SOLVED

10) When will bonds sell without a premium or discount? A) When the coupon rate equals the par value. B) When the coupon rate is below the market rate. C) When the coupon rate is above the market rate. D) When the coupon rate is equal to the market rate. 11) A $100,000 5-year 6% bond is issued on January 1, 2012. The bond pays interest annually. The market rate is 7%. What is the discount or premium of the sale of the bonds, rounded to nearest dollar? A) $4,100 discount B) $4,100 premium C) $95,900 D) $100,000 Total bond price = 24,601 + 71,299 = 95,900 Discount = 100,000 – 95,500 = 4,500 12) A $100,000 5-year 6% bond is issued on January 1, 2012. The bond pays interest annually. The market rate is 8%. What is the selling price of the bonds, rounded to nearest dollar? A) $7,986 B) $92,014 C) $100,000 D) $108,425 Total92,014 13) A $100,000 5-year 7% bond is issued on January 1, 2012. The bond pays interest annually. The market rate is 6%. What is the selling price of the bonds, rounded to nearest dollar? A) $4,213 B) $95,500 C) $100,000 D) $104,213 Total =104,213 14) A $100,000 5-year 7% bond is issued on January 1, 2012. The bond pays interest annually. The market rate is 6%. What is the selling premium or discount on the bonds, rounded to nearest dollar? A) $4,213 discount B) $4,213 premium C) $100,000 D) $104,213 Total =104,213 Premium = 100,000 – 104,213 = 4,213 15) Explain how non-current liabilities are measured after initial recognition. 1. establish the effective interest rate; and 2. amortize the premium or discount using the effective interest method. 16) On May 1, 2017, Sea Escape Ltd. purchases a new automobile for $18,000 from the dealer who provides the financing. The three-year, interest-free loan is repayable at $500 per month. The market rate of interest for similar transactions is 0.25% per month. Required: Prepare journal entries to record: a. the purchase of the automobile. b. the accrual of interest and the loan payment at the end of May 2017. 17) Cynthia Dixie Accounting Inc. takes advantage of a well-known office furnishings store’s low-interest-rate financing. Cynthia buys furniture on the first day of its fiscal year, signing a $19,000, five-year note. The note is payable in full at maturity. Interest is payable annually at 2%. The market rate of interest for similar transactions is 5%. b. The payment of interest and related amortization of the discount at the end of year 1.