1. The stated rate of interest and the effective rate of interest are synonymous

ID: 2526214 • Letter: 1

Question

1. The stated rate of interest and the effective rate of interest are synonymous terms. This statement is

A. True

B. False

2. On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 offering a 4% discount. They had a 20 year term, a stated rate of interest of 7%, and an effective rate of interest of 7.389%.Assuming Residence uses the effective interest rate method, the carrying value of the bond liability on January 1, Year 1 is (round any necessary computations to the nearest whole dollar)

A. $46,355

B. $50,000

C. $48,000

D. $46,500

3. On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 offering a 4% discount. They had a 20 year term, a stated rate of interest of 7%, and an effective rate of interest of 7.389%. Assuming Residence uses the effective interest rate method, the amount of interest expense recognized on the December 31, Year 1 income statement is (round any necessary computations to the nearest whole dollar)

A. $3,499

B. $3,500

C. $3,547

D. $3,600

4. On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 offering a 4% discount. They had a 20 year term, a stated rate of interest of 7% and an effective rate of interest of 7.389%. Assuming Residence uses the effective interest rate method, the amount of bond discount amortization recognized on December 31, Year 1 is (round any necessary computations to the nearest whole dollar)

A. $200

B. $100

C. $52

D. $47

5. On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%payable in cash on December 31 of each year. The effective rate of interest was 7.389%. Assuming Residence uses the effective interest rate method, the journal entry necessary to recognize interest expense on the December 31, Year 1 is

A. Inerest Expense- Debit $3,447

Discount on Bonds Payable- Credit $47

Cash- Credit $3,400

B. Interest Expense- Debit $3,500

Discount of Bonds Payable- Debit $47

Cash- Credit $3,547

C. Interest Expense- Debit $3,547

Discount on Bonds Payable- Credit $47

Cash- Credit $3,500

D. Interest Expense- Debit $3,547

Cash- Credit $3,547

6. On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 offering a 4% discount. They had a 20 year term, a stated rate of interest of 7%, and an effective rate of interest of 7.389%. Assuming Residence uses the effective interest rate method, the book value of the bond liability on December 31, Year 2 is (round any necessary computations to the nearest whole dollar)

A. $48,097

B. $48,000

C. $47,903

D. $48,047

7. If a company uses the effective interest rate method the amount of a bond discount on the maturity date immediately after the last amortization is recognized will be

A. The same as it would have been if the company had used the straight-line method

B. More than it would have been if the company had used the straight-line method

C. Less than it would have been if the company had used the straight-line method

D. The asnwer cannot be determined from the information provided

8. If a company uses the effective interest rate method, the amount of the cash flow from operating activities will be

A. The same as it would have been had the company used the straight-line method

B. More than it would have been had the company used the straight-line method

C. Less than it would have been had the company used the straight-line method

D. None of the answers are correct