1. Any unamortized premium should be reported on the balance sheet of the issuing corporation as

a) an addition to the face amount of the bonds in the liability section
b) a direct deduction from retained earnings
c) a direct deduction from the face amount of the bonds in the liability section
d) as paid-in capital

2. The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.

a) True
b) False

3. If $1,000,000 of 8% bonds are issued at 103 1/2, the amount of cash received from the sale is

a) $1,035,000
b) $1,080,000
c) $965,000
d) $1,000,000


4. On January 1, 2010, Gemstone Company obtained a $280,000, 10-year, 11% installment note from Guarantee Bank. The note requires annual payments of $47,544, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $30,800 and principal repayment of $16,744. The journal entry to record the payment of the first annual amount due on the note would include:

a) a credit to cash of $16,744
b) a debit to Interest Expense of $47,544
c) a credit to Interest Payable of $30,800
d) a debit to Notes Payable of $16,744

5. The amortization of a premium on bonds payable decreases bond interest expense.

a) False
b) True

6. If bonds of $1,000,000 with unamortized discount of $10,000 are redeemed at 98, the gain on redemption of bonds is $10,000.

a) False
b) True