Week 13 Quiz

The bicycle shop's bonds (illustrative) have a $100,000 face value and a 6 percent stated rate, and they pay interest semiannually. How much cash interest does the shop pay each period?

Select one.

• $6,000
• $3,000
• $3,400
• $2,880

On the day bonds are sold, when do they sell at a discount?

Select one.

• When the stated rate is higher than the market rate
• When the market rate equals the stated rate
• When the market rate is higher than the stated rate
• When the face value is higher than the stated rate

The bicycle shop (illustrative) issues its $100,000 of bonds for $96,000. Which journal entry records the issue?

Select one.

• Debit Cash 96,000 and Discount on Bonds Payable 4,000; credit Bonds Payable 100,000
• Debit Cash 96,000; credit Bonds Payable 96,000
• Debit Cash 96,000 and Loss on Bonds 4,000; credit Bonds Payable 100,000
• Debit Cash 100,000; credit Bonds Payable 96,000 and Discount on Bonds Payable 4,000

For the shop's bonds issued at $96,000 (illustrative), with the $4,000 discount amortized by the straight-line method over 10 periods, what is the interest expense each period?

Select one.

• $3,000
• $2,600
• $7,000
• $3,400

For the shop's bonds issued at $104,000 (illustrative), with the $4,000 premium amortized by the straight-line method over 10 periods, what is the interest expense each period?

Select one.

• $3,400
• $2,600
• $3,000
• $3,120

The shop's bonds were issued for $96,000 (illustrative), and straight-line amortization is $400 a period. What is the bonds' carrying value after the first interest period?

Select one.

• $96,400
• $100,000
• $95,600
• $96,000

Over all 10 periods, what total interest expense does the shop record on its bonds issued for $96,000 (illustrative)?

Select one.

• $30,000
• $26,000
• $34,000
• $4,000

Straight-line amortization of the shop's $4,000 bond discount works most like which earlier idea from long-lived assets?

Select one.

• Double-declining-balance depreciation, which takes more in the early years
• Units-of-production depreciation, which follows the miles a van is driven
• A gain or loss on disposal, which compares cash received with book value
• Straight-line depreciation, which spreads one amount evenly over the periods

True or false: under the effective-interest method, each period's interest expense is the bonds' carrying value at the start of the period times the market rate for one period.

True or false.

• True
• False

After the first interest period, the shop's bonds issued for $96,000 (illustrative) still have $3,600 of unamortized discount. Which statements about how these bonds appear on the balance sheet are accurate? Select all that apply.

Select every option that applies.

• They are reported in the long-term liabilities section
• They are reported at a carrying value of $96,400
• They are reported at the $100,000 face with no discount line
• Discount on Bonds Payable is subtracted from Bonds Payable
• The remaining discount is reported as an asset