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Assume that a bond is issued with the following
characteristics
1) Assume that a bond is issued with the following characteristics:Date of bonds: January 1, 2005;
maturity date: January 1, 2010; face value: $200,000; face interest rate: 10 percent paid
semiannually (5 percent per period); market interest rate: 8 percent (4 percent per semiannual
period); issue price: $216,222; bond premium is amortized using the effective interest method of
amortization. What is the amount of bond premium amortization for the June 30, 2005, adjusting
entry?
Answer
$1,351
$2,702
$8,649
$10,000
2) Bonds with the following characteristics are retired on January 1, 2005, at 104: Issue date:
January 1, 2004; maturity date: January 1, 2009; face value: $300,000; bond issue costs: $5,000,
amortized semiannually using the straight-line method of amortization. The unamortized bond
discount is $8,500 as of January 1, 2005. What is the amount of the gain or loss on the bond
retirement?
Answer
Gain of $8,500
Loss of $12,500
Gain of $12,500
Loss of $24,500
3) Assume that on May 1, 2005, Austin Company issues, at 105 plus accrued interest, 10-year
bonds with a face value of $100,000 and a face interest rate of 10 percent. Interest is paid
semiannually on June 30 and December 31. The bond is dated January 1, 2005, and will be due on
January 1, 2015. What is the amount credited to Premium on Bonds in the journal entry for the bond
issue?
Answer
$833.
$1,667.
$3,333.
$5,000.

4) East Co. issued 1,000 shares of its $5 par common stock to Howe as compensation for 1,000
hours of legal services performed. Howe usually bills $150 -$160 per hour for legal services. On the
date of issuance, the stock was trading on a public exchange for $140 per share. By what amount
should the additional paid-in-capital account increase as a result of this transaction.
Answer
$135,000
$140,000
$155,000
$160,000
5)
On July 10, 2007, Greco Co. declared its annual cash dividend on common stock for the year ended
June 30, 2007. The dividend was paid on August 12, 2007, to shareholders of record as of July 25,
2007. On what date should Greco decrease the liability account by the amount of the dividend?
Answer
July 10, 2007
June 30, 2007.
August 12, 2007
July 25, 2007
6) Taub Company issued 10,000 shares of its $5 par value common stock having a market value of
$25 per share and 15,000 shares of its $15 par value preferred stock having a market value of $20
per share for a lump sum of $480,000. How much of the proceeds would be allocated to the
common stock?
Answer
$50,000
$218,182
$250,000
$255,000
7) On September 1, 2008, Melnick Company reacquired 12,000 shares of its $10 par value common
stock for $15 per share. Melnick uses the cost method to account for treasury stock. The journal
entry to record the reacquisition of the stock should debit
Answer
Treasury Stock for $120,000.
Common Stock for $120,000.
Common Stock for $120,000 and Paid-in Capital in Excess of Par for $60,000.
Treasury Stock for $180,000.