Question 1

Selling the bonds at a premium has the effect of

Accepted Answer

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 
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 D

Question 2

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

Accepted Answer

A)  $321,970 
B)  $1,000,000 
C)  $943,494 
D)  $621,524 
A)  $321,970 
B)  $1,000,000 
C)  $943,494 
D)  $621,524 C

Question 3

The present value of $40,000 to be received in two years, at 12% compounded annually, is rounded to nearest dollar)

Accepted Answer

A)  $31,888 
B)  $48,112 
C)  $8,112 
D)  $40,000 
A)  $31,888 
B)  $48,112 
C)  $8,112 
D)  $40,000 A

Question 4

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

Accepted Answer

A) True 
 B)False

Question 5

The market interest rate related to a bond is also called the

Accepted Answer

A)  stated interest rate 
B)  effective interest rate 
C)  contract interest rate 
D)  straight-line rate 
A)  stated interest rate 
B)  effective interest rate 
C)  contract interest rate 
D)  straight-line rate

Question 6

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  $8,000 
B)  $2,000 
C)  $4,000 
D)  $10,000 
A)  $8,000 
B)  $2,000 
C)  $4,000 
D)  $10,000

Question 8

Which of the following is not an advantage of issuing bonds instead of common stock?

Accepted Answer

A)  Tax savings result. 
B)  Income to common shareholders may increase. 
C)  Earnings per share on common stock may be lower. 
D)  Stockholder control is not affected. 
A)  Tax savings result. 
B)  Income to common shareholders may increase. 
C)  Earnings per share on common stock may be lower. 
D)  Stockholder control is not affected.

Question 9

Match each description below to the appropriate term a-g).
-A measure of income earned by each share of common stock

Accepted Answer

A) EPS 
B) face value 
C) callable bond 
D) indenture 
E) term bond
F)convertible bond
G)serial bond 
A) EPS 
B) face value 
C) callable bond 
D) indenture 
E) term bond
F)convertible bond
G)serial bond

Question 10

Match each description below to the appropriate term a-g).
-The legal contract between issuer and bond holder

Accepted Answer

A) EPS 
B) face value 
C) callable bond 
D) indenture 
E) term bond
F)convertible bond
G)serial bond 
A) EPS 
B) face value 
C) callable bond 
D) indenture 
E) term bond
F)convertible bond
G)serial bond

Question 11

Match each description below to the appropriate term a-g).
-The return required by the market on the day of issuance

Accepted Answer

A) contract rate 
B) effective rate 
C) bond discount 
D) bond premium 
E) bond
F)bond indenture
G)principal 
A) contract rate 
B) effective rate 
C) bond discount 
D) bond premium 
E) bond
F)bond indenture
G)principal

Question 12

Jenson Co. is considering the following alternative plans for financing the company:   Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

Accepted Answer

The answer of Jenson Co. is considering the following alternative...

Question 13

Match each description below to the appropriate term a-g).
-A form of an interest-bearing note

Accepted Answer

A) contract rate 
B) effective rate 
C) bond discount 
D) bond premium 
E) bond
F)bond indenture
G)principal 
A) contract rate 
B) effective rate 
C) bond discount 
D) bond premium 
E) bond
F)bond indenture
G)principal

Question 14

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

Accepted Answer

A)  debit to Discount on Bonds Payable for $80,000 
B)  debit to Cash of $2,000,000 
C)  credit to Bonds Payable for $1,920,000 
D)  credit to Cash for $1,920,000 
A)  debit to Discount on Bonds Payable for $80,000 
B)  debit to Cash of $2,000,000 
C)  credit to Bonds Payable for $1,920,000 
D)  credit to Cash for $1,920,000

Question 15

Given the following data, determine the number of times interest charges are earned ratio.
Net income, $70,000
Bonds payable, issued at face value, 8%, $5,000,000
Preferred Stock, $50 par value, 6%, 10,000 shares issued & outstanding Tax rate is 30%

Accepted Answer

Number of times interest charges are ear

Question 16

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%
Present Value of $1 at Compound Interest   Present Value of Annuity of $1 at Compound Interest

Accepted Answer

Present value of face value of $25,000 d

Question 17

An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

Accepted Answer

A) True 
 B)False

Question 18

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Accepted Answer

A) True 
 B)False

Question 19

Match each description below to the appropriate term a-g).
-The rate printed on the bond certificate

Accepted Answer

A) contract rate 
B) effective rate 
C) bond discount 
D) bond premium 
E) bond
F)bond indenture
G)principal 
A) contract rate 
B) effective rate 
C) bond discount 
D) bond premium 
E) bond
F)bond indenture
G)principal

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 12: Long-Term Liabilities: Bonds and Notes

Selling the bonds at a premium has the effect of

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

The present value of $40,000 to be received in two years, at 12% compounded annually, is rounded to nearest dollar)

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

The market interest rate related to a bond is also called the

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

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

Which of the following is not an advantage of issuing bonds instead of common stock?

Match each description below to the appropriate term a-g). -A measure of income earned by each share of common stock

Match each description below to the appropriate term a-g). -The legal contract between issuer and bond holder

Match each description below to the appropriate term a-g). -The return required by the market on the day of issuance

Jenson Co. is considering the following alternative plans for financing the company: Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

Match each description below to the appropriate term a-g). -A form of an interest-bearing note

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

Given the following data, determine the number of times interest charges are earned ratio. Net income, $70,000 Bonds payable, issued at face value, 8%, $5,000,000 Preferred Stock, $50 par value, 6%, 10,000 shares issued & outstanding Tax rate is 30%

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% Present Value of $1 at Compound Interest Present Value of Annuity of $1 at Compound Interest

An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Match each description below to the appropriate term a-g). -The rate printed on the bond certificate

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

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis, Product Pricing, and Activity-Based Costing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Lean Principles, Lean Accounting, and Activity Analysis

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