate that is derived from observable

government bond prices.

155. When bonds are redeemed by the issuer prior to their maturity date,
any gain or loss on the redemption is

a. Amortized over the period remaining to maturity and reported as part of

income from

continuing operations

b. Reported as component of other comprehensive income

c. Reported as part of income from continuing operations in the period of

redemption
d. Amortized over the period remaining to maturity and reported as other
comprehensive

income

156. On January 1, 2012, an entity issued bonds at a discount. The bonds

mature on December 31, 2017. The entity incorrectly used the straight line
method instead of the effective interest method to amortize the discount.
How is the carrying amount of the bonds affected by the error?

a. December 31, 2012 (Understated); December 31, 2017 (Overstated)

b. December 31, 2012 (Overstated); December 31, 2017 (No effect)

c. December 31, 2012 (Overstated); December 31, 2017 (Understated)

d. December 31, 2012 (Understated); December 31, 2017 (No effect)

157. If bonds are initially sold at a discount and the straight line method of
amortization is

used, interest expense in the earlier years

a. Will be the same as what it would have been had the scientific method of
amortization

been used

b. Will be less than the coupon rate of interest.

c. Will exceed what it would have been had the scientific method of
amortization been

used

d. Will be less than what it would have been had the scientific method of
amortization

been used

Undefined:

158. Glen Company had the following long-term debt:

Sinking fund bonds, maturing in installments 2,200,000

Industrial revenue bonds, maturing in installments 1,800,000

Subordinated bonds, maturing on a single date 3,000,000

What is the total amount of serial bonds?

a. 3,000,000

b. 4,000,000

c. 4,800,000

d. 7,000,000

159. Zola Company had the following long-term debt:

Bonds maturing in installments, secured by machinery 1,000,000

Bonds maturing on a single date, secured by realty 1,800,000

Collateral trust bonds 2,000,000

What is the total amount of debenture bonds?

a. 2,000,000

b. 1,000,000

c. 1,800,000

d. 0

160. Blue Company reported the following long-term debt on December 31,
2015:

9% registered debentures, callable in 2016, due in 2017 3,500,000

11% collateral trust bonds, convertible into ordinary shares beginning

in 2016, due in 2017 3,000,000

10% subordinated debentures, P500,000 maturing annually beginning

in 2016 1,500,000

What is the total amount of term bonds?

a. 3,000,000

b. 3,500,000

c. 5,000,000

d. 6,500,000
161. On March 1, 2015, Cain Company issued at 103 plus accrued interest
4,000 of 9%, P1,000 face value bonds. The bonds are dated January 1, 2015
and mature on January 1, 2025. Interest is payable semiannually on January
1 and July 1. The entity paid bond issue cost of P200,000.

What is the net cash received from the bonds issuance?

a. 4,320,000

b. 4,180,000

c. 4,120,000

d. 3,980,000

162. During the current year, Eddy Company incurred the following costs on
connection

with the issuance of bonds:

Promotion cost 200,000

Printing and engraving 150,000

Legal fees 800,000

Fees paid to independent accountants for registration 100,000

Commissions paid to underwriter 1,500,000

What amount should be recorded as bond issue costs to be amortized over

the term of the

bonds?

a. 2,550,000

b. 2,750,000

c. 1,500,000

d. 1,050,000

163. On July 1, 2015, Carr Company issued at 104, five thousand of 10%
P1,000 face value

bonds. The bonds were issued through an underwriter to whom the entity
paid bond issue
cost of P125,000. On July 1, 2015, what amount should be reported as bond
liability?

a. 4,875,000

b. 5,075,000

c. 5,200,000

d. 5,325,000

164. Aye Company is authorized to issue P5,000,000 of 6%, 10-year bonds

dated July 1, 2015 with interest payments on June 30 and December 31.
When the bonds are issued on November 1, 2015, the entity received cash of
P5,150,000 including accrued interest. What is the discount or premium from
the issuance of the bonds payable?

a. 150,000 bond premium

b. 50,000 bond premium

c. 150,000 bond discount

d. No bond premium and discount

165. In January 1, 2015, Carrow Company issued 10% bonds in the face
amount of P1,000,000 that mature on January 1, 2025. The bonds were
issued for P886,000 to yield 12%, resulting in bond discount of P114,000.
The entity used the interest method of amortizing bond discount. Interest is
payable on January 1 and July 1. For the year ended December 31, 2015,
what amount should be reported as bond interest expense?

a. 106,510

b. 100,000

c. 53,160

d. 50,000

166. On January 1, 2015, West Company issued 9% bonds in the face amount
of P5,000,000, which mature on January 1, 2025. The bonds were issued for
P4,695,000 to yield 10%. Interest is payable annually on December 31. The
entity used the interest method of amortizing bond discount. On December
31, 2015, what is the carrying amount of the bonds payable?

a. 4,695,000
b. 4,714,500

c. 4,704,750

d. 5,000,000

167. Webb Company had an outstanding 7%, 10-year P5,000,000 face value
bond. The bond was originally sold to yield 6% annual interest. The entity
used the effective interest method to amortize bond premium. On January 1,
2015, the carrying amount of the bond payable was P5,250,000.

What amount of unamortized premium on bond payable should be reported

on December

31, 2015?

a. 225,000

b. 172,500

c. 215,000

d. 52,500

168. On December 31, 2015, Marie Company reported bonds payable of

P7,360,000 and accrued interest payable of P200,000. The bonds are retired
on December 31, 2015 for P8,160,000 including accrued interest. What
amount should be reported as gain or loss on extinguishment of bonds
payable?

a. 800,000 gain

b. 800,000 loss

c. 600,000 gain

d. 600,000 loss

169. On December 31, 2015, Boheme Company reported a 9% bonds

payable due December 31, 2020 with a carrying amount of P15,405,000. The
bonds were issued on December 31, 2011 and had a face amount of
P15,000,000 with interest payable semiannually on June 30 and December
31 of each year. On December 31, 2015, the entity retired P5,000,000 of
these bonds at 98.
What amount should be reported as gain or loss on the retirement of the
bonds for 2015?

a. 235,000 gain

b. 235,000 loss

c. 100,000 gain

d. 100,000 loss

170. On January 1, 2015, Luyang Company issued 3-year bonds with face
value of P5,000,000 at 98. Additionally, the entity paid bond issue cost of
P140,000. The nominal rate is 10% and the effective rate is 12%. The
interest is payable annually on December 31. The entity used the effective
interest method in amortizing bond discount and issue cost.

What is the carrying amount of the bonds payable on December 31, 2015?

a. 4,840,000

b. 4,831,200

c. 4,848,000

d. 5,000,000

171. On January 1, 2015, Masbate Company issued 5-year bonds with face
value of P5,000,000 at 110. The entity paid bond issue cost of P80,000 on
same date. The stated interest rate on the bonds is 8% payable annually
every December 31. The bonds are issued to yield 6% per annum. The entity
used the effective interest method of amortization. On December 31, 2015,
what is the carrying amount of the bonds payable?

a. 5,000,000

b. 5,400,000

c. 5,435,200

d. 5,430,000

172. On January 1, 2015, Samal Company issued P5,000,000, 8% serial

bonds, to be repaid in the amount of P1,000,000 each year. Interest is
payable annually on December 31. The bonds were issued to yield 10% a
year. The bond proceeds were P4,757,000 based on the present value at
January 1, 2015 of five annual payments. The entity amortized the bond
discount by the interest method.

On December 31, 2015, what is the carrying amount of the bonds payable?

a. 4,832,700

b. 3,832,700

c. 4,805,600

d. 3,805,600

173. White Company issued P2,000,000 face value of 10-year bonds on

January 1. The bonds pay interest on January 1 and July 1 and had a stated
rate of 10%. If the market rate of interest is 8%, what is the issue price of the
bonds?

a. 2,262,000

b. 2,113,000

c. 2,159,000

d. 2,279,000

174. On January 1. 2015, Ezekiel Company received P1,077,200 for

P1,000,000 face amount 12% bonds. The bonds were sold to yield 10%.
Interest is payable semiannually every January 1 and July 1. The entity has
elected the fair value option for measuring the financial liability. On
December 31, 2015, the fair value of the bonds is determined to be
P1,064,600 due to market and interest factors.

What is the carrying amount of the bonds payable on January 1, 2015?

a. 1,000,000

b. 1,077,200

c. 500,000

d. 538,600

What is the interest expense for 2015?

a. 120,000

b. 100,000

c. 107,720
d. 129,264

What is the gain or loss from change in fair value of the bonds for 2015?

a. 64,600 gain

b. 64,600 loss

c. 12,600 gain

d. 12,600 loss

What is the carrying amount of the bonds payable on December 31, 2015?

a. 1,064,600

b. 1,077,200

c. 1,000,000

d. 1,064,920

175. At the beginning of current year, Taguig Company issued a 3-year bonds
with face

value of P5,000,000 at 99. The nominal rate is 10% and the interest is
payable annually on

December 31. Additionally, the entity paid bond issue cost of P150,000.

What is the interest expense for the current year using the effective interest
method?

a. 550,000

b. 528,000

c. 576,000

d. 559,680

176. Bonds payable not designated at fair value through profit or loss shall
be measured

initially at

a. Fair value

b. Fair value plus bond issue cost

c. Fair value minus bond issue cost

d. Face amount

177. After initial recognition, bonds payable shall be measured at

a. Amortized cost using the effective interest method.

b. Fair value through profit or loss.

c. Amortized cost using the effective interest method and fair value through
other

comprehensive income.

d. Amortized cost using the effective interest method and fair value through
profit or loss.

178. The “amortized cost” of bonds payable means

a. Face amount plus premium on bonds payable

b. Face amount minus discount on bonds payable

c. Face amount minus bond issue cost

d. Face amount plus premium on bonds payable, minus discount on bonds

payable and minus bond issue cost

179. Which is a true statement for electing the fair value option for
measuring bonds

payable?

a. The effective interest method of amortization must be used to calculate

interest expense.

b. Discount or premium is disclosed in the notes to the financial statements.

c. The fair value of the bond and the principal obligation must be disclosed.

d. If the fair value option is elected, it must be applied to all bonds.

180. Under the fair value option, bonds payable shall be measured initially at

a. Fair value

b. Fair value plus bond issue cost

c. Fair value minus bond issue cost

d. Face amount
181. Costs incurred in connection with the issuance of ten-year bonds which
sold at a slight premium shall be

a. Charged to retained earnings

b. Expensed in the year incurred

c. Capitalized as organization cost

d. Reported as a deduction from bonds payable

182. How would the amortization of premium on bonds payable affect the
carrying amount

of bond and net income, respectively?

a. Increase and decrease

b. Increase and increase

c. Decrease and decrease

d. Decrease and increase

183. How would the amortization of discount on bonds payable affect the
carrying amount

of bond and net income, respectively?

a. Increase and decrease

b. Increase and increase

c. Decrease and decrease

d. Decrease and increase

184. Which of the following statements is true regarding accrued interest on

bonds that are

sold between interest dates?

a. The accrued interest is computed at the effective rate.

b. The accrued interest will be paid to the seller when the bonds mature.

c. The accrued interest is extra income to the buyer.

d. All of the statements are not true.

185. The proceeds from the sale of bonds

a. Will always be equal to the face amount

b. Will always be less than the face amount

c. Will always be more than the face amount

d. May be equal to or more than or less than the face amount depending on
market interest rate

186. An extinguishment of bonds payable originally issued at a premium is

made by purchase of the bonds between interest dates. Which of the
following statements is true at the time of extinguishment?

a. Any costs of issuing the bonds must be amortized up to the purchase date.

b. The premium must be amortized up to the purchase date.

c. Interest must be accrued from the last interest date to the purchase date.

d. All of these statements are true.

187. Bonds for which the bondholders’ names are not registered with the
issuer are called

a. Bearer bonds

b. Term bonds

c. Debenture bonds

d. Serial bonds

188. Bonds that pay no interest unless the issuer is profitable are known as

a. Registered bonds

b. Junk bonds

c. Mortgage bonds

d. Income bonds

189. On theory, the proceeds from the sale of a bond would be equal to

a. The face amount of the bond

b. The present value of the principal amount due at the end of the life of the
bond plus the present value of the interest payments made during the life of
the bond
c. The face amount of the bond plus the present value of the interest
payments made

during the life of the bond

d. The sum of the face amount of the bond and the periodic interest
payments

190. Under international accounting standard, the valuation method used for
bonds payable is

a. Historical cost

b. Discounted cash flow valuation at current yield rate

c. Maturity amount

d. Discounted cash flow valuation at yield rate at issuance

191. An entity issued a bond with a stated rate of interest that is less than
the effective

interest rate on the date of issuance. The bond was issued on one of the
interest payment

dates. The bond was issued on one of the interest payment dates. What
should the entity

report on the first interest payment date?

a. An interest expense that is less than the cash payment made to

bondholders.

b. An interest expense that is greater than the cash payment made to

bondholders.

c. A debit to the unamortized bond discount.

d. A debit to the unamortized bond premium.

192. A five-year term bond was issued on January 1, 2012 at a premium. The
carrying

amount of the bond on December 31, 2013 would be

a. The same as the carrying amount on January 1, 2013

b. Higher than the carrying amount on January 1, 2013

c. Higher than the carrying amount on December 31, 2014

d. Lower than the carrying amount on December 31, 2014

193. A five-year term bond was issued on January 1, 2012 at a discount. The
carrying amount of the bond on December 31, 2013 would be

a. Higher than the carrying amount on January 1, 2013

b. Lower than the carrying amount on January 1, 2013

c. The same as the carrying amount on January 1, 2013

d. Higher than the carrying amount on December 31, 2014

194. On January 1, 2016, Mariel Company issued bonds payable with face
amount of P8,000,000 and 10% stated interest rate at 95. The bonds have a
5-year term and interest is payable annually every December 31. The entity
elected the fair value option. On December 31, 2016 the fair value of the
bonds is 105. It is reliably determined that the fair value increase comprised
P150,000 attributable to credit risk and the remainder attributable to change
in the market interest rate.

What amount of gain or loss should be recognized in profit or loss for 2016 to
conform with

the fair value option?

a. 650,000 gain

b. 650,000 loss

c. 800,000 gain

d. 800,000 loss

195. When interest expense for the current year is more than interest paid,
the bonds

were issued at

a. A discount

b. A premium

c. Face amount

d. Cannot be determined

196. When interest expense for the current year is less than interest paid,
the bonds
were issued at

a. A discount

b. A premium

c. Face amount

d. Cannot be determined

197. When the effective interest method is used, the periodic amortization
would

a. Increase if the bonds were issued at a discount

b. Decrease if the bonds were issued at a premium

c. Increase if the bonds were issued at a premium

d. Increase if the bonds were issued at either a discount or a premium

198. A discount on bond payable is charged to interest expense

a. Equally over the life of the bond

b. Only in the year the bond is issued

c. Using the effective interest method

d. Only in the year the bond matures

199. On January 1, 2016, Rizal Company issued 4-year bonds with face
amount of P4,000,000 at P4,395,800. The 12% stated rate is payable
semiannually every June 30 and December 31. In addition, the entity paid
P137,430 in connection with the issuance of the bonds.

What is the effective rate of interest on the bonds on the date of issue?

a. 12%

b. 11%

c. 10%

d. 9%

200. On January 1, 2016, Taguig Company issued 3-year bonds with face
amount of P5,000,000 at 99. The nominal rate is 10% and the interest is
payable annually on December 31. The entity paid bond issue cost of
P150,000.
What is the interest expense for 2016 using the effective interest method?
(round off present value factors to four decimal places)

a. 550,000

b. 528,000

c. 576,000

d. 559,680