92 when a bond payable is issued at a premium subsequent amortization of the premium 4314102

92.When a bond payable is issued at a premium, subsequent amortization of the premium does which of the following?

A. Increases interest expense.

B. Decreases the book value of the bonds.

C. The amortization for each year the bond approaches maturity, when the effective-interest method is used, would decrease.

D. Decreases the amount reported as a cash flow from operating activities.

93.If a bond is issued at 101, the coupon rate was

A. higher than the market rate of interest.

B. lower than the market rate of interest.

C. equal to the market rate of interest.

D. not related to the market rate of interest.

94.If a bond is issued at 98, the coupon rate was

A. higher than the market rate of interest.

B. lower than the market rate of interest.

C. equal to the market rate of interest.

D. not related to the market rate of interest.

95.When recording bond issuance costs for underwriter fees:

A. Debit bond issuance costs and credit cash.

B. Credit bond issuance costs and debit bond discount.

C. Debit bond premium and credit cash.

D. Credit cash and debit bond fee expense.

96.When recording bond issuance costs for fees paid to underwriters:

A. The fee is recorded in a bond issuance costs account regardless of whether the bonds were issued at a discount or at a premium.

B. The fee is recorded as a reduction in the bond discount account if the bonds were issued at a discount.

C. The fee is recorded as a reduction in the bond premium account if the bonds were issued at a premium.

D. The fee is recorded as a bond issuance expense regardless of whether the bonds were issued at a discount or at a premium.

97.On July 1, 2017, immediately after recording interest payments, Salsa, Inc. retired one fifth of its $500,000 of bonds payable for $97,500. The bonds were originally issued at par value in 2012. Which of the following statements is correct? 

A. Stockholders' equity is not affected by the bond retirement.

B. A gain of $2,500 will be reported on the income statement.

C. A loss of $2,500 will be reported on the income statement.

D. A gain of $402,500 will be reported on the income statement.

98.A company prepared the following journal entry:

Bonds payablexxx

Premium on bonds payablexxx

Loss on bond retirementxxx

Cash xxx

Which of the following statements is correct? 

A. The book value of the bonds was less than the cash payment.

B. The increase in stockholders' equity equals the loss on the bond retirement.

C. The decrease in assets is greater than the decrease in liabilities and, as a result, stockholders' equity decreases.

D. The net cash flow from financing activities decreases by the book value of the bonds payable.

99.A company prepared the following journal entry:

Bonds payablexxx

Premium on bonds payablexxx

Gain on bond retirement xxx

Cash xxx

Which of the following statements is incorrect? 

A. The book value of the bonds was less than the cash payment.

B. The increase in stockholders' equity equals the gain on the bond retirement.

C. The decrease in assets is less than the decrease in liabilities.

D. The net cash flow from financing activities decreases by the cash payment.

100.On March 31, 2016, Bundy Company retired $10,000,000 of bonds, which have an unamortized premium of $500,000, by paying bondholders $9,850,000. What is the amount of the gain or loss on the retirement of the bonds? 

A. $150,000 loss.

B. $150,000 gain.

C. $650,000 gain.

D. $350,000 loss.

101.A company retired $500,000 of bonds, which have an unamortized discount of $10,000, by repurchasing them for $500,000. What is the amount of the gain or loss on the retirement of the bonds? 

A. There was no gain or loss.

B. There was a $10,000 loss.

C. There was a $10,000 gain.

D. There was a $500,000 loss.

102.A company retired $900,000 of bonds which have an unamortized discount of $30,000, by paying bondholders $920,000. What is the amount of the gain or loss on the retirement of the bonds? 

A. There was a $50,000 loss.

B. There was a $10,000 loss.

C. There was a $10,000 gain.

D. There was a $20,000 loss.

103.A company retired $200,000 of bonds, which have an unamortized premium of $8,000, by purchasing them on the open market for $210,000. What is the amount of the gain or loss on the retirement of the bonds? 

A. There was a $10,000 loss.

B. There was a $2,000 loss.

C. There was a $10,000 gain.

D. There was an $18,000 loss.

104.Which of the following statements is correct? 

A. An outflow of cash for interest payments is reported as a cash flow from financing activities.

B. The conversion of bonds to stock is reported as a cash flow from financing activities.

C. An outflow of cash when callable bonds are recalled by the issuer is reported as a cash flow from financing activities.

D. Amortization of discounts and premiums on bonds payable are reported as a cash flow from financing activities.

105.Which of the following statements is incorrect?

A. It is common for companies to retire bonds and also issue new bonds in the same year as a way to replace higher interest rate debt with lower interest rate issuances.

B. The cash payment of interest is reported as a cash flow from operating activities.

C. Retiring bonds by paying cash creates a cash flow from investing activities when the issuing company buys the bonds back from investors.

D. The cash payment to call an outstanding bond issue is reported as a cash flow from financing activities.

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