Practice | Prepare Journal Entries to Reflect the Life Cycle of Bonds

Q1 | Naval Inc. issued $200,000 face value bonds at a discount and received $190,000. At the end of 2018, the balance in the Discount on Bonds Payable account is $5,000. This year’s balance sheet will show a net liability of ________.

$200,000

$180,000

$195,000

$205,000

Q2 | Keys Inc. issued 100 bonds with a face value of $1,000 and a rate of 8% at $1,025 each. The journal entry to record this transaction includes ________.

a credit to Bonds Payable for $102,500

a credit to cash for $102,500

a debit to cash for $100,000

a credit to Premium on Bonds Payable for $2,500

Q3 | Huang Inc. issued 100 bonds with a face value of $1,000 and a 5-year term at $960 each. The journal entry to record this transaction includes ________.

a debit to Bonds Payable for $100,000

a debit to Discount on Bonds Payable for $4,000

a credit to cash for $96,000

a credit to Discount on Bonds Payable for $4,000

Q4 | O’Shea Inc. issued bonds at a face value of $100,000, a rate of 6%, and a 5-year term for $98,000. From this information, we know that the market rate of interest was ________.

more than 6%

less than 6%

equal to 6%

cannot be determined from the information given.

Q5 | Gingko Inc. issued bonds with a face value of $100,000, a rate of 7%, and a 10-yearterm for $103,000. From this information, we know that the market rate of interest was ________.

more than 7%

less than 7%

equal to 7%

equal to 1.3%

Principles of Accounting Volume 1: Financial Accounting

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