Question 1

Bondholders claims on the assets of the corporation rank ahead of stockholders.

Accepted Answer

A) True 
 B)False

Question 2

If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

Accepted Answer

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. 
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.

Question 3

The balance in Premium on Bonds Payable

Accepted Answer

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 
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

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

Bonds payable should be reported on the balance sheet at face value plus or minus any unamortized premium or discount.

Accepted Answer

A) True 
 B)False

Question 6

An installment note payable for a principal amount of $94,000 at 6% interest requires Lawson Company to repay the principal and interest in equal annual payments of $22,315 beginning December 31, of the first year, for each of the next five years. After the final payment, the carrying amount on the note will be

Accepted Answer

A)  $1,263 
B)  $21,053 
C)  $22,315 
D)  $0 
A)  $1,263 
B)  $21,053 
C)  $22,315 
D)  $0

Question 7

Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Accepted Answer

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. 
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.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

An equal stream of periodic payments is called an annuity.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

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 
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

Question 11

The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.

Accepted Answer

A) True 
 B)False

Question 12

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 payment of interest.)

Accepted Answer

The answer of A company issued $1,000,000 of 30-year, 8%...

Question 13

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?

Accepted Answer

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. 
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.

Question 14

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Accepted Answer

A)  trading on the equity 
B)  convertible bond 
C)  a bond debenture 
D)  a bond indenture 
A)  trading on the equity 
B)  convertible bond 
C)  a bond debenture 
D)  a bond indenture

Question 15

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

Accepted Answer

A)  investments 
B)  long-term liabilities 
C)  current assets 
D)  intangible assets 
A)  investments 
B)  long-term liabilities 
C)  current assets 
D)  intangible assets

Question 16

Match each description below to the appropriate term a-g).
-If the contract rate exceeds the effective rate

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 17

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

Accepted Answer

A) True 
 B)False

Question 18

The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be

Accepted Answer

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 
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

Question 19

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 97.5, what is the amount of gain or loss on redemption?

Accepted Answer

A)  $10,000 loss 
B)  $25,000 loss 
C)  $25,000 gain 
D)  $15,000 gain 
A)  $10,000 loss 
B)  $25,000 loss 
C)  $25,000 gain 
D)  $15,000 gain

Question 20

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

Accepted Answer

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 
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

Exam 12: Long-Term Liabilities: Bonds and Notes

Bondholders claims on the assets of the corporation rank ahead of stockholders.

If the straight-line method of amortization of bond premium or discount is used, which of the following statements is true?

The balance in Premium on Bonds Payable

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.

Bonds payable should be reported on the balance sheet at face value plus or minus any unamortized premium or discount.

Dylan Corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 9%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

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

An equal stream of periodic payments is called an annuity.

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

The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.

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 legal document that indicates the name of the issuer, the face value of the bond and such other data is called

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

Match each description below to the appropriate term a-g). -If the contract rate exceeds the effective rate

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be

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 97.5, what is the amount of gain or loss on redemption?

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

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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