Question

3. Hoover Company has a long-term note payable for $300,000 on January 1, 2012. Each month the company is required to pay $75,000 on the note. How will this note be reported on January 31, 2012?

4. Under the effective-interest method of amortizing bond premium, the interest expense recorded for each semiannual interest payment: will equal the amount of cash paid for each semiannual interest payment. is equal to the carrying value of the bond times the contract rate of interest for each semiannual interest period. is at the same percentage of the bond's carrying value for every interest payment.

5. Under the effective-interest method of amortization, the cash payment on each interest payment date will: decrease if bonds are issued at a premium. remain the same for each interest period. increase if bonds are issued at par.

6. On January 1, Woodbridge Corporation issued $2,000,000, 14%, 5-year bonds with interest payable on January 1 and July 1. The bonds sold for $2,197,080. The market rate of interest was 12%. Using the effective-interest method, the debit entry to interest expense on July 1 is (round to the nearest dollar):

7. Omaha Bank lends Nebraska Paper Company $100,000 on January 1. Nebraska Paper Company signs a $100,000, 8%, 6-month note. The entry made by Nebraska Paper Company on January 1 to record the proceeds and issuance of the note would include: a credit to Interest Payable of $8,000. a credit to Notes Payable of $100,000 a credit to Interest Payable of $8,000.

8. On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30-day, 9% note payable. The amount of accrued interest on December 31 is:

9. Convertible bonds may be exchanged for: cash the issuing company's goods and services. an equity interest in the issuing company

10. When the effective-interest method of bond premium amortization is used, the: interest payment to bondholders will increase after each interest payment. amount of premium amortized increases with each amortization. carrying value of the bonds will increase with each amortization.

11. Under the effective-interest method of amortizing bond discount, the interest expense recorded for each semiannual interest payment: will equal the amount of cash paid for each semiannual interest payment. is equal to the carrying value of the bond times the stated rate of interest for each semiannual interest period. is at the same percentage of the bond's carrying value for every interest payment.

Answer 1

3. Hoover Company

Since the balance on the long-term note is payable within 12 months from the date of reporting of January 31, 2012, the note will be reported under current liabilities as the current portion of long-term note payable.

4. Answer: Is at the same percentage of the bond's carrying value for every interest payment.

Under the effective-interest method of amortizing bond premium, the interest expense for each semiannual interest period is equal to the carrying value of the bond times the market rate of interest.

5. Answer: Remain the same for each interest period.

The cash payment on each interest payment date is computed at the stated/coupon rate on the face/maturity value of the bond and remains the same for each interest period.

6. Woodbridge Corporation

Answer: the debit entry to interest expense on July 1 is (round to the nearest dollar): $131825

Interest expense = $2197080 x 12% x 6/12 = $131824.80 = $131825

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