University of Luzon

College of Business Administration

TREASURY MANAGEMENT
Semi-Final Examination

Name: _____________________________________________ Permit Number: ____________ Score:

__________

Part 1. Multiple Choice. Choose the letter of the best answer.

1. An amortization table ________.

a. Breaks each payment into the amount that goes toward interest and the amount that goes
toward the principal
b. Is a special table used in a break room to make people feel equitable
c. Separates time value of money tables into present value and future value
d. Separates time value of money tables into single amounts and streams of cash
2. The principal of a bond is ________.
a. The person who sold the bond for the company
b. The person who bought the bond
c. The interest rate printed on the front of the bond
d. The face amount of the bond that will be paid back at maturity
3. A convertible bond can be converted into ________.
a. Preferred stock
b. Common stock and then converted into preferred stock
c. Common stock of a different company
d. Common stock of the company
4. The difference between equity financing and debt financing is that
a. Equity financing involves borrowing money.
b. Equity financing involves selling part of the company.
c. Debt financing involves selling part of the company.
d. Debt financing means the company has no debt.
5. On January 1, a company issued a 5-year Php100,000 bond at 6%. Interest payments on the bond of
$6,000 are to be made annually. If the company received proceeds of Php112,300, how would the
bond’s issuance be quoted?
a. 1.123 b. 112.30 c. 0.890d. 89.05
6. On July 1, a company sells 8-year Php 250,000 bonds with a stated interest rate of 6%. If interest
payments are paid annually, each interest payment will be ________.
a. 120,000b. 60,000 c. 7,500d. 15,000
7. When a bond sells at a discount, the carrying value ________ after each amortization entry.
a. Increases b. decreases c. stays the same d. cannot be determined
8. The cash interest payment a corporation makes to its bondholders is based on ________.
a. the market rate times the carrying value c. the stated rate times the carrying value
b. the stated rate times the principal d. the market rate times the principal
9. Bonds with a face value of Php 500,000 and a quoted price of 102¼ have a selling price of:
a. 601,125. b. 510,125. c. 510,013. d. 511,250.
10. Bonds with a face value of Php 500,000 and a quoted price of 97¼ have a selling price of:
a. 486,250. b. 485,125. c. 485,013. d. 487,500.
11. Bonds that may be exchanged for common stock at the option of the bondholders are called a.
options. b. stock bonds. c. convertible bonds. d. callable bonds.
12. The interest charged on a $100,000 note payable, at the rate of 10%, on a 60-day note would be:
a. $1,667. b. $10,000. c. $6,000. d. $16,667.
 13. West County Bank agrees to lend Drake Builders Company $400,000 on January 1. Drake Builders
Company signs a $400,000, 6%. What is the adjusting entry required if Drake Builders Company
prepares financial statements on March 30?
a. Interest Expense........................................................................12,000
Interest Payable....................................................................... 12,000
b. Interest Expense........................................................................12,000
Cash ......................................................................................... 12,000
c. Interest Expense..........................................................................6,000
Interest Payable....................................................................... 6,000
d. Interest Payable...........................................................................6,000
Interest Expense...................................................................... 6,000
14. The journal entry to record the issuance and proceeds of a note would include
a. a debit to notes payable c. a credit to interest expense
b. a debit to interest expense d. a debit to cash
15. On January 1, 20X1, Php 3,000,000, 10-year, 10% bonds, were issued for Php 2,910,000. Interest is
paid annually on January 1. If the issuing corporation uses the straight-line method to amortize
discount on bonds payable, the annual amortization amount is
a. 29,100. b. 9,000. c. 2,424. d. 750.
16. Ramano Company issued Php 1,000,000 of 10%, 10-year bonds at 96. Assuming straight-line
amortization and annual interest payments, how much bond interest expense is recorded on the next
interest date?
a. 100,000 b. 104,000 c. 96,000 d. 102,000
17. Five thousand bonds with a face value of Php 1,000 each, are sold at 102. The entry to record the
issuance is:
a. Cash .................................................................................5,100,000
Bonds Payable ......................................................................... 5,100,000
b. Cash .................................................................................5,000,000
Premium on Bonds Payable ....................................................100,000
Bonds Payable ......................................................................... 5,100,000
c. Cash .................................................................................5,100,000
Premium on Bonds Payable .................................................... 100,000
Bonds Payable ......................................................................... 5,000,000
d. Cash .................................................................................5,100,000
Discount on Bonds Payable..................................................... 100,000
Bonds Payable ......................................................................... 5,000,000

18. Ramano Company issued Php 1,000,000 of 10%, 10-year bonds at 102. Assuming straight-line
amortization and annual interest payments, how much bond interest expense is recorded on the next
interest date? a. 100,000 b. 102,000 c. 98,000 d. 104,000
19. Huang Inc. issued 100 bonds with a face value of 1,000 and a 5-year term at 960 each. The journal
entry to record this transaction includes ________.
a. a credit to Discount on Bonds Payable for 4,000 c. a credit to cash for 96,000
b. a debit to Discount on Bonds Payable for 4,000 d. a debit to Bonds Payable for 100,000
20. On April 1 a company sells a 5-year, Php 60,000 bond with a 7% stated interest rate. The market
interest on that day was also 7%. If interest is paid quarterly, the company makes interest payments
of ________. a. 1,050 b. 3,150 c. 4,200 d. 5,250

Part 2. Write the entries for the following transaction.

1. On January 1, 20X1, Hannigan Company issued bonds with a face value of $600,000. The bonds carry
 a stated interest of 7% payable each January 1.

(a) Prepare the journal entry for the issuance assuming the bonds are issued at 97.
Date Debit Credit
Cash ($600,000 × 0.97) Jan. 1 582,000
Discount on Bonds Payable 18,000
Bonds Payable 600,000

(b) Prepare the journal entry for the issuance assuming the bonds are issued at 102.

Date Debit Credit

Cash ($600,000 × 1.02) Jan. 1 612,000
Bonds Payable 600,000
Premium on Bonds Payable 12,000

2. On March 1, Cooper Company borrows $80,000 from New National Bank by signing a 6-month, 6%,
interest-bearing note.
Prepare the necessary entries below associated with the note payable on the books of Cooper
Company.

(a) Prepare the entry on March 1 when the note was issued.
Date Debit Credit
Cash Mar. 1 80,000
Notes Payable 80,000

(b) Prepare any adjusting entries necessary on June 30 in order to prepare the semiannual
financial statements. Assume no other interest accrual entries have been made.
Date Debit Credit
Interest Expense Jun. 30 1,600
Interest Payable ($80,000 × 6% × (4 ÷ 12)) 1,600

(c) Prepare the entry to record payment of the note at maturity.

Date Debit Credit
Notes Payable Sept. 1 80,000
Interest Payable 1,600
Interest Expense ($80,000 × 6% × (2 ÷ 12)) 800
Cash($80,000 × 6% × (6 ÷ 12)) 82,400

3. On January 1, 20X1, Powell Corporation issued $600,000, 5%, 5-year bonds dated January 1, 20X1, at
95. The bonds pay annual interest on January 1. The company uses the straight-line method of
amortization and has a calendar year end.

Prepare all the journal entries that Powell Corporation would make related to this bond issue through
January 1, 20X2 (including December 31, 20X1). Be sure to indicate the date on which the entries
would be made.
 Date Debit Credit
Cash ($600,000 × .95) Jan. 1 570,000
Discount on Bonds Payable 20x1 30,000
Bonds Payable 600,000
(To record sale of bonds at a discount)

Interest Expense ($600,000 x 0.05) + ($30,000 ÷ 5) Dec. 31 36,000

Discount on Bonds Payable 20x1 600
Interest Payable ($600,000 × 0.05) 30,000
(To record annual accrued bond interest and amortization of
bond discount)

Interest Payable Jan. 1 30,000

Cash 20X2 30,000
(To record payment of bond interest liability)