20.4   Learning Objective 20-4

 

1) Assume the following account balances immediately after an interest payment date:

 

Bonds Payable

$100,000

Premium on Bonds Payable

5,000

 

If the bonds are retired immediately at a total cost of $104,000, the journal entry to record this event is:

A)

Cash

104,000

Loss on Bond Retirement

    1,000

Premium on Bonds Payable

5,000

Bonds Payable

100,000

 

B)

Bonds Payable

100,000

Premium on Bonds Payable

    5,000

                            Cash

104,000

Gain on Bond Retirement

1,000

 

C)

Bonds Payable

100,000

Loss on Bond Retirement

    9,000

Premium on Bonds Payable

5,000

                       Cash

104,000

 

D) None of these answers are correct.

 

2) A bond sinking fund is a:

A) short-term investment.

B) long-term investment.

C) current liability.

D) long-term liability.

3) A bond sinking fund established to redeem bonds at maturity in 10 years should be classified in the current year on the balance sheet as:

A) current assets.

B) plant and equipment assets.

C) long-term investments.

D) intangible assets.

 

4) A fund set up so that a bond can be retired at maturity is called a:

A) sinking fund.

B) bond payable fund.

C) stock fund.

D) retirement fund.

 

5) A $200,000, 8% bond issue was sold at face value and later redeemed at 104. The corporation would have a:

A) gain of $20,000.

B) loss of $20,000.

C) gain of $8,000.

D) loss of $8,000.

 

6) Monies set aside to pay off bondholders at maturity are called:

A) discount funds.

B) maturity funds.

C) sinking funds.

D) annuity funds.

7) A bond sinking fund is reported as a liability on the balance sheet.

 

8) Usually, there is a gain or loss associated with early retirement of bonds.

 

9) When bonds are retired, the Bonds Payable account is credited for face value even if the bonds were originally sold at a premium.

 

10) When bonds are retired at an amount greater than face value, the company records a gain on the retirement.

 

 

 



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *