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Chapter 11 - Liabilities: Bonds Payable
1. A bond is simply a form of an interest-bearing note.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
Bloom's: Remembering
LEARNING OBJECTIVES: FNMN.WARD.17.11-01 - LO: 11-01
ACCREDITING STANDARDS: ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
2. Bondholders are creditors of the issuing corporation.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
3. Bondholder claims on the assets of the corporation rank ahead of stockholders.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
4. A bond is usually divided into a number of individual bonds of $500 each.

a. True
b. False
ANSWER: False
DIFFICULTY: Bloom's: Remembering
Easy
BUSPROG: Analytic
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
5. If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
6. The prices of bonds are quoted as a percentage of the bonds' market value.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
7. The face value of a term bond is payable at a single specific date in the future.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
8. When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
9. The market rate of interest is affected by a variety of factors, including investors' assessment of current economic
conditions.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
10. When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
11. Bonds are sold at face value when the contract rate is equal to the market rate of interest.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
12. The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
13. If the market rate of interest is 8% and a corporation's bonds bear interest at 7%, the bonds will sell at a premium.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
14. The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total
discount or minus the total premium related to the bond.
a. True
b. False
ANSWER: True
Moderate
BUSPROG: Analytic
15. Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do not
materially differ from the results obtained by use of the interest method.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
16. If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will
decrease as the bonds approach maturity.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
17. If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense
will increase as the bonds approach maturity.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
18. There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-
balance method.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
19. The effective interest rate method of amortizing a bond discount or premium is the preferred method.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
20. The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if
the bonds were originally sold at a discount.
a. True
b. False
ANSWER: True
Easy
ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
BUSPROG: Analytic
21. The amortization of a premium on bonds payable decreases bond interest expense.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
22. If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the semiannual straight-line
amortization of the premium is $1,416.
a. True
b. False
ANSWER: False
RATIONALE: Semiannual straight-line amortization of the premium = $12,928 ÷ (4 × 2) = $12,928 ÷
8 = $1,616
DIFFICULTY: Bloom's: Applying
Easy
BUSPROG: Analytic
23. If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is
$5,500.
a. True
b. False
ANSWER: False
RATIONALE: Amount of interest payment = $100,000 × 11% = $11,000
Annual premium amortization = $12,928 ÷ 4 = $3,232
Annual interest expense = $11,000 – $3,232 = $7,768
Moderate
BUSPROG: Analytic
24. To determine the six-month interest payment amount on a bond, you would take one-half of the market rate times the
face value of the bond.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
25. Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6
months.
a. True
b. False
ANSWER: False
RATIONALE: Interest payment every 6 months = $20,000 × 12% × 1/2 year = $1,200
Easy
BUSPROG: Analytic
26. Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of
the bond issue.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
27. If bonds are sold for a discount, the carrying amount of the bonds is equal to the face value less the unamortized
discount.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
28. Both callable and noncallable bonds can be purchased by the issuing corporation in the open market.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
29. There is a loss on redemption of bonds when bonds are redeemed above the carrying amount.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
30. When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be
written off.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
31. A corporation often issues callable bonds to protect itself against significant declines in future interest rates.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
32. Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
33. Only callable bonds can be purchased by the issuing corporation before maturity.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
34. Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond
indenture.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
35. 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
ANSWER: False
Easy
BUSPROG: Analytic
36. 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. True
b. False
ANSWER: True
RATIONALE: Gain on redemption of bonds = Balance of bonds payable – Redemption value of
bonds – Unamortized discount = $1,000,000 – ($1,000,000 × 98%) – $10,000 =
$1,000,000 – $980,000 – $10,000 = $10,000
Easy
BUSPROG: Analytic
37. Gains and losses on the redemption of bonds are reported as other income (loss) on the income statement.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
38. Discount on Bonds Payable is a contra liability account.

a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
39. When there are material differences between the results of using the straight-line method and using the effective
interest rate method of amortization, the effective interest rate method should be used.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
40. Bonds payable should be reported on the balance sheet at face value plus or minus any unamortized premium or
discount.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
41. The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds
payable.
a. True
b. False
ANSWER: True
Easy
BUSPROG: Analytic
42. The balance in Premium on Bonds Payable should be reported as a deduction from Bonds Payable on the balance
sheet.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
43. The higher the times interest earned ratio, the better the creditors’ protection.
a. True
b. False
ANSWER: True
Easy
LEARNING OBJECTIVES: FNMN.WARD.17.11-ADM - LO: 11-ADM
ACCT.ACBSP.APC.23 - Financial Statement Analysis
BUSPROG: Analytic
44. The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.
a. True
b. False
ANSWER: False
Easy
BUSPROG: Analytic
45. An equal stream of periodic payments is called an annuity.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
LEARNING OBJECTIVES: FNMN.WARD.17.11-APP1 - LO: 11-APP1
BUSPROG: Analytic
46. The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the
contract rate of interest.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
47. The present value of the periodic bond interest payments is the value today of the amount of interest to be received at
the end of each interest period.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
48. The present value of an annuity is the sum of the present values of each cash flow.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
BUSPROG: Analytic
49. The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is
$3,636.30. Use the following table, if needed.
Present Value of $1 at Compound Interest
Periods 5% 6% 7% 10% 12%

1 0.95238 0.94340 0.93458 0.90909 0.89286
2 0.90703 0.89000 0.87344 0.82645 0.79719
3 0.86384 0.83962 0.81630 0.75132 0.71178
4 0.82270 0.79209 0.76290 0.68301 0.63552
5 0.78353 0.74726 0.71299 0.62092 0.56743
6 0.74622 0.70496 0.66634 0.56447 0.50663
7 0.71068 0.66506 0.62275 0.51316 0.45235
8 0.67684 0.62741 0.58201 0.46651 0.40388
9 0.64461 0.59190 0.54393 0.42410 0.36061
10 0.61391 0.55840 0.50835 0.38554 0.32197
a. True
b. False
ANSWER: False
RATIONALE: Present value = $5,000 × Present value factor for $1 discounted at 6% for 4 periods =
$5,000 × 0.79209 = $3,960.45
Easy
ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting
BUSPROG: Analytic
50. One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy

BUSPROG: Analytic
51. If $500,000 of 10-year bonds, with interest payable semiannually are sold for $494,040 based on (1) the present value
of $500,000 due in 20 periods at 5% plus (2) the present value of twenty $25,000 payments at 5%, the nominal or contract
rate and the market rate of interest for the bonds are both 10%.
a. True
b. False
ANSWER: False
RATIONALE: When the market rate is greater than the contract rate, bonds sell for less than their face
value. Since the bond is sold for less than face value of $500,000, market rate will be
greater than contract rate.
Easy
BUSPROG: Analytic
52. When the effective interest rate method of amortization is used, the amount of interest expense for a given period is
calculated by multiplying the face rate of interest by the bond’s carrying value at the beginning of the given period.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
BUSPROG: Analytic
53. The effective interest rate method produces a constant dollar amount of interest expense to be reported each interest
period.
a. True
b. False
ANSWER: False
ACCT.AICPA.FN.04 - Reporting
BUSPROG: Analytic
54. The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the
same amount of cash held at an earlier date.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
BUSPROG: Analytic
55. A bond indenture is

a. a contract between the corporation issuing the bonds and the underwriters selling the bonds
b. the amount due at the maturity date of the bonds
c. a contract between the corporation issuing the bonds and the bondholders
d. the amount for which the corporation can buy back the bonds prior to the maturity date
ANSWER: c
Easy
BUSPROG: Analytic
56. When the corporation issuing the bonds has the right to redeem the bonds prior to the maturity, the bonds are
a. convertible bonds
b. unsecured bonds
c. debenture bonds
d. callable bonds
ANSWER: d
Easy
BUSPROG: Analytic
57. When the maturities of a bond issue are spread over several dates, the bonds are called
a. serial bonds
b. bearer bonds
c. debenture bonds
d. term bonds
ANSWER: a

Easy
BUSPROG: Analytic
58. The market interest rate related to a bond is also called the
a. stated interest rate
b. effective interest rate
c. contract interest rate
d. straight-line rate
ANSWER: b
Easy
BUSPROG: Analytic
59. If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $500,000
will be
a. equal to $500,000
b. greater than $500,000
c. less than $500,000
d. greater than or less than $500,000, depending on the maturity date of the bonds
ANSWER: c
RATIONALE: If the market rate is greater than the contract rate, the bonds will sell for less than their
face value. Thus, the price of the bond will be less than $500,000.
Easy
BUSPROG: Analytic
60. When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at
a. a premium
b. their face value
c. their maturity value
d. a discount
ANSWER: d
Easy

BUSPROG: Analytic
61. The interest rate specified in the bond indenture is called the
a. discount rate
b. contract rate
c. market rate
d. effective rate
ANSWER: b
Easy
BUSPROG: Analytic
62. A legal document that indicates the name of the issuer, the face value of the bond and such other data is called
a. trading on the equity
b. convertible bond
c. a bond debenture
d. a bond indenture
ANSWER: d
Easy
ACCT.AICPA.BB.03 - Legal
BUSPROG: Analytic
63. Bonds that are subject to retirement prior to maturity at the option of the issuer are called
a. debentures
b. callable bonds
c. early retirement bonds
d. options
ANSWER: b
Easy
BUSPROG: Analytic
64. On January 1 of the current year, the Barton Corporation issued 10% bonds with a face value of $200,000. The bonds
are sold for $191,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is
December 31, five years from now. Barton records straight-line amortization of the bond discount. The bond interest
expense for the year ended December 31 is
a. $10,900
b. $18,200
c. $21,800
d. $29,000
ANSWER: c
RATIONALE: Bond interest expense = {[(Face value of bonds × 10% × 1/2 year)] + [Discount on
issue ÷ (5 years × 2)]} × 2 = {[$200,000 × 10% × 1/2 year] + [($200,000 – $191,000) /
(5 × 2)]} × 2 = ($10,000 + $900) × 2 = $21,800
Moderate
BUSPROG: Analytic
65. If $1,000,000 of 8% bonds are issued at 102 3/4, the amount of cash received from the sale is
a. $1,080,000
b. $972,500
c. $1,000,000
d. $1,027,500
ANSWER: d
RATIONALE: Amount of cash received from the sale of bonds = Face value of bond × Bond quote =
$1,000,000 × 102.75/100 = $1,027,500
Easy
BUSPROG: Analytic
66. If $2,000,000 of 10% bonds are issued at 97, the amount of cash received from the sale is
a. $2,060,000
b. $2,000,000
c. $2,100,000
d. $1,940,000
ANSWER: d
RATIONALE: Amount of cash received from the sale of bonds = Face value of bonds × Bond quote =
$2,000,000 × 0.97 = $1,940,000
Easy

BUSPROG: Analytic
67. Selling the bonds at a premium has the effect of

a. raising the effective interest rate above the stated interest rate
b. attracting investors that are willing to pay a lower rate of interest than on similar bonds
c. causing the interest expense to be higher than the bond interest paid
d. causing the interest expense to be lower than the bond interest paid
ANSWER: d
Moderate
FNMN.WARD.17.11-02 - LO: 11-02
BUSPROG: Analytic
68. If bonds are issued at a discount, it means that the

a. bondholder will receive effectively less interest than the contractual rate of interest
b. market interest rate is lower than the contractual interest rate
c. market interest rate is higher than the contractual interest rate
d. financial strength of the issuer is suspect
ANSWER: c
Easy
FNMN.WARD.17.11-02 - LO: 11-02
BUSPROG: Analytic
69. The Levi Company issued $200,000 of 12% bonds on January 1 of the current year at face value. The bonds pay
interest semiannually on January 1 and July 1. The bonds are dated January 1, and mature in five years, on January
1. The total interest expense related to these bonds for the current year ending on December 31 is
a. $2,000
b. $6,000
c. $18,000
d. $24,000
ANSWER: d
RATIONALE: Total interest expense = (Face value of bonds × 12% × 1/2 year) × 2 = ($200,000 ×
12% × 1/2 year) × 2 = $24,000
Moderate

BUSPROG: Analytic
70. A corporation issues for cash $1,000,000 of 10%, 20-year bonds, interest payable annually, at a time when the
market rate of interest is 12%. The straight-line method is adopted for the amortization of bond discount or
premium. Which of the following statements is true?
a. The amount of the annual interest expense is computed at 10% of the bond carrying amount at the beginning
of the year.
b. The amount of the annual interest expense gradually decreases over the life of the bonds.
c. The amount of unamortized discount decreases from its balance at issuance date to a zero balance at
maturity.
d. The bonds will be issued at a premium.
ANSWER: c
Easy
BUSPROG: Analytic
71. If the straight-line method of amortization of bond premium or discount is used, which of the following statements is
true?
a. Annual interest expense will increase over the life of the bonds with the amortization of bond premium.
b. Annual interest expense will remain the same over the life of the bonds with the amortization of bond
discount.
c. Annual interest expense will decrease over the life of the bonds with the amortization of bond discount.
d. Annual interest expense will increase over the life of the bonds with the amortization of bond discount.
ANSWER: b
Easy
BUSPROG: Analytic
72. Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the
a. The carrying amount increases from its amount at issuance date to $1,000,000 at maturity.
b. The carrying amount decreases from its amount at issuance date to $1,000,000 at maturity.
c. The amount of annual interest paid to bondholders increases over the 10-year life of the bonds.
d. The amount of annual interest expense decreases as the bonds approach maturity.
ANSWER: b
Moderate

BUSPROG: Analytic
73. Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the
a. The amount of annual interest paid to bondholders remains the same over the life of the bonds.
b. The amount of annual interest expense decreases as the bonds approach maturity.
c. The amount of annual interest paid to bondholders increases over the 15-year life of the bonds.
d. The carrying amount decreases from its amount at issuance date to $2,000,000 at maturity.
ANSWER: a
Easy
BUSPROG: Analytic
74. The entry to record the amortization of a premium on bonds payable on an interest payment date would
a. a debit to Premium on Bonds Payable and a credit to Interest Revenue
b. a debit to Interest Expense and a credit to Premium on Bond Payable
c. a debit to Interest Expense and Premium on Bonds Payable and a credit to Cash
d. a debit to Bonds Payable and a credit to Interest Expense
ANSWER: c
Moderate
BUSPROG: Analytic
75. The adjusting entry to record the amortization of a discount on bonds payable is
a. debit Discount on Bonds Payable, credit Interest Expense
b. debit Interest Expense, credit Discount on Bonds Payable
c. debit Interest Expense, credit Cash
d. debit Bonds Payable, credit Interest Expense
ANSWER: b
Moderate
ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries
BUSPROG: Analytic
76. The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same
is to
a. debit Bonds Payable, credit Cash
b. debit Cash and Discount on Bonds Payable, credit Bonds Payable
c. debit Cash, credit Premium on Bonds Payable and Bonds Payable
d. debit Cash, credit Bonds Payable
ANSWER: d
Easy
ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions
BUSPROG: Analytic
77. The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate
would be
ANSWER: c
Moderate
BUSPROG: Analytic
78. The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate
would be
ANSWER: b
Moderate
BUSPROG: Analytic
79. The journal entry a company records for the payment of interest, interest expense, and amortization of bond discount
is
a. debit Interest Expense, credit Cash and Discount on Bonds Payable
b. debit Interest Expense, credit Cash
c. debit Interest Expense and Discount on Bonds Payable, credit Cash
d. debit Interest Expense, credit Interest Payable and Discount on Bonds Payable
ANSWER: a
Moderate
BUSPROG: Analytic
80. The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium
is
a. debit Interest Expense, credit Cash and Premium on Bonds Payable
b. debit Interest Expense, credit Cash
c. debit Interest Expense and Premium on Bonds Payable, credit Cash
d. debit Interest Expense, credit Interest Payable and Premium on Bonds Payable
ANSWER: c
Moderate
BUSPROG: Analytic
81. On January 1, the Elias Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for
$46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, ten
years from now. Elias records straight-line amortization of the bond discount. The bond interest expense for the year
ended December 31 of the first year is
a. $5,000
b. $5,200
c. $5,800
d. $5,400
ANSWER: d
RATIONALE: Bond interest expense = {[(Face value of bonds × 10% × 1/2 year)] + [Discount on
issue ÷ (10 years × 2)]} × 2 = {[$50,000 × 10% × 1/2 year] + [($50,000 – $46,000) /
(10 years × 2)]} × 2 = $5,400
Moderate
BUSPROG: Analytic
82. Eddie Industries issues $1,500,000 of 8% bonds at 105. The amount of cash received from the sale is
a. $1,425,000
b. $1,080,000
c. $1,000,000
d. $1,575,000
ANSWER: d
RATIONALE: The amount of cash received from the sale of bonds = Face value of bonds × Bond
quote = $1,500,000 × 1.05 = $1,575,000
Easy
BUSPROG: Analytic
83. If the market rate of interest is greater than the contractual rate of interest, bonds will sell
a. at a premium
b. at face value
c. at a discount
d. only after the stated rate of interest is increased
ANSWER: c
Easy
BUSPROG: Analytic
84. The interest expense recorded on an interest payment date is increased

a. only if the market rate of interest is less than the stated rate of interest on that date
b. by the amortization of premium on bonds payable
c. by the amortization of discount on bonds payable
d. only if the bonds were sold at face value
ANSWER: c
Moderate
BUSPROG: Analytic
85. On January 1, $2,000,000, 5-year, 10% bonds, were issued for $1,960,000. Interest is paid semiannually on January 1
and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the semiannual
amortization amount is
a. $8,000
b. $2,000
c. $4,000
d. $10,000
ANSWER: c
RATIONALE: Semiannual discount amortization amount = (Face value – Issue price) / (5 × 2) =
($2,000,000 – $1,960,000) / 10 = $4,000
Easy
BUSPROG: Analytic
86. If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an
amount
a. less than face value
b. equal to the face value
c. greater than face value
d. that cannot be determined
ANSWER: c
Easy
BUSPROG: Analytic
87. Franklin Corporation issues $50,000, 10%, 5-year bonds on January 1, for $52,100. Interest is paid semiannually on
January 1 and July 1. If Franklin uses the straight-line method of amortization of bond premium, the amount of bond
interest expense to be recognized on July 1 is
a. $10,290
b. $2,710
c. $2,500
d. $2,290
ANSWER: d
RATIONALE: Bond interest expense to be recognized on July 1 = {[(Face value of bonds × 10% ×
1/2 year)] – [(Bond realization – Face value) ÷ (5 years × 2)]} × 2 = {[$50,000 × 10%
× 1/2 year] – [($52,100 – $50,000) / (5 years × 2)]} = ($2,500 – $210) = $2,290
Moderate
BUSPROG: Analytic
88. If bonds are issued at a premium, the stated interest rate is

a. higher than the market rate of interest
b. lower than the market rate of interest
c. too low to attract investors
d. adjusted to a higher rate of interest
ANSWER: a
Easy
BUSPROG: Analytic
89. The Freeman Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1 at 96. The journal entry to record
the issuance will show a
a. debit to Cash of $2,000,000
b. credit to Discount on Bonds Payable for $80,000
c. credit to Bonds Payable for $1,920,000
d. debit to Cash for $1,920,000
ANSWER: d
RATIONALE: Cash received on the issue of bonds by Freeman Corporation = Face value of each
bond × Number of bonds × Bond Quote = $1,000 × 2,000 × 0.96 = $1,920,000
The journal entry to record the issuance will show a debit to Cash for $1,920,000.
Easy
BUSPROG: Analytic
90. The Glenn Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 96. The journal entry to record the
issuance will show a
a. debit to Discount on Bonds Payable for $80,000
b. debit to Cash of $2,000,000
d. credit to Cash for $1,920,000
ANSWER: a
RATIONALE: Discount on Bonds Payable = Face value of bond – Cash received from the issuance of
bonds = ($2,000 × 1,000) – ($2,000 × 1,000 × 0.96) = $2,000,000 – $1,920,000 =
$80,000
The journal entry to record the issuance will show a debit to Discount on Bonds
Payable for $80,000.

Easy

BUSPROG: Analytic
91. The Hayden Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 92. The journal entry to record
the issuance will show a
a. credit to Discount on Bonds Payable for $160,000
b. debit to Cash of $2,000,000
d. credit to Cash for $1,840,000
ANSWER: c
RATIONALE: Credit to Bonds Payable = Face value of bond × Number of bonds = $2,000 × 1,000 =
$2,000,000
The journal entry to record the issuance will show a credit to Bonds Payable for
$2,000,000.
Easy
BUSPROG: Analytic
92. Bonds with a face amount of $1,000,000 are sold at 106. The journal entry to record the issuance is
a. Cash 1,000,000
Premium on Bonds Payable 60,000
Bonds Payable 1,060,000
b. Cash 1,060,000
c. Cash 1,060,000
Discount on Bonds Payable 60,000
d. Cash 1,060,000
ANSWER: b
RATIONALE: Premium on issue of bonds = Cash received from the issuance of bonds – Face value
of bonds = ($1,000,000 × 1.06) – ($1,000,000) = $60,000
The journal entry to record the issuance is
Debit Credit
Cash 1,060,000

Easy

BUSPROG: Analytic
93. Bonds with a face amount of $1,000,000 are sold at 98. The entry to record the issuance is
a. Cash 1,000,000
Bonds Payable 980,000
b. Cash 980,000
c. Cash 980,000
d. Cash 980,000
ANSWER: c
RATIONALE: Discount on bonds payable = Face value of bonds – Cash received from the issuance
of bonds = $1,000,000 – ($1,000,000 × 0.98) = $20,000
The journal entry to record the issuance is
Debit Credit
Cash 980,000

Easy
BUSPROG: Analytic
94. If bonds payable are not callable, the issuing corporation

a. can exchange them for common stock
b. can repurchase them in the open market
c. must get special permission from the SEC to repurchase them
d. is more likely to repurchase them if the interest rates increase
ANSWER: b
Easy
BUSPROG: Analytic
95. When callable bonds are redeemed below the carrying amount
a. gain on redemption of bonds is credited
b. loss on redemption of bonds is debited
c. retained earnings is credited
d. retained earnings is debited
ANSWER: a
Easy
BUSPROG: Analytic
96. Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing
corporation redeems the bonds at 97 1/2 what is the amount of gain or loss on redemption?
a. $10,000 loss
b. $25,000 loss
c. $25,000 gain
d. $15,000 gain
ANSWER: d
RATIONALE: Gain on redemption of bonds = Balance of Bonds Payable – Redemption value of
bonds – Balance of Discount on Bonds Payable = $1,000,000 – ($1,000,000 × 0.975) –
$10,000 = $1,000,000 – $975,000 – $10,000 = $15,000
Moderate
BUSPROG: Analytic
97. Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing
corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?
a. $1,200 loss
b. $1,200 gain
c. $17,000 loss
d. $17,000 gain
ANSWER: c
RATIONALE: Loss on redemption = Redemption value of bonds – Balance of Bonds Payable –
Balance of Premium on Bonds Payable = ($900,000 × 1.03) – $900,000 – $10,000 =
$927,000 – $900,000 – $10,000 = $17,000
Moderate
BUSPROG: Analytic
98. A $300,000 bond was redeemed at 98 when the carrying amount of the bond was $292,000. The entry to record the
redemption would include a
a. loss on bond redemption of $4,000
b. gain on bond redemption of $4,000
c. gain on bond redemption of $2,000
d. loss on bond redemption of $2,000
ANSWER: d
RATIONALE: Loss on bond redemption = Redemption value of bonds – Carrying amount of bond =
($300,000 × 0.98) – $292,000 = $2,000
The entry to record the redemption would include a loss on bond redemption of
$2,000.
Moderate
BUSPROG: Analytic
99. A $300,000 bond was redeemed at 104 when the carrying amount of the bond was $316,000. The entry to record the
redemption would include a
a. loss on bond redemption of $3,000
b. gain on bond redemption of $3,000
c. gain on bond redemption of $4,000
d. loss on bond redemption of $4,000
ANSWER: c
RATIONALE: Gain on bond redemption = Carrying amount of bond – Redemption value of bonds =
$316,000 – ($300,000 × 1.04) = $4,000
The entry to record the redemption would include a gain on bond redemption of
$4,000.
Moderate
BUSPROG: Analytic
100. Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing
corporation redeems the bonds at 98 1/2, what is the amount of gain or loss on redemption?
a. $500 loss
b. $15,500 loss
c. $15,500 gain
d. $500 gain
ANSWER: a
RATIONALE: Loss on redemption = Redemption value of bonds + Balance of Discount on Bonds
Payable– Balance of Bonds Payable = ($1,000,000 × 0.985) + $15,500 – $1,000,000 =
$985,000 + $15,500 – $1,000,000 = $500

Moderate
BUSPROG: Analytic
101. On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest
payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. The journal entry to record
the amortization of the premium (by the straight-line method) for the year by Lisbon Co. includes a debit to
a. Interest Expense for $2,500

b. Premium on Bonds Payable for $2,500
c. Interest Expense for $5,000
d. Premium on Bonds Payable for $5,000
ANSWER: d
RATIONALE: Amortization of the premium by the straight-line method for the year = [ Premium
amount / (10 years × 2)] × 2 = [($1,050,000 – $1,000,000) / 20] × 2 = ($50,000 / 20) ×
2 = $5,000
The journal entry to record the amortization of the premium (by the straight-line
method) for the year by Lisbon Co. includes a debit to Premium on Bonds Payable for
$5,000.
Challenging
BUSPROG: Analytic
payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. If Lisbon uses the straight-
line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co.
would include a debit to
a. Interest Payable for $30,000

b. Interest Expense for $32,500
c. Cash for $70,000
d. Premium on Bonds Payable for $5,500
ANSWER: b
RATIONALE: Interest expense = Interest – Amortization of premium on bonds payable =
[$1,000,000 × (7% ÷ 2)] – [($1,050,000 – $1,000,000) / (10 × 2)] = $35,000 – $2,500
= $32,500
The journal entry to record the first semiannual interest payment by Lisbon Co. would
include a debit to Interest Expense for $32,500.
Challenging

BUSPROG: Analytic
103. Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000. If the issuing
corporation redeems the bonds at 101, what is the amount of gain or loss on redemption?
a. $3,000 loss
b. $3,000 gain
c. $7,000 loss
d. $7,000 gain
ANSWER: a
RATIONALE: Loss on Redemption of Bonds = Redemption value of bonds – Balance of Bonds
Payable – Balance of Premium on Bonds Payable = ($1,000,000 × 1.01) – $1,000,000
– $7,000 = $3,000
Moderate
BUSPROG: Analytic
104. When the bonds are sold for more than their face value, the carrying amount of the bonds is equal to
a. face value
b. face value plus the unamortized discount
c. face value minus the unamortized premium
d. face value plus the unamortized premium
ANSWER: d
Easy
BUSPROG: Analytic
105. The balance in Discount on Bonds Payable

a. should be reported on the balance sheet as an asset because it has a debit balance
b. should be allocated to the remaining periods for the life of the bonds by the straight-line method, if the results
obtained by that method materially differ from the results that would be obtained by the effective interest rate
method
c. would be added to the related bonds payable to determine the carrying amount of the bonds
d. would be subtracted from the related bonds payable on the balance sheet
ANSWER: d
Easy

FNMN.WARD.17.11-03 - LO: 11-03
BUSPROG: Analytic
106. The balance in Premium on Bonds Payable

a. should be reported on the balance sheet as a deduction from the related bonds payable
b. should be allocated to the remaining periods for the life of the bonds by the straight-line method, if the results
obtained by that method materially differ from the results that would be obtained by the effective interest rate
method
c. would be added to the related bonds payable on the balance sheet
d. should be reported in the paid-in capital section of the balance sheet
ANSWER: c
Easy
FNMN.WARD.17.11-03 - LO: 11-03
BUSPROG: Analytic
107. Any unamortized premium should be reported on the balance sheet of the issuing corporation as
a. a direct deduction from the face amount of the bonds in the liabilities section
b. as paid-in capital
c. a direct deduction from retained earnings
d. an addition to the face amount of the bonds in the liabilities section
ANSWER: d
Easy
BUSPROG: Analytic
108. The balance in Discount on Bonds Payable that is applicable to bonds due in three years would be reported on the
balance sheet in the section entitled
a. investments
b. long-term liabilities
c. current assets
d. intangible assets
ANSWER: b

Easy
BUSPROG: Analytic
109. Balance sheet and income statement data indicate the following:
Bonds payable, 6% (due in 15 years) $1,200,000
Income before income tax for year 320,000
Income tax for year 80,000
Interest payable 33,000
Interest receivable 19,000
Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)
a. 5.00
b. 5.44
c. 4.00
d. 4.33
ANSWER: b
RATIONALE: Times Interest Earned Ratio = (Income Before Income Tax + Bonds Interest Expense)
/ Bonds Interest Expense = [($320,000 + ($1,200,000 × 6%)] / ($1,200,000 × 6%) =
5.44
Moderate
BUSPROG: Analytic
110. Creditors are interested in the times interest earned ratio because they want to
a. know what rate of interest the corporation is paying
b. have adequate protection against a potential drop in earnings jeopardizing their interest payments
c. be sure their debt is backed by collateral
d. know the tax effect of lending to a corporation
ANSWER: b
Easy
BUSPROG: Analytic
111. The times interest earned ratio is computed as
a. Income before income taxes + Interest expense ÷ Interest expense
b. Income before income taxes – Interest expense ÷ Interest expense
c. Income before income taxes ÷ Interest expense
d. Income before income taxes + Interest expense ÷ Interest revenue
ANSWER: a
Easy
BUSPROG: Analytic
Bonds payable, 6% (this is year 4 of 20 years) $1,200,000
Income before income tax for year 340,000
Income tax for year 80,000
Interest payable 9,000
Interest receivable 26,000
Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)
a. 5.72
b. 6.83
c. 4.72
d. 4.83
ANSWER: a
RATIONALE: Times Interest Earned Ratio = (Income Before Income Tax + Bonds Interest Expense)
/ Bonds Interest Expense = [($340,000 + ($1,200,000 × 6%)] / ($1,200,000 × 6%) =
5.72
Moderate
BUSPROG: Analytic
113. The present value of $40,000 to be received in two years, at 12% compounded annually, is _____ (rounded to nearest
dollar). Use the following table, if needed.
Periods 5% 6% 7% 10% 12%

1 0.95238 0.94340 0.93458 0.90909 0.89286
2 0.90703 0.89000 0.87344 0.82645 0.79719
3 0.86384 0.83962 0.81630 0.75132 0.71178
4 0.82270 0.79209 0.76290 0.68301 0.63552
5 0.78353 0.74726 0.71299 0.62092 0.56743
6 0.74622 0.70496 0.66634 0.56447 0.50663
7 0.71068 0.66506 0.62275 0.51316 0.45235
8 0.67684 0.62741 0.58201 0.46651 0.40388
9 0.64461 0.59190 0.54393 0.42410 0.36061
10 0.61391 0.55840 0.50835 0.38554 0.32197
a. $31,888
b. $48,112
c. $8,112
d. $40,000
ANSWER: a
RATIONALE: The present value of $40,000 to be received in two years, at 12% compounded
annually = $40,000 × Present value factor of $1 to be received in two years, at 12%
compounded annually = $40,000 × 0.79719 = $31,888
Moderate
ACCREDITING STANDARDS: ACCT.ACBSP.APC.15 - Current Assets Reporting
BUSPROG: Analytic
114. A corporation issues for cash $9,000,000 of 8%, 30-year bonds, interest payable semiannually. The amount received
for the bonds will be
a. present value of 60 semiannual interest payments of $360,000, plus present value of $9,000,000 to be repaid in
30 years
b. present value of 30 annual interest payments of $720,000
c. present value of 30 annual interest payments of $360,000, plus present value of $9,000,000 to be repaid in 30
years
d. present value of $9,000,000 to be repaid in 30 years, less present value of 60 semiannual interest payments of
$360,000
ANSWER: a
RATIONALE: Semiannual interest payment = $9,000,000 × (8% ÷ 2) = $360,000
The amount received for the bonds will be present value of 60 semiannual interest
payments of $360,000, plus present value of $9,000,000 to be repaid in 30 years

Moderate
BUSPROG: Analytic
115. The present value of $60,000 to be received in one year, at 6% compounded annually, is _____ (rounded to nearest
dollar). Use the following table, if needed.
Periods 5% 6% 7% 10% 12%

1 0.95238 0.94340 0.93458 0.90909 0.89286
2 0.90703 0.89000 0.87344 0.82645 0.79719
3 0.86384 0.83962 0.81630 0.75132 0.71178
4 0.82270 0.79209 0.76290 0.68301 0.63552
5 0.78353 0.74726 0.71299 0.62092 0.56743
6 0.74622 0.70496 0.66634 0.56447 0.50663
7 0.71068 0.66506 0.62275 0.51316 0.45235
8 0.67684 0.62741 0.58201 0.46651 0.40388
9 0.64461 0.59190 0.54393 0.42410 0.36061
10 0.61391 0.55840 0.50835 0.38554 0.32197
a. $56,604
b. $63,396
c. $60,000
d. $3,396
ANSWER: a
RATIONALE: The present value of $60,000 to be received in one year, at 6% compounded annually
= $60,000 × Present value factor of $1 to be received in one year, at 6% compounded
annually = $60,000 × 0.94340 = $56,604
Moderate
ACCREDITING STANDARDS: ACCT.ACBSP.APC.15 - Current Assets Reporting
BUSPROG: Analytic
116. When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay
interest annually. The selling price of this bond issue was
a. $321,970
b. $1,000,000
c. $943,494
d. $621,524
ANSWER: c
RATIONALE: Selling price of bonds = Present value of face amount of $1,000,000 due in ten years,
at 12% compounded annually + Present value of 10 annual interest payments of
$110,000, at 12% compounded annually
Present value of face amount of $1,000,000 due in ten years, at 12% compounded
annually = $1,000,000 × 0.32197 = $321,970
Present value of 10 annual interest payments of $110,000, at 12% compounded
annually = $110,000 × 5.65022 = $621,524
Selling price of bonds = $321,970 + $621,524 = $943,494
Moderate
BUSPROG: Analytic
117. The Designer Company issued 10-year bonds on January 1. The 6% bonds have a face value of $800,000 and pay
interest every January 1 and July 1. The bonds were sold for $690,960 based on the market interest rate of 8%. Designer
uses the effective interest method to amortize bond discounts and premiums. On July 1 of the first year, Designer should
record interest expense (round to the nearest dollar) of
a. $27,638
b. $24,000
c. $48,000
d. $55,277
ANSWER: a
RATIONALE: As Designer uses the effective interest method to amortize bond discounts and
premiums, the interest expense on July 1, Year 1 = Bond carrying amount × (Market
interest rate ÷ 2) = $690,960 × (8% ÷ 2) = $690,960 × 4% = $27,638
Moderate
BUSPROG: Analytic
118. The Merchant Company issued 10-year bonds on January 1. The 15% bonds have a face value of $100,000 and pay
interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of
12%. Merchant uses the effective interest method to amortize bond discounts and premiums. On July 1 of the first year,
Merchant should record interest expense (round to the nearest dollar) of
a. $7,032
b. $7,500
c. $8,790
d. $14,065
ANSWER: a
RATIONALE: As Merchant uses the effective interest method to amortize bond discounts and
premiums, the interest expense on July 1, Year 1 = Bond carrying amount × (Market
interest rate ÷ 2) = $117,205 × (12% ÷ 2) = $117,205 × 6% = $7,032
Moderate
BUSPROG: Analytic
119. When the effective interest method is used, the amortization of the bond premium
a. increases interest expense each period
b. decreases interest expense each period
c. increases interest expense in some periods and decreases interest expense in other periods
d. has no effect on the interest expense in any period
ANSWER: b
DIFFICULTY: Easy

BUSPROG: Analytic
Match each description below to the appropriate term (a-g).
a. contract rate
b. effective rate
c. bond discount
d. bond premium
e. bond
f. bond indenture
g. principal
Moderate

BUSPROG: Reflective Thinking
120. The face amount of each bond

ANSWER: g
121. A form of an interest-bearing note

ANSWER: e
122. The return required by the market on the day of issuance

ANSWER: b
123. If the contract rate exceeds the effective rate

ANSWER: d
124. The rate printed on the bond certificate

ANSWER: a
125. If the contract rate is less than the effective rate

ANSWER: c
126. The contract between bond issuer and bond purchaser

ANSWER: f
Match each description below to the appropriate term (a-g).

a. carrying amount
b. face value
c. callable bond
d. indenture
e. term bond
f. convertible bond
g. serial bond
FNMN.WARD.17.11-02 - LO: 11-02
BUSPROG: Reflective Thinking
127. The book value of bonds payable

ANSWER: a
128. The entire principal of the bond is paid back on maturity date
ANSWER: e
129. The value of a bond stated on the bond certificate

ANSWER: b
130. The legal contract between issuer and bond holder

ANSWER: d
131. Allows the issuer to redeem bonds before maturity date

ANSWER: c
132. The principal of the bond issue is paid back in installments

ANSWER: g
133. Allows the bond holder to exchange bond for shares of stock
ANSWER: f
134. On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5-year bond that pays semiannual interest of
$35,000 ($1,000,000 × 7% × 1/2), receiving cash of $884,171. Journalize the entry to record the issuance of the bonds.
ANSWER: Cash 884,171
Easy
BUSPROG: Analytic
135. On the first day of the fiscal year, a company issues a $500,000, 8%, 10-year bond that pays semiannual interest of
$20,000 ($500,000 × 8% × 1/2), receiving cash of $437,740. Journalize the entry to record the issuance of the bonds.
Easy
BUSPROG: Analytic
136. On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5-year bond that pays semiannual interest of
$35,000 ($1,000,000 × 7% × 1/2), receiving cash of $884,171. Journalize the first interest payment and the amortization
of the related bond discount using the straight-line method. Round answers to the nearest dollar.
ANSWER: Interest Expense 46,583
Cash 35,000

Moderate
BUSPROG: Analytic
137. On the first day of the fiscal year, a company issues an $800,000, 6%, 5-year bond that pays semiannual interest of
$24,000 ($800,000 × 6% × 1/2), receiving cash of $690,960. Journalize the entry to record the first interest payment and
the amortization of the related bond discount using the straight-line method.
Cash 24,000
Moderate
BUSPROG: Analytic
$20,000 ($500,000 × 8% × 1/2), receiving cash of $530,000. Journalize the entry to record the issuance of the bonds.
Easy
BUSPROG: Analytic
$20,000 ($500,000 × 8% × 1/2), receiving cash of $520,000. Journalize the entry to record the first interest payment and
amortization of premium using the straight-line method.
Cash 20,000
Moderate
BUSPROG: Analytic
140. A $375,000 bond issue on which there is an unamortized discount of $40,000 is redeemed for $320,000. Journalize
the redemption of the bonds.
ANSWER: Bonds Payable 375,000
Gain on Redemption of Bonds 15,000
Cash 320,000
Moderate
BUSPROG: Analytic
Loss on Redemption of Bonds 10,000
Cash 475,000
Easy
BUSPROG: Analytic
Cash 475,000
Easy
BUSPROG: Analytic
143.
(a) Prepare the journal entry to issue $500,000 bonds that sold for $490,000.
(b) Prepare the journal entry to issue $500,000 bonds that sold for $515,000.
ANSWER: (a)
Cash 490,000
(b)
Cash 515,000
Easy
BUSPROG: Analytic
144. Brubeck Co. issued $10,000,000 of 30-year, 8% callable bonds on May 1 of Year 1, with interest payable on May 1
and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following
selected transactions:
(a) Issued the bonds for cash at their face amount.
(b) Paid the interest on the bonds on November 1 of Year 3.
(c) Called one-fourth of the bonds at 104, the rate provided in the bond indenture, on May 1 of Year 10. (Omit entry for
payment of interest.)
ANSWER: (a) Cash 10,000,000
(b) Interest Expense 400,000

Cash 400,000
(c)
Cash 2,600,000
Moderate
BUSPROG: Analytic
145. On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were
sold for $1,225,000. Present entries to record the following transactions for the current fiscal year:
(a) Issuance of the bonds.
(b) First semiannual interest payment (record as separate entry from discount amortization).
(c) Amortization of bond discount for the year, using the straight-line method of amortization.
ANSWER: (a)
Cash 1,225,000
(b)
Interest Expense 60,000
Cash 60,000
(c)

Moderate
BUSPROG: Analytic
146. On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually, were sold
for $2,125,000. Present entries to record the following transactions for the current fiscal year.
(b) First annual interest payment (record as separate entry from premium amortization).
(c) Amortization of bond premium for the year, using the straight-line method of amortization.
ANSWER: (a)
Cash 2,125,000
(b)
Cash 140,000
(c)
Moderate
BUSPROG: Analytic
147. On February 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds for $1,225,000. Interest is payable semiannually
on February 1 and August 1. Present the entries to record the following transactions.
(b) First semiannual interest payment (record as separate entry from premium amortization).
(c) Amortization of bond premium for the year, using the straight-line method of amortization.
(Round to the nearest dollar when necessary.)
ANSWER: (a)
Cash 1,225,000
(b)
Cash 58,500
(c)
Moderate

BUSPROG: Analytic
payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. Prepare entries to record the
following transactions for the current fiscal year.
(b) Second semiannual interest payment.
Amortization of bond premium for the first year, using the straight-line method of
(c)
amortization.
ANSWER: (a)
Cash 1,050,000
(b)
Cash 35,000
(c)

Moderate
BUSPROG: Analytic
149. Present entries to record the selected transactions described below:

(a) Issued $2,750,000 of 10-year, 8% bonds at 97.
(b) Amortized bond discount for a full year, using the straight-line method.
(c) Called bonds at 98. The bonds were carried at $2,692,250 at the time of the redemption.
ANSWER: (a)
Cash 2,667,500
(b)
(c)
Cash 2,695,000
Moderate

BUSPROG: Analytic
150. A company issued $1,000,000 of 30-year, 8% callable bonds on April 1, with interest payable on April 1 and October
1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected
transactions:
Year 1
Apr. 1 Issued the bonds for cash at their face amount.
Oct. 1 Paid the interest on the bonds.
Year 3
Oct. 1 Called the bond issue at 104, the rate provided in the bond indenture. (Omit entry for
ANSWER: Year 1
Apr. 1 Cash 1,000,000
Oct. 1 Interest Expense 40,000

Cash 40,000
Year 3
Oct. 1 Bonds Payable 1,000,000
Cash 1,040,000
Moderate
BUSPROG: Analytic
151. Luke Corp. issued $2,000,000 of 20-year, 9% callable bonds on July 1, Year 1, with interest payable on June 30 and
December 31. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected
transactions:
Year 1
July 1 Issued the bonds for cash at their face amount.
Dec. 31 Paid the interest on the bonds.
Year 5
Dec. 31Called the bond issue at 97, the rate provided in the bond indenture. (Omit entry for
ANSWER: Year 1
July 1 Cash 2,000,000
Dec. 31 Interest Expense 90,000

Cash 90,000
Year 5
Dec. 31 Bonds Payable 2,000,000
Cash 1,940,000
Moderate
BUSPROG: Analytic
152. On June 30, Jamison Company issued $2,500,000 of 10-year, 8% bonds, dated June 30, for $2,580,000. Present
entries to record the following transactions.
(a) Issuance of bonds.
Payment of first semiannual interest on December 31 (record separate entry from premium
(b)
amortization).
(c) Amortization by straight-line method of bond premium on December 31.
ANSWER: (a) Cash 2,580,000
(b) Interest Expense 100,000

Cash 100,000
(c) Premium on Bonds Payable 4,000

Challenging
BUSPROG: Analytic
153. Calculate the total amount of interest expense over the life of the bonds for the following independent situations.
(a) $100,000 face value, 10%, 10-year bonds issued at 101.
(b) $240,000 face value, 5%, 5-year bonds issued at 100.
(c) $300,000 face value, 9%, 6-year bonds issued at 98.
ANSWER: (a) $100,000 × 0.01 = $1,000 premium
$100,000 × 0.10 = $10,000 annual cash payment
$10,000 × 10 years = $100,000
$100,000 – $1,000 = $99,000 total interest expense
(b) $240,000 × 0.05 = $12,000 annual cash payment
$12,000 × 5 years = $60,000 total interest expense
(c) $300,000 × 0.02 = $6,000 discount
$300,000 × 0.09 = $27,000 annual cash payment
$27,000 × 6 years = $162,000
$162,000 + $6,000 = $168,000 total interest expense

Moderate
BUSPROG: Analytic
154. Given the following data, prepare the journal entry to record interest expense and any related amortization on
December 31 of the first year using the effective interest rate method. Assume interest is paid annually on January 1. The
bonds were issued on January 1 for $7,411,233.
Bonds payable, maturing in 10 years = $8,000,000
Contract interest rate = 5%
Market (effective) interest rate = 6%
Round answers to nearest dollar.
Interest Payable 400,000
Moderate
FNMN.WARD.17.11-APP2 - LO: 11-APP2
BUSPROG: Analytic
155.
(a) Prepare the journal entry to issue $100,000 bonds that sold for $94,000.
(b) Prepare the journal entry to issue $100,000 bonds that sold for $104,000.
ANSWER: (a)
Cash 94,000
(b)
Cash 104,000
Easy
BUSPROG: Analytic
156. Glover Corporation issued $2,000,000 of 7.5%, 6-year bonds dated March 1, with semiannual interest payments on
September 1 and March 1. The bonds were issued on March 1, at 97. Glover’s year-end is December 31.
(a) Were the bonds issued at a premium, a discount, or at par?
(b) Was the market rate of interest higher, lower, or the same as the contract rate of interest?
(c) If the company uses the straight-line method of amortization, what is the amount of interest expense Glover
Corporation will show for the year ended December 31?
(d) What is the carrying value of the bonds on December 31?
ANSWER: (a) The bonds were issued at a discount.
(b) The market rate of interest was higher than 7.5% since the bonds were issued at a
discount.
(c) $2,000,000 × 0.075 × 10/12 = $125,000 interest expense prior to amortization
$2,000,000 – $1,940,000 = $60,000 discount on bonds payable
$60,000/6 = $10,000 annual amortization of discount
$10,000 × 10/12 = $8,333 current year’s amortization of discount
$125,000 + $8,333 = $133,333
(d) $2,000,000 – $60,000 + $8,333 = $1,948,333
Challenging
BUSPROG: Analytic
157. On January 1, Year 1, Kennard Co. issued $2,000,000, 5%, 10-year bonds, with interest payable on June 30
and December 31 to yield 6%. Use the following format and round figures to nearest dollar. The bonds were issued for
$1,851,234.
(a) Prepare an amortization schedule for Year 1 and Year 2 using the effective interest rate method.
Date Interest Paid Interest Expense Amortization Bond Carrying Amount
(b) Show how this bond would be reported on the balance sheet at December 31, Year 2.
ANSWER: (a)
Bond
Interest Interest Carrying
Date Paid Expense Amortization Amount
1/1/Year 1 $1,851,234
6/30/Year 1 $50,000 $55,537 $5,537 1,856,771
12/31/Year 1 50,000 55,703 5,703 1,862,474
6/30/Year 2 50,000 55,874 5,874 1,868,348
12/31/Year 2 50,000 56,050 6,050 1,874,398
(b) Bond payable $2,000,000
Unamortized bond discount (125,602) $1,874,398

Challenging
FNMN.WARD.17.11-APP2 - LO: 11-APP2
BUSPROG: Analytic
158. Given the following data, determine the times interest earned ratio.
Net income, $70,000
Bonds payable, issued at face value, 8%, $5,000,000
Tax rate is 30%
Interest payable, $6,000
Interest receivable, $1,700
ANSWER: Times interest earned ratio = (Income before income tax + Interest expense) ÷ Interest
expense = [($70,000 ÷ 7%) + (8% × $5,000,000)] ÷ (8% × $5,000,000) = ($100,000 +
$400,000) ÷ $400,000 = $500,000 ÷ $400,000 = 1.25
Challenging
BUSPROG: Analytic
Company A Company B
Bonds payable, 8%, 24-year bonds $1,200,000 $900,000
Income before income tax for year 495,000 130,000
Income tax for year 75,000 12,000
Interest payable 50,000 0
Interest receivable 21,000 28,000
(a) For each company, what is the times interest earned ratio? (Round to one decimal place.)
(b) Which company gives potential creditors more protection?
ANSWER: (a) Company A 6.2 Company B 2.8
(b) Company A offers potential creditors more protection.
Moderate
BUSPROG: Analytic
160. Use the following tables to calculate the present value of a $25,000, 7%, 5-year bond that pays $1,750 ($25,000 ×
7%) interest annually, if the market rate of interest is 7%
Periods 5% 6% 7% 10%
1 0.95238 0.94340 0.93458 0.90909
2 0.90703 0.89000 0.87344 0.82645
3 0.86384 0.83962 0.81630 0.75132
4 0.82270 0.79209 0.76290 0.68301
5 0.78353 0.74726 0.71299 0.62092
6 0.74622 0.70496 0.66634 0.56447
7 0.71068 0.66506 0.62275 0.51316
8 0.67684 0.62741 0.58201 0.46651
9 0.64461 0.59190 0.54393 0.42410
10 0.61391 0.55840 0.50835 0.38554
Present Value of Annuity of $1 at Compound Interest

Periods 5% 6% 7% 10%
1 0.95238 0.94340 0.93458 0.90909
2 1.85941 1.83339 1.80802 1.73554
3 2.72325 2.67301 2.62432 2.48685
4 3.54595 3.46511 3.38721 3.16987
5 4.32948 4.21236 4.10020 3.79079
6 5.07569 4.91732 4.76654 4.35526
7 5.78637 5.58238 5.38929 4.86842
8 6.46321 6.20979 5.97130 5.33493
9 7.10782 6.80169 6.51523 5.75902
10 7.72174 7.36009 7.02358 6.14457
ANSWER: Present value of face value of $25,000 due in 5 years at 7%
compounded annually
$25,000 × 0.71299 (present value factor of $1 for 5 periods at 7%) $17,825*
Present value of 5 annual interest payments of $1,750 at 7%
interest compounded annually
$1,750 × 4.10020 (present value of annuity of $1 for 5 periods at 7%) 7,175*
Total present value of bonds $25,000*
*rounded
Bloom's: Applying
BUSPROG: Analytic
161. Using the following table, what is the present value of $15,000 to be received in 10 years, if the market rate is 5%
compounded annually?
Periods 5%
6% 7% 10%
1 0.95238
0.94340 0.93458 0.90909
2 0.90703
0.89000 0.87344 0.82645
3 0.86384
0.83962 0.81630 0.75132
4 0.82270
0.79209 0.76290 0.68301
5 0.78353
0.74726 0.71299 0.62092
6 0.74622
0.70496 0.66634 0.56447
7 0.71068
0.66506 0.62275 0.51316
8 0.67684
0.62741 0.58201 0.46651
9 0.64461
0.59190 0.54393 0.42410
10 0.61391
0.55840 0.50835 0.38554
ANSWER: $15,000 × 0.61391= $9,208.65
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
162. Using the following table, what is the present value of $40,000 to be received in 5 years, if the market rate is 7%
compounded annually?
Periods 5%
6% 7% 10%
1 0.95238
0.94340 0.93458 0.90909
2 0.90703
0.89000 0.87344 0.82645
3 0.86384
0.83962 0.81630 0.75132
4 0.82270
0.79209 0.76290 0.68301
5 0.78353
0.74726 0.71299 0.62092
6 0.74622
0.70496 0.66634 0.56447
7 0.71068
0.66506 0.62275 0.51316
8 0.67684
0.62741 0.58201 0.46651
9 0.64461
0.59190 0.54393 0.42410
10 0.61391
0.55840 0.50835 0.38554
ANSWER: $40,000 × 0.71299 = $28,519.60
DIFFICULTY: Easy
Bloom's: Applying
BUSPROG: Analytic
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But an entirely original theory was broached by Professor Armor,
of the Long Island Medical College, in the course of a discussion
recently held in the Detroit Academy of Medicine. In opposition to the
orthodox views which Dr. Fisher represents, Professor Armor says
that malformations result from either one of two causes—1, a
deficiency or abnormal condition in the generative matter from which
the fœtus is developed, or 2, morbid influences acting on the fœtus
in utero. He maintains that the generative matter represents in its
composition every tissue, structure, and form, and that there may be
such a transmission of acquired structural peculiarities as would
make the generative matter incapable of producing a healthy and
equally-developed offspring. On the other hand, the generative
matter may be perfect in itself, but being subjected to morbid
influences during the process of gestation, the offspring will, of
necessity, be monstrous.
To be consistent, this theory must account for diploteratological
cases (double-headed or double-membered monsters), which seems
difficult. We might, perhaps, admit that in defective generative
matter, the head of the embryo might not be represented, or any
other part of the body be deficient; but, it hardly seems as if there
could be two, three, or more representatives of a single member.
Again, if the generative matter have hereditary taint, it seems as if all
the resulting progeny should be equally monstrous; whereas the fact
is that in many cases the mother has given birth to a number of
healthy children before the monster made its appearance, all being
the progeny of one father. Numerous cases of this kind are quoted
by Dr. Fisher; among others he cites the case of Catherine
Corcoran,[622] a “very healthy woman, thirty years of age and who,
previously to giving birth to this monster had born five well-formed
children, no two of which were twins ... it had a head at either
extremity, two chests, with arms complete, two abdominal and two
pelvic cavities united end to end, with four legs placed two at either
side, where the union between the two occurred.” Certain parts of
the body, however, were not duplicated, and therefore this cannot be
claimed as a case of the growing together of twins.
Another instance is that of Maria Teresa Parodi.[623] This woman,
who had previously given birth to eight well-formed children, was
delivered of a female infant the upper part of which only was double.
Instances in which before and after the production of a monster the
children were perfectly healthy are numerous, and if, on the other
hand, the fact that monstrosities are as common with animals as
they are with mankind is a generally-accepted argument against the
popular theory that these malformations are due to the imagination
of the mother; and that other fact—that there is no difference
between the ovarian cell of a mammifer and a man, be admitted,
what becomes of Professor Armor’s theory? In such a case an
instance of an animal-malformation is as good as that of a human
monster; and this is what we read in Dr. Samuel L. Mitchell’s paper
On two-headed Serpents: “A female snake was killed, together with
her whole brood of young ones, amounting to 120, of these three
were monsters. One with two distinct heads; one with a double head
and only three eyes; and one with a double skull, furnished with
three eyes, and a single lower jaw; this last had two bodies.”[624]
Surely the generative matter which produced these three monsters
was identical with that which produced the other 117? Thus the
Armor theory is as imperfect as all the rest.
The trouble proceeds from the defective method of reasoning
usually adopted—Induction; a method which claims to collect by
experiment and observation all the facts within its reach, the former
being rather that of collecting and examining experiments and
drawing conclusions therefrom; and, according to the author of
Philosophical Inquiry, “as this conclusion cannot be extended
beyond what is warranted by the experiments, the Induction is an
instrument of proof and limitation.” Notwithstanding this limitation is
to be found in every scientific inquiry, it is rarely confessed, but
hypotheses are constructed for us as though the experimenters had
found them to be mathematically-proved theorems, while they are, to
say the most, simple approximations.
For a student of occult philosophy, who rejects in his turn the
method of induction on account of these perpetual limitations, and
fully adopts the Platonic division of causes—namely, the Efficient,
the Formal, the Material, and the Final, as well as the Eleatic method
of examining any given proposition, it is but natural to reason from
the following standpoint of the Neo-platonic school: 1. The subject
either is as it is supposed or is not. Therefore, we will inquire: Does
the universal ether, known by the kabalists as the “astral light,”
contain electricity and magnetism, or does it not? The answer must
be in the affirmative, for “exact science” herself teaches us that these
two convertible agents saturating both the air and the earth, there is
a constant interchange of electricity and magnetism between them.
The question No. 1 being settled, we will have now to examine what
happens—1st. To it with respect to itself. 2d. To it with respect to all
other things. 3d. With all other things, with respect to it. 4th. To all
other things with respect to themselves.
Answers: 1st. With respect to itself. That inherent properties
previously latent in electricity, become active under favoring
conditions; and that at one time the form of magnetic force is
assumed by the subtile, all-pervading agent; at another, the form of
electric force is assumed.
2d. With respect to all other things. By all other things for which it
has an affinity, it is attracted, by all others repelled.
3d. With all other things with respect to it. It happens that
whenever they come in contact with electricity, they receive its
impress in proportion to their conductivity.
4th. To all other things with respect to themselves. That under the
impulse received from the electric force, and in proportion to its
intensity, their molecules change their relations with each other; that
either they are wrenched asunder, so as to destroy the object—
organic or inorganic—which they formed, or, if previously disturbed,
are brought into equilibrium (as in cases of disease); or the
disturbance may be but superficial, and the object may be stamped
with the image of some other object encountered by the fluid before
reaching them.
To apply the above propositions to the case in point: There are
several well-recognized principles of science, as, for instance, that a
pregnant woman is physically and mentally in a highly impressible
state. Physiology tells us that her intellectual faculties are weakened,
and that she is affected to an unusual degree by the most trifling
events. Her pores are opened, and she exudes a peculiar cutaneous
perspiration; she seems to be in a receptive condition for all the
influences in nature. Reichenbach’s disciples assert that her odic
condition is very intense. Du Potet warns against incautiously
mesmerizing her, for fear of affecting the offspring. Her diseases are
imparted to it, and often it absorbs them entirely to itself; her pains
and pleasures react upon its temperament as well as its health; great
men proverbially have great mothers, and vice versa. “It is true that
her imagination has an influence upon the fœtus,” admits Magendie,
thus contradicting what he asserts in another place; and he adds that
“sudden terror may cause the death of the fœtus, or retard its
growth.”[625]
In the case recently reported in the American papers, of a boy who
was killed by a stroke of lightning, upon stripping the body, there was
found imprinted upon his breast the faithful picture of a tree which
grew near the window which he was facing at the time of the
catastrophe, and which was also felled by the lightning. Now, this
electrical photography, which was accomplished by the blind forces
of nature, furnishes an analogy by which we may understand how
the mental images of the mother are transmitted to the unborn child.
Her pores are opened; she exudes an odic emanation which is but
another form of the akasa, the electricity, or life-principle, and which,
according to Reichenbach, produces mesmeric sleep, and
consequently is magnetism. Magnetic currents develop themselves
into electricity upon their exit from the body. An object making a
violent impression on the mother’s mind, its image is instantly
projected into the astral light, or the universal ether, which Jevons
and Babbage, as well as the authors of the Unseen Universe, tell us
is the repository of the spiritual images of all forms, and even human
thoughts. Her magnetic emanations attract and unite themselves
with the descending current which already bears the image upon it. It
rebounds, and re-percussing more or less violently, impresses itself
upon the fœtus, according to the very formula of physiology which
shows how every maternal feeling reacts on the offspring. Is this
kabalistic theory more hypothetical or incomprehensible than the
teratological doctrine taught by the disciples of Geoffroi St. Hilaire?
The doctrine, of which Magendie so justly observes, “is found
convenient and easy from its vagueness and obscurity,” and which
“pretends to nothing less than the creation of a new science, the
theory of which reposes on certain laws not very intelligible, as that
of arresting, that of retarding, that of similar or eccentric position,
especially the great law, as it is called, of self for self.”[626]
Eliphas Levi, who is certainly one of the best authorities on certain
points among kabalists, says: “Pregnant women are, more than
others, under the influence of the astral light, which assists in the
formation of their child, and constantly presents to them the
reminiscences of forms with which it is filled. It is thus that very
virtuous women deceive the malignity of observers by equivocal
resemblances. They often impress upon the fruit of their marriage an
image which has struck them in a dream, and thus are the same
physiognomies perpetuated from age to age.”
“The kabalistic use of the pentagram can therefore determine the
countenance of unborn infants, and an initiated woman might give to
her son the features of Nereus or Achilles, as well as those of Louis
XV. or Napoleon.”[627]
If it should confirm another theory than that of Dr. Fisher, he
should be the last to complain, for as he himself makes the
confession, which his own example verifies:[628] “One of the most
formidable obstacles to the advancement of science ... has ever
been a blind submission to authority.... To untrammel the mind from
the influence of mere authority, that it may have free scope in the
investigation of facts and laws which exist and are established in
nature, is the grand antecedent necessary to scientific discovery and
permanent progress.”
If the maternal imagination can stunt the growth or destroy the life
of the fœtus, why cannot it influence its physical appearance? There
are some surgeons who have devoted their lives and fortunes to find
the cause for these malformations, but have only reached the
opinion that they are mere “coincidences.” It would be also highly
unphilosophical to say that animals are not endowed with
imagination; and, while it might be considered the acme of
metaphysical speculation to even formulate the idea that members of
the vegetable kingdom—say the mimosas and the group of insect-
catchers—have an instinct and even rudimentary imagination of their
own, yet the idea is not without its advocates. If great physicists like
Tyndall are forced to confess that even in the case of intelligent and
speaking man they are unable to bridge the chasm between mind
and matter, and define the powers of the imagination, how much
greater must be the mystery about what takes place in the brain of a
dumb animal.
What is imagination? Psychologists tell us that it is the plastic or
creative power of the soul; but materialists confound it with fancy.
The radical difference between the two, was however, so thoroughly
indicated by Wordsworth, in the preface to his Lyrical Ballads, that it
is no longer excusable to interchange the words. Imagination,
Pythagoras maintained to be the remembrance of precedent
spiritual, mental, and physical states, while fancy is the disorderly
production of the material brain.
From whatever aspect we view and question matter, the world-old
philosophy that it was vivified and fructified by the eternal idea, or
imagination—the abstract outlining and preparing the model for the
concrete form—is unavoidable. If we reject this doctrine, the theory
of a cosmos evolving gradually out of its chaotic disorder becomes
an absurdity; for it is highly unphilosophical to imagine inert matter,
solely moved by blind force, and directed by intelligence, forming
itself spontaneously into a universe of such admirable harmony. If
the soul of man is really an outcome of the essence of this universal
soul, an infinitesimal fragment of this first creative principle, it must of
necessity partake in degree of all the attributes of the demiurgic
power. As the creator, breaking up the chaotic mass of dead, inactive
matter, shaped it into form, so man, if he knew his powers, could, to
a degree, do the same. As Pheidias, gathering together the loose
particles of clay and moistening them with water, could give plastic
shape to the sublime idea evoked by his creative faculty, so the
mother who knows her power can fashion the coming child into
whatever form she likes. Ignorant of his powers, the sculptor
produces only an inanimate though ravishing figure of inert matter;
while the soul of the mother, violently affected by her imagination,
blindly projects into the astral light an image of the object which
impressed it, and, by re-percussion, that is stamped upon the fœtus.
Science tells us that the law of gravitation assures us that any
displacement which takes place in the very heart of the earth will be
felt throughout the universe, “and we may even imagine that the
same thing will hold true of those molecular motions which
accompany thought.”[629] Speaking of the transmission of energy
throughout the universal ether or astral light, the same authority
says: “Continual photographs of all occurrences are thus produced
and retained. A large portion of the energy of the universe may thus
be said to be invested in such pictures.”
Dr. Fournié, of the National Deaf and Dumb Institute of France, in
chapter ii. of his work,[630] in discussing the question of the fœtus,
says that the most powerful microscope is unable to show us the
slightest difference between the ovarian cell of a mammifer and a
man; and, respecting the first or last movement of the ovule, asks:
“What is it? has it particular characters which distinguish it from
every other ovule?” and justly answers thus: “Until now, science has
not replied to these questions, and, without being a pessimist, I do
not think that she ever will reply; from the day when her methods of
investigation will permit her to surprise the hidden mechanism of the
conflict of the principle of life with matter, she will know life itself, and
be able to produce it.” If our author had read the sermon of Père
Felix, how appropriately he might utter his Amen! to the priest’s
exclamation—Mystery! Mystery!
Let us consider the assertion of Magendie in the light of recorded
instances of the power of imagination in producing monstrous
deformities, where the question does not involve pregnant women.
He admits that these occur daily in the offspring of the lower animals;
how does he account for the hatching of chickens with hawk-heads,
except upon the theory that the appearance of the hereditary enemy
acted upon the hen’s imagination, which, in its turn, imparted to the
matter composing the germ a certain motion which, before
expanding itself, produced the monstrous chicks? We know of an
analogous case, where a tame dove, belonging to a lady of our
acquaintance, was frightened daily by a parrot, and in her next brood
of young there were two squabs with parrots’ heads, the
resemblance even extending to the color of the feathers. We might
also cite Columella, Youatt, and other authorities, together with the
experience of all animal breeders, to show that by exciting the
imagination of the mother, the external appearance of the offspring
can be largely controlled. These instances in no degree affect the
question of heredity, for they are simply special variations of type
artificially caused.
Catherine Crowe discusses at considerable length the question of
the power of the mind over matter, and relates, in illustration, many
well-authenticated instances of the same.[631] Among others, that
most curious phenomenon called the stigmata have a decided
bearing upon this point. These marks come upon the bodies of
persons of all ages, and always as the result of exalted imagination.
In the cases of the Tyrolese ecstatic, Catherine Emmerich, and many
others, the wounds of the crucifixion are said to be as perfect as
nature. A certain Mme. B. von N. dreamed one night that a person
offered her a red and a white rose, and that she chose the latter. On
awaking, she felt a burning pain in her arm, and by degrees there
appeared the figure of a rose, perfect in form and color; it was rather
raised above the skin. The mark increased in intensity till the eighth
day, after which it faded away, and by the fourteenth, was no longer
perceptible. Two young ladies, in Poland, were standing by an open
window during a storm; a flash of lightning fell near them, and the
gold necklace on the neck of one of them was melted. A perfect
image of it was impressed upon the skin, and remained throughout
life. The other girl, appalled by the accident to her companion, stood
transfixed with horror for several minutes, and then fainted away.
Little by little the same mark of a necklace as had been
instantaneously imprinted upon her friend’s body, appeared upon her
own, and remained there for several years, when it gradually
disappeared.
Dr. Justinus Kerner, the distinguished German author, relates a
still more extraordinary case. “At the time of the French invasion, a
Cossack having pursued a Frenchman into a cul-de-sac, an alley
without an outlet, there ensued a terrible conflict between them, in
which the latter was severely wounded. A person who had taken
refuge in this close, and could not get away, was so dreadfully
frightened, that when he reached home there broke out on his body
the very same wounds that the Cossack had inflicted on his enemy!”
In this case, as in those where organic disorders, and even
physical death result from a sudden excitement of the mind reacting
upon the body, Magendie would find it difficult to attribute the effect
to any other cause than the imagination; and if he were an occultist,
like Paracelsus, or Van Helmont, the question would be stripped of
its mystery. He would understand the power of the human will and
imagination—the former conscious, the latter involuntary—on the
universal agent to inflict injury, physical and mental, not only upon
chosen victims, but also, by reflex action, upon one’s self and
unconsciously. It is one of the fundamental principles of magic, that if
a current of this subtile fluid is not impelled with sufficient force to
reach the objective point, it will react upon the individual sending it,
as an India-rubber ball rebounds to the thrower’s hand from the wall
against which it strikes without being able to penetrate it. There are
many cases instanced where would-be sorcerers fell victims
themselves. Van Helmont says: “The imaginative power of a woman
vividly excited produces an idea, which is the connecting medium
between the body and spirit. This transfers itself to the being with
whom the woman stands in the most immediate relation, and
impresses upon it that image which the most agitated herself.”
Deleuze has collected, in his Bibliothèque du Magnétisme Animal,
a number of remarkable facts taken from Van Helmont, among which
we will content ourselves with quoting the following as pendants to
the case of the bird-hunter, Jacques Pelissier. He says that “men by
looking steadfastly at animals oculis intentis for a quarter of an hour
may cause their death; which Rousseau confirms from his own
experience in Egypt and the East, as having killed several toads in
this manner. But when he at last tried this at Lyons, the toad, finding
it could not escape from his eye, turned round, blew itself up, and
stared at him so fiercely, without moving its eyes, that a weakness
came over him even to fainting, and he was for some time thought to
be dead.”
But to return to the question of teratology. Wierus tells, in his De
Prœstigiis Demonum, of a child born of a woman who not long
before its birth was threatened by her husband, he saying that she
had the devil in her and that he would kill him. The mother’s fright
was such that her offspring appeared “well-shaped from the middle
downward, but upward spotted with blackened red spots, with eyes
in his forehead, a mouth like a Satyr, ears like a dog, and bended
horns on its head like a goat.” In a demonological work by
Peramatus, there is a story of a monster born at St. Lawrence, in the
West Indies, in the year 1573, the genuineness of which is certified
to by the Duke of Medina-Sidonia. The child, “besides the horrible
deformity of its mouth, ears, and nose, had two horns on the head,
like those of young goats, long hair on his body, a fleshy girdle about
his middle, double, from whence hung a piece of flesh like a purse,
and a bell of flesh in his left hand like those the Indians use when
they dance, white boots of flesh on his legs, doubled down. In brief,
the whole shape was horrid and diabolical, and conceived to
proceed from some fright the mother had taken from the antic
dances of the Indians.”[632] Dr. Fisher rejects all such instances as
unauthenticated and fabulous.
But we will not weary the reader with further selections from the
multitude of teratological cases to be found recorded in the works of
standard authors; the above suffice to show that there is reason to
attribute these aberrations of physiological type to the mutual
reaction of the maternal mind and the universal ether upon each
other. Lest some should question the authority of Van Helmont, as a
man of science, we will refer them to the work of Fournié, the well-
known physiologist, where (at page 717) the following estimate of his
character will be found: “Van Helmont was a highly distinguished
chemist; he had particularly studied aëriform fluids, and gave them
the name of gaz; at the same time he pushed his piety to mysticism,
abandoning himself exclusively to a contemplation of the divinity....
Van Helmont is distinguished above all his predecessors by
connecting the principle of life, directly and in some sort
experimentally, as he tells us, with the most minute movements of
the body. It is the incessant action of this entity, in no way associated
by him with the material elements, but forming a distinct individuality,
that we cannot understand. Nevertheless, it is upon this entity that a
famous school has laid its principal foundation.”
Van Helmont’s “principle of life,” or archæus, is neither more nor
less than the astral light of all the kabalists, and the universal ether
of modern science. If the more unimportant signatures of the fœtus
are not due to the imaginations of the mother, to what other cause
would Magendie attribute the formation of horny scales, the horns of
goats and the hairy coats of animals, which we have seen in the
above instances marking monstrous progeny? Surely there were no
latent germs of these distinguishing features of the animal kingdom
capable of being developed under a sudden impulse of the maternal
fancy. In short, the only possible explanation is the one offered by
the adepts in the occult sciences.
Before leaving the subject, we wish to say a few words more
respecting the cases where the head, arm, and hand were instantly
dissolved, though it was evident that in each instance the entire body
of the child had been perfectly formed. Of what is a child’s body
composed at its birth? The chemists will tell us that it comprises a
dozen pounds of solidified gas, and a few ounces of ashy residuum,
some water, oxygen, hydrogen, nitrogen, carbonic acid, a little lime,
magnesia, phosphorus, and a few other minerals; that is all! Whence
came they? How were they gathered together? How were these
particles which Mr. Proctor tells us are drawn in from “the depths of
space surrounding us on all sides,” formed and fashioned into the
human being? We have seen that it is useless to ask the dominant
school of which Magendie is an illustrious representative; for he
confesses that they know nothing of the nutrition, digestion, or
circulation of the fœtus; and physiology teaches us that while the
ovule is enclosed in the Graafian vesicle it participates—forms an
integral part of the general structure of the mother. Upon the rupture
of the vesicle, it becomes almost as independent of her for what is to
build up the body of the future being as the germ in a bird’s egg after
the mother has dropped it in the nest. There certainly is very little in
the demonstrated facts of science to contradict the idea that the
relation of the embryonic child to the mother is much different from
that of the tenant to the house, upon whose shelter he depends for
health, warmth, and comfort.
According to Demokritus, the soul[633] results from the aggregation

of atoms, and Plutarch describes his philosophy as follows: “That
there are substances infinite in number, indivisible, undisturbed,
which are without differences, without qualities, and which move in
space, where they are disseminated; that when they approach each
other, they unite, interlock, and form by their aggregation water, fire,
a plant, or a man.” That all these substances, which he calls atoms
by reason of their solidity, can experience neither change nor
alteration. “But,” adds Plutarch, “we cannot make a color of that
which is colorless, nor a substance or soul of that which is without
soul and without quality.” Professor Balfour Stewart says that this
doctrine, in the hands of John Dalton, “has enabled the human mind
to lay hold of the laws which regulate chemical changes, as well as
to picture to itself what is there taking place.” After quoting, with
approbation, Bacon’s idea that men are perpetually investigating the
extreme limits of nature, he then erects a standard which he and his
brother philosophers would do well to measure their behavior by.
“Surely we ought,” says he, “to be very cautious before we dismiss
any branch of knowledge or train of thought as essentially
unprofitable.”[634]
Brave words, these. But how many are the men of science who
put them into practice?
Demokritus of Abdera shows us space crammed with atoms, and
our contemporary astronomers allow us to see how these atoms
form into worlds, and afterward into the races, our own included,
which people them. Since we have indicated the existence of a
power in the human will, which, by concentrating currents of those
atoms upon an objective point, can create a child corresponding to
the mother’s fancy, why is it not perfectly credible that this same
power put forth by the mother, can, by an intense, albeit unconscious
reversal of those currents, dissipate and obliterate any portion or
even the whole of the body of her unborn child? And here comes in
the question of false pregnancies, which have so often completely
puzzled both physician and patient. If the head, arm, and hand of the
three children mentioned by Van Helmont could disappear, as a
result of the emotion of horror, why might not the same or some
other emotion, excited in a like degree, cause the entire extinction of
the fœtus in so-called false pregnancy? Such cases are rare, but
they do occur, and moreover baffle science completely. There
certainly is no chemical solvent in the mother’s circulation powerful
enough to dissolve her child, without destroying herself. We
commend the subject to the medical profession, hoping that as a
class they will not adopt the conclusion of Fournié, who says: “In this
succession of phenomena we must confine ourselves to the office of
historian, as we have not even tried to explain the whys and
wherefores of these things, for there lie the inscrutable mysteries of
life, and in proportion as we advance in our exposition, we will be
obliged to recognize that this is to us forbidden ground.”[635]
Within the limits of his intellectual capabilities the true philosopher
knows no forbidden ground, and should be content to accept no
mystery of nature as inscrutable or inviolable.
No student of Hermetic philosophy, nor any spiritualist, will object
to the abstract principle laid down by Hume that a miracle is
impossible; for to suppose such a possibility would make the
universe governed through special instead of general laws. This is
one of the fundamental contradictions between science and
theology. The former, reasoning upon universal experience,
maintains that there is a general uniformity of the course of nature,
while the latter assumes that the Governing Mind can be invoked to
suspend general law to suit special emergencies. Says John Stuart
Mill,[636] “If we do not already believe in supernatural agencies, no
miracle can prove to us their existence. The miracle itself,
considered merely as an extraordinary fact, may be satisfactorily
certified by our senses or by testimony; but nothing can ever prove
that it is a miracle. There is still another possible hypothesis, that of
its being the result of some unknown natural cause; and this
possibility cannot be so completely shut out as to leave no
alternative but that of admitting the existence and intervention of a
being superior to nature.”
This is the very point which we have sought to bring home to our
logicians and physicists. As Mr. Mill himself says, “We cannot admit
a proposition as a law of nature, and yet believe a fact in real
contradiction to it. We must disbelieve the alleged fact, or believe
that we were mistaken in admitting the supposed law.” Mr. Hume
cites the “firm and unalterable experience” of mankind, as
establishing the laws whose operation ipso facto makes miracles
impossible. The difficulty lies in his use of the adjective which is
Italicized, for this is an assumption that our experience will never
change, and that, as a consequence, we will always have the same
experiments and observations upon which to base our judgment. It
also assumes that all philosophers will have the same facts to reflect
upon. It also entirely ignores such collected accounts of
philosophical experiment and scientific discovery as we may have
been temporarily deprived of. Thus, by the burning of the
Alexandrian Library and the destruction of Nineveh, the world has
been for many centuries without the necessary data upon which to
estimate the real knowledge, esoteric and exoteric, of the ancients.
But, within the past few years, the discovery of the Rosetta stone,
the Ebers, d’Aubigney, Anastasi, and other papyri, and the
exhumation of the tile-libraries, have opened a field of archæological
research which is likely to lead to radical changes in this “firm and
unalterable experience.” The author of Supernatural Religion justly
observes that “a person who believes anything contradictory to a
complete induction, merely on the strength of an assumption which
is incapable of proof, is simply credulous; but such an assumption
cannot affect the real evidence for that thing.”
In a lecture delivered by Mr. Hiram Corson, Professor of Anglo-
Saxon Literature at the Cornell University, Ithaca, N. Y., before the
alumni of St. John’s College, Annapolis, in July, 1875, the lecturer
thus deservedly rebukes science:
“There are things,” he says, “which Science can never do, and
which it is arrogant in attempting to do. There was a time when
Religion and the Church went beyond their legitimate domain, and
invaded and harried that of Science, and imposed a burdensome
tribute upon the latter; but it would seem that their former relations to
each other are undergoing an entire change, and Science has
crossed its frontiers and is invading the domain of Religion and the
Church, and instead of a Religious Papacy, we are in danger of
being brought under a Scientific Papacy—we are in fact already
brought under such a Papacy; and as in the sixteenth century a
protest was made, in the interests of intellectual freedom, against a
religious and ecclesiastical despotism, so, in this nineteenth century,
the spiritual and eternal interests of man demand that a protest
should be made against a rapidly-developing scientific despotism,
and that Scientists should not only keep within their legitimate
domain of the phenomenal and the conditioned, but should
‘reëxamine their stock in trade, so that we may make sure how far
the stock of bullion in the cellar—on the faith of whose existence so
much paper has been circulating—is really the solid gold of Truth.’
“If this is not done in science as well as in ordinary business,
scientists are apt to put their capital at too high a figure, and
accordingly carry on a dangerously-inflated business. Even since
Prof. Tyndall delivered his Belfast Address, it has been shown, by
the many replies it has elicited, that the capital of the Evolution-
School of Philosophy to which he belongs, is not near so great as it
was before vaguely supposed to be by many of the non-scientific but
intelligent portion of the world. It is quite surprising to a non-scientific
person to be made aware of the large purely hypothetical domain
which surrounds that of established science, and of which scientists
often boast, as a part of their settled and available conquests.”
Exactly; and at the same time denying the same privilege to
others. They protest against the “miracles” of the Church, and
repudiate, with as much logic, modern phenomena. In view of the
admission of such scientific authorities as Dr. Youmans and others
that modern science is passing through a transitional period, it would
seem that it is time that people should cease to consider certain
things incredible only because they are marvellous, and because
they seem to oppose themselves to what we are accustomed to
consider universal laws. There are not a few well-meaning men in
the present century who, desiring to avenge the memory of such
martyrs of science as Agrippa, Palissy, and Cardan, nevertheless
fail, through lack of means, to understand their ideas rightly. They
erroneously believe that the Neo-platonists gave more attention to
transcendental philosophy than to exact science.
“The failures that Aristotle himself so often exhibits,” remarks
Professor Draper, “are no proof of the unreliability of his method, but
rather of its trustworthiness. They are failures arising from want of a
sufficiency of facts.”[637]
What facts? we might inquire. A man of science cannot be
expected to admit that these facts can be furnished by occult
science, since he does not believe in the latter. Nevertheless, the
future may demonstrate this verity. Aristotle has bequeathed his
inductive method to our scientists; but until they supplement it with
“the universals of Plato,” they will experience still more “failures” than
the great tutor of Alexander. The universals are a matter of faith only
so long as they cannot be demonstrated by reason and based on
uninterrupted experience. Who of our present-day philosophers can
prove by this same inductive method that the ancients did not
possess such demonstrations as a consequence of their esoteric
studies? Their own negations, unsupported as they are by proof,
sufficiently attest that they do not always pursue the inductive
method they so much boast of. Obliged as they are to base their
theories, nolens volens, on the groundwork of the ancient
philosophers, their modern discoveries are but the shoots put forth
by the germs planted by the former. And yet even these discoveries
are generally incomplete, if not abortive. Their cause is involved in
obscurity and their ultimate effect unforeseen.“ We are not,” says
Professor Youmans, “to regard past theories as mere exploded
errors, nor present theories as final. The living and growing body of
truth has only mantled its old integuments in the progress to a higher
and more vigorous state.”[638] This language, applied to modern
chemistry by one of the first philosophical chemists and most
enthusiastic scientific writers of the day, shows the transitional state
in which we find modern science; but what is true of chemistry is true
of all its sister sciences.
Since the advent of spiritualism, physicians and pathologists are
more ready than ever to treat great philosophers like Paracelsus and
Van Helmont as superstitious quacks and charlatans, and to ridicule
their notions about the archæus, or anima mundi, as well as the
importance they gave to a knowledge of the machinery of the stars.
And yet, how much of substantial progress has medicine effected
since the days when Lord Bacon classed it among the conjectural
sciences?
Such philosophers as Demokritus, Aristotle, Euripides, Epicurus,
or rather his biographer, Lucretius, Æschylus, and other ancient
writers, whom the materialists so willingly quote as authoritative
opponents of the dreamy Platonists, were only theorists, not adepts.
The latter, when they did write, either had their works burned by
Christian mobs or they worded them in a way to be intelligible only to
the initiated. Who of their modern detractors can warrant that he
knows all about what they knew? Diocletian alone burned whole
libraries of works upon the “secret arts;” not a manuscript treating on
the art of making gold and silver escaped the wrath of this
unpolished tyrant. Arts and civilization had attained such a
development at what is now termed the archaic ages that we learn,
through Champollion, that Athothi, the second king of the first
dynasty, wrote a work on anatomy, and the king Necho on astrology
and astronomy. Blantasus and Cynchrus were two learned
geographers of those pre-Mosaic days. Ælian speaks of the
Egyptian Iachus, whose memory was venerated for centuries for his
wonderful achievements in medicine. He stopped the progress of
several epidemics, merely with certain fumigations. A work of
Apollonides, surnamed Orapios, is mentioned by Theophilus,
patriarch of Antioch, entitled the Divine Book, and giving the secret
biography and origin of all the gods of Egypt; and Ammianus
Marcellinus speaks of a secret work in which was noted the precise
age of the bull Apis—a key to many a mystery and cyclic calculation.
What has become of all these books, and who knows the treasures
of learning they may have contained? We know but one thing for a
certainty, and that is, that Pagan and Christian Vandals destroyed
such literary treasures wherever they could find them; and that the
emperor Alexander Severus went all over Egypt to collect the sacred
books on mysticism and mythology, pillaging every temple; and that
the Ethiopians—old as were the Egyptians in arts and sciences—
claimed a priority of antiquity as well as of learning over them; as
well they might, for they were known in India at the earliest dawn of
history. We also know that Plato learned more secrets in Egypt than
he was allowed to mention; and that, according to Champollion, all
that is really good and scientific in Aristotle’s works—so prized in our
day by our modern inductionists—is due to his divine Master; and
that, as a logical sequence, Plato having imparted the profound
secrets he had learned from the priests of Egypt to his initiated
disciples orally—who in their turn passed it from one generation to
another of adepts—the latter know more of the occult powers of
nature than our philosophers of the present day.
And here we may as well mention the works of Hermes
Trismegistus. Who, or how many have had the opportunity to read
them as they were in the Egyptian sanctuaries? In his Egyptian
Mysteries, Iamblichus attributes to Hermes 1,100 books, and
Seleucus reckons no less than 20,000 of his works before the period
of Menes. Eusebius saw but forty-two of these “in his time,” he says,
and the last of the six books on medicine treated on that art as
practiced in the darkest ages;[639] and Diodorus says that it was the
oldest of the legislators Mnevis, the third successor of Menes, who
received them from Hermes.
Of such manuscripts as have descended to us, most are but Latin
retranslations of Greek translations, made principally by the Neo-
platonists from the original books preserved by some adepts.
Marcilius Ficinus, who was the first to publish them in Venice, in
1488, has given us mere extracts, and the most important portions
seemed to have been either overlooked, or purposely omitted as too
dangerous to publish in those days of Auto da fé. And so it happens
now, that when a kabalist who has devoted his whole life to studying
occultism, and has conquered the great secret, ventures to remark
that the Kabala alone leads to the knowledge of the Absolute in the
Infinite, and the Indefinite in the Finite, he is laughed at by those who
because they know the impossibility of squaring the circle as a
physical problem, deny the possibility of its being done in the
metaphysical sense.
Psychology, according to the greatest authorities on the subject, is
a department of science hitherto almost unknown. Physiology,
according to Fournié, one of its French authorities, is in so bad a
condition as to warrant his saying in the preface to his erudite work
Physiologie du Système Nerveux, that “we perceive at last that not
only is the physiology of the brain not worked out, but also that no
physiology whatever of the nervous system exists.” Chemistry has
been entirely remodelled within the past few years; therefore, like all
new sciences, the infant cannot be considered as very firm on its
legs. Geology has not yet been able to tell anthropology how long
man has existed. Astronomy, the most exact of sciences, is still
speculating and bewildered about cosmic energy, and many other
things as important. In anthropology, Mr. Wallace tells us, there
exists a wide difference of opinion on some of the most vital
questions respecting the nature and origin of man. Medicine has
been pronounced by various eminent physicians to be nothing better
than scientific guess-work. Everywhere incompleteness, nowhere
perfection. When we look at these earnest men groping around in
the dark to find the missing links of their broken chains, they seem to
us like persons starting from a common, fathomless abyss by
divergent paths. Each of these ends at the brink of a chasm which
they cannot explore. On the one hand they lack the means to
descend into its hidden depths, and on the other they are repulsed at
each attempt by jealous sentries, who will not let them pass. And so
they go on watching the lower forces of nature and from time to time
initiating the public into their great discoveries. Did they not actually
pounce upon vital force and catch her playing in her game of
correlation with chemical and physical forces? Indeed they did. But if
we ask them whence this vital force? How is it that they who had so
firmly believed, but a short time since, that matter was destructible
and passed out of existence, and now have learned to believe as
firmly that it does not, are unable to tell us more about it? Why are
they forced in this case as in many others to return to a doctrine
taught by Demokritus twenty-four centuries ago?[640] Ask them, and
they will answer: “Creation or destruction of matter, increase or
diminution of matter, lies beyond the domain of science ... her
domain is confined entirely to the changes of matter ... the domain of
science lies within the limits of these changes—creation and
annihilation lie outside of her domain.”[641] Ah! no, they lie only
outside the grasp of materialistic scientists. But why affirm the same
of science? And if they say that “force is incapable of destruction,
except by the same power which created it,” then they tacitly admit
the existence of such a power, and have therefore no right to throw
obstacles in the way of those who, bolder than themselves, try to
penetrate beyond, and find that they can only do so by lifting the Veil
of Isis.
But, surely among all these inchoate branches of science, there
must be some one at least complete! It seems to us that we heard a
great clamor of applause, “as the voice of many waters,” over the
discovery of protoplasm. But, alas! when we turned to read Mr.
Huxley, the learned parent of the new-born infant is found saying: “In
perfect strictness, it is true that chemical investigation can tell us little
or nothing, directly, of the composition of living matter, and ... it is
also in strictness, true, that we know nothing about the composition
of any body whatever, as it is!”
This is a sad confession, indeed. It appears, then, that the
Aristotelian method of induction is a failure in some cases, after all.

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1. A bond is simply a form of an interest-bearing note.

2. Bondholders are creditors of the issuing corporation.

3. Bondholder claims on the assets of the corporation rank ahead of stockholders.

4. A bond is usually divided into a number of individual bonds of $500 each.

38. Discount on Bonds Payable is a contra liability account.

45. An equal stream of periodic payments is called an annuity.

Present Value of $1 at Compound Interest

Periods 5% 6% 7% 10% 12%

LEARNING OBJECTIVES: FNMN.WARD.17.11-APP1 - LO: 11-APP1

55. A bond indenture is

DIFFICULTY: Bloom's: Remembering

LEARNING OBJECTIVES: FNMN.WARD.17.11-01 - LO: 11-01

LEARNING OBJECTIVES: FNMN.WARD.17.11-01 - LO: 11-01

67. Selling the bonds at a premium has the effect of

68. If bonds are issued at a discount, it means that the

LEARNING OBJECTIVES: FNMN.WARD.17.11-02 - LO: 11-02

LEARNING OBJECTIVES: FNMN.WARD.17.11-02 - LO: 11-02

84. The interest expense recorded on an interest payment date is increased

88. If bonds are issued at a premium, the stated interest rate is

DIFFICULTY: Bloom's: Remembering

LEARNING OBJECTIVES: FNMN.WARD.17.11-02 - LO: 11-02

DIFFICULTY: Bloom's: Applying

LEARNING OBJECTIVES: FNMN.WARD.17.11-02 - LO: 11-02

DIFFICULTY: Bloom's: Applying

94. If bonds payable are not callable, the issuing corporation

DIFFICULTY: Bloom's: Applying

a. Interest Expense for $2,500

a. Interest Payable for $30,000

LEARNING OBJECTIVES: FNMN.WARD.17.11-02 - LO: 11-02

105. The balance in Discount on Bonds Payable

LEARNING OBJECTIVES: FNMN.WARD.17.11-02 - LO: 11-02

106. The balance in Premium on Bonds Payable

DIFFICULTY: Bloom's: Remembering

Present Value of $1 at Compound Interest

Periods 5% 6% 7% 10% 12%

DIFFICULTY: Bloom's: Applying

Present Value of $1 at Compound Interest

Periods 5% 6% 7% 10% 12%

LEARNING OBJECTIVES: FNMN.WARD.17.11-APP2 - LO: 11-APP2

Match each description below to the appropriate term (a-g).

LEARNING OBJECTIVES: FNMN.WARD.17.11-01 - LO: 11-01

120. The face amount of each bond

121. A form of an interest-bearing note

122. The return required by the market on the day of issuance

123. If the contract rate exceeds the effective rate

124. The rate printed on the bond certificate

125. If the contract rate is less than the effective rate

126. The contract between bond issuer and bond purchaser

Match each description below to the appropriate term (a-g).