Short Question/Multiple choice Q1) On May 1, year 1, Frk corporation issued bond

Question

Short Question/Multiple choice

Q1) On May 1, year 1, Frk corporation issued bonds payable at face value, bond has face value 30m face value, 12% interest per years for 20 years. Interest on the bond is payable every six months on May 1, and Nov. 1

Q2) On May 1, general entry to record the issuance of the bond: The first interest payment to bondholder will be on Novemeber1, year 1. The general entry on Nov 1 will be,What will be the adjusting entry on Dec.31,year 1 related to this bond issue: The corporation balance sheet on Dec.31 will include

a) payable of x

b)Bonds payable of Y

c)Bonds payable of a and interest payable of b

d)Bonds payable of Y as well as interest payable x

Q3) For the current year, Lydia company On March 31, 2015 North bank have 500,000 shares and 2 dollar par value, common stock issue, on that date, the company declared 10 % stock dividends , the market price of each shares is $25, the immediately effect of this stock dividends on North Bank books is the

a)reduction of Retain earning of y dollars

b)Reduction in cash of x dollars

c)Liability to the shareholders of x dollars

Q4) Matos corporation invested 320,000 cash in marketable securities on Dec.4. On Dec. 31, the market value for this securities is 337,000, which of the following statement is correct: Answer:

a)Matos Balance sheet report market securities 337,000 and unrealized gained of 17,000

b)If Matos sell this investment on Jan. 2 for 300,000 , it will report loss of 37,000

c)Matos's Decembers income statement includes a 17,000 gain on investment

d)Matos's Dec. balance sheet report Market securities at 320,000 on unrealized gained on 17,000

Q5) The amortization of bond discount reduces the amount of interest expense record of the life of the bond. T/F False Answer:

Q6)When a bond is sold at a discount, the amount of the bond discount must be amortized to interest expense over the life of the bond. Since the debit amount in the account Discount on Bonds Payable will be moved to the account Interest Expense, the amortization will cause each period's interest expense to be greater than the amount of interest paid during each of the years that the bond is outstanding.

Q7)Amortization of bond discount increases interest expense relative to interest paid: i.e., the total amount of interest expense over the life of the bond is greater than the total interest paid.

Q8) What is prior period adjustment?
Q9) why are junk bond to attract investor?

Explanation / Answer

issuance of bond:
cash(db)30*10^6
bonds payable(cr)30*10^6
Nov 1:
interest expense(db) 30*10^6*12%/2=1800000
cash(cr)1800000
Dec 31st:
Interest expense(db) 30*10^6*12%*(2/12)=600000
interest payable(cr) 600000

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