Question 1

Secured bonds are bonds that

Accepted Answer

A)  are in the possession of a bank. 
B)  are registered in the name of the owner. 
C)  have specific assets of the issuer pledged as collateral. 
D)  have detachable interest coupons. 
A)  are in the possession of a bank. 
B)  are registered in the name of the owner. 
C)  have specific assets of the issuer pledged as collateral. 
D)  have detachable interest coupons.

Question 2

Each payment on a mortgage note payable consists of interest on the original balance of the loan and a reduction of the loan principal.

Accepted Answer

A) True 
 B)False

Question 3

Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization.   Which of the following amounts should be shown in cell (ii)?

Accepted Answer

A)  $21,600 
B)  $18,400 
C)  $20,800 
D)  $19,200 
A)  $21,600 
B)  $18,400 
C)  $20,800 
D)  $19,200

Question 4

Herman Company received proceeds of $188,500 on 10-year, 8% bonds issued on January 1, 2009. The bonds had a face value of $200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Herman uses the straight-line method of amortization.
What is the amount of interest expense Herman will show with relation to these bonds for the year ended December 31, 2010?

Accepted Answer

A)  $16,000 
B)  $15,080 
C)  $17,150 
D)  $14,850 
A)  $16,000 
B)  $15,080 
C)  $17,150 
D)  $14,850

Question 5

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

Accepted Answer

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

Question 6

If $800,000, 6% bonds are issued on January 1, and pay interest semiannually, the amount of interest paid on July 1 will be $24,000.

Accepted Answer

A) True 
 B)False

Question 7

A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called

Accepted Answer

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

Question 8

The party who has the right to exercise a call option on bonds is the

Accepted Answer

A)  investment banker. 
B)  bondholder. 
C)  bearer. 
D)  issuer. 
A)  investment banker. 
B)  bondholder. 
C)  bearer. 
D)  issuer.

Question 9

Generally, convertible bonds do not pay interest.

Accepted Answer

A) True 
 B)False

Question 10

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

Accepted Answer

A)  callable bonds. 
B)  early retirement bonds. 
C)  options. 
D)  debentures. 
A)  callable bonds. 
B)  early retirement bonds. 
C)  options. 
D)  debentures.

Question 11

If $500,000 par value bonds with a carrying value of $476,000 are redeemed at 97, a loss on redemption will be recorded.

Accepted Answer

A) True 
 B)False

Question 12

A corporation issues $500,000, 10%, 5-year bonds on January 1, 2010 for $479,000. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight- line method of amortization of bond discount, the amount of bond interest expense to be recognized on July 1, 2010 is

Accepted Answer

A)  $52,100. 
B)  $25,000. 
C)  $27,100. 
D)  $22,900. 
A)  $52,100. 
B)  $25,000. 
C)  $27,100. 
D)  $22,900.

Question 13

Mendez Corporation issues 3,000, 10-year, 8%, $1,000 bonds dated January 1, 2010, at 103. The journal entry to record the issuance will show a

Accepted Answer

A)  debit to Cash of $3,000,000. 
B)  credit to Premium on Bonds Payable for $90,000. 
C)  credit to Bonds Payable for $3,015,000. 
D)  credit to Cash for $3,090,000. 
A)  debit to Cash of $3,000,000. 
B)  credit to Premium on Bonds Payable for $90,000. 
C)  credit to Bonds Payable for $3,015,000. 
D)  credit to Cash for $3,090,000.

Question 14

Bonds that are secured by real estate are termed

Accepted Answer

A)  mortgage bonds. 
B)  serial bonds. 
C)  debentures. 
D)  bearer bonds. 
A)  mortgage bonds. 
B)  serial bonds. 
C)  debentures. 
D)  bearer bonds.

Question 15

Long-term liabilities are reported in a separate section of the balance sheet immediately following current liabilities.

Accepted Answer

A) True 
 B)False

Question 16

A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market interest rate.

Accepted Answer

A) True 
 B)False

Question 17

On January 1, 2010, Halston Enterprises issued 8%, 20-year bonds with a face amount of $5,000,000 at 101. Interest is payable semiannually on June 30 and December 31.
Instructions
Prepare the entries to record the issuance of the bonds and the first semiannual interest payment assuming that the company uses straight-line amortization.

Accepted Answer

The answer of On January 1, 2010, Halston Enterprises issued...

Question 18

The board of directors may authorize more bonds than are issued.

Accepted Answer

A) True 
 B)False

Question 19

On January 1, 2010, Kentwood Company issued bonds with a face value of $800,000. The bonds carry a stated interest of 7% payable each January 1 and July 1.
Instructions
a. Prepare the journal entry for the issuance assuming the bonds are issued at 97.
b. Prepare the journal entry for the issuance assuming the bonds are issued at 102.

Accepted Answer

The answer of On January 1, 2010, Kentwood Company issued...

Question 20

A bondholder that sends in a coupon to receive interest payments must have a(n)

Accepted Answer

A)  unsecured bond. 
B)  bearer bond. 
C)  mortgage bond. 
D)  serial bond. 
A)  unsecured bond. 
B)  bearer bond. 
C)  mortgage bond. 
D)  serial bond.

Exam 15: Long-Term Liabilities

Secured bonds are bonds that

Each payment on a mortgage note payable consists of interest on the original balance of the loan and a reduction of the loan principal.

Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization. Which of the following amounts should be shown in cell (ii)?

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

If $800,000, 6% bonds are issued on January 1, and pay interest semiannually, the amount of interest paid on July 1 will be $24,000.

A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called

The party who has the right to exercise a call option on bonds is the

Generally, convertible bonds do not pay interest.

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

If $500,000 par value bonds with a carrying value of $476,000 are redeemed at 97, a loss on redemption will be recorded.

A corporation issues $500,000, 10%, 5-year bonds on January 1, 2010 for $479,000. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight- line method of amortization of bond discount, the amount of bond interest expense to be recognized on July 1, 2010 is

Mendez Corporation issues 3,000, 10-year, 8%, $1,000 bonds dated January 1, 2010, at 103. The journal entry to record the issuance will show a

Bonds that are secured by real estate are termed

Long-term liabilities are reported in a separate section of the balance sheet immediately following current liabilities.

A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market interest rate.

The board of directors may authorize more bonds than are issued.

A bondholder that sends in a coupon to receive interest payments must have a(n)

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Investments

Statement of Cash Flows

Financial Analysis: the Big Picture

Managerial Accounting

Job Order Costing

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Cost-Volume-Profit

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

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