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
straightline method
B. More than it would have been if the company had used the
straightline method
C. Less than it would have been if the company had used the
straightline 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
straightline method
B. More than it would have been had the company used the
straightline method
C. Less than it would have been had the company used the
straightline method
D. None of the answers are correct





