1. Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?
1. $1,200 gain
2. $17,000 gain
3. $1,200 loss
4. $17,000 loss
2. Which of the following is not an advantage of issuing bonds instead of common stock?
1. Income to common shareholders may increase.
2. Stockholder control is not affected.
3. Earnings per share on common stock may be lower.
4. Tax savings result
3. A $300,000 bond was redeemed at 103 when the carrying value of the bond was $315,000. The entry to record the redemption would include a
1. gain on bond redemption of $9,000.
2. loss on bond redemption of $6,000.
3. loss on bond redemption of $9,000.
4. gain on bond redemption of $6,000.
4. The Merchant Company issued 10-year bonds on January 1, 2009. The 15% bonds have a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of 12%. Merchant uses the effective-interest method to amortize bond discounts and premiums. On July 1, 2009, Merchant should record interest expense (round to the nearest dollar) of
1. $7,500
2. $8,790
3. $14,065
4. $7,032
5. If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:
1. increase over the term of the note.
2. equal the interest rate on the note times the carrying amount of the note at the beginning of the period.
3. remain constant over the term of the note.
4. equal the interest rate on the note times the face amount.
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