4) When making the adjustment for accrued interest, the Bond Premium account was not taken into account. This error would cause:

A) the period end assets to be overstated.

B) the period end liabilities to be understated.

C) the period’s net income to be understated.

D) None of the above are correct.

 

5) When making the adjustment for accrued interest the Bond Discount account was not taken into consideration. This error would cause:

A) the period end assets to be overstated.

B) the period end liabilities to be understated.

C) the period’s net income to be overstated.

D) Both B and C are correct.

 

6) On October 1, Indiana Company issued $10,000, 8%, 5-year bonds at 102. What is the adjusting entry on December 31 using straight-line method?

A)

Bond Interest Expense

800

Bond Interest Payable

800

 

B)

Bond Interest Expense

200

Bond Interest Payable

200

 

C)

Bond Interest Expense

190

Premium on Bonds Payable

10

Bond Interest Payable

200

 

D)

Bond Interest Expense

210

Premium on Bonds Payable

10

Bond Interest Payable

200

 

7) On October 1, Indiana Company issued $10,000, 8%, 5-year bonds at 98. What is the adjusting entry on December 31 using straight-line method?

A)

Bond Interest Expense

800

Bond Interest Payable

800

 

B)

Bond Interest Expense

200

Bond Interest Payable

200

 

C)

Bond Interest Expense

190

Discount on Bonds Payable

  10

Bond Interest Payable

200

 

D)

Bond Interest Expense

210

Discount on Bonds Payable

10

             Bond Interest Payable

200

 

 

8) At year end there was no accrual of interest on a bond payable. This error would cause:

A) the period end assets to be overstated.

B) the period end liabilities to be overstated.

C) the period’s net income to be understated.

D) None of the above.

 

9) A bond that pays interest on February 28 and October 31 will have to be adjusted for 3 months interest on December 31.

 

10) All bonds have accrued interest adjustments on December 31.

11) Island Corporation issued $500,000 of 6%, 10-year bonds at 104 on May 1, 2009. Interest is paid semi-annually on October 31 and April 30. Journalize the entries for the issuance of the bond on May 1, the first interest payment on October 31 using straight-line method, and the adjusting entry on December 31.

 

 



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