Question 1

The interest rate specified in the bond indenture is called the

Accepted Answer

A) discount rate 
B) contract rate 
C) market rate 
D) effective rate 
A) discount rate 
B) contract rate 
C) market rate 
D) effective rate

Question 2

The interest expense recorded on an interest payment date is increased

Accepted Answer

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 
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

Question 3

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.

Accepted Answer

The answer of A $375,000 bond issue on which there...

Question 4

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

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

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 
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

Question 8

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

Accepted Answer

A) True 
 B)False

Question 9

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. 31
Called the bond issue at 97, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Accepted Answer

The answer of Luke Corp. issued $2,000,000 of 20-year, 9%...

Question 10

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 11

The higher the times interest earned ratio, the better the creditors' protection.

Accepted Answer

A) True 
 B)False

Question 12

Balance sheet and income statement data indicate the following:   Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)

Accepted Answer

A) 5.72 
B) 6.83 
C) 4.72 
D) 4.83 
A) 5.72 
B) 6.83 
C) 4.72 
D) 4.83

Question 13

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

Accepted Answer

A) True 
 B)False

Question 14

Balance sheet and income statement data indicate the following:   Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)

Accepted Answer

A) 5.00 
B) 5.44 
C) 4.00 
D) 4.33 
A) 5.00 
B) 5.44 
C) 4.00 
D) 4.33

Question 15

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

Accepted Answer

A) $27,638 
B) $24,000 
C) $48,000 
D) $55,277 
A) $27,638 
B) $24,000 
C) $48,000 
D) $55,277

Question 16

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 17

Using the table, calculate the present value of an annuity of $50,0000 to be received at the end of each of five years at 6 percent interest?
Present value of an annuity of $1 at compound interest:

Accepted Answer

The answer of Using the table, calculate the present value...

Question 18

A bond indenture is

Accepted Answer

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 
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

Question 19

Bonds with a face amount of $1,000,000 are sold at 106. The journal entry to record the issuance is

Accepted Answer

The answer of Bonds with a face amount of $1,000,000...

Question 20

Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. 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 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. 
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.

Exam 11: Liabilities: Bonds Payable

The interest rate specified in the bond indenture is called the

The interest expense recorded on an interest payment date is increased

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.

Selling the bonds at a premium has the effect of

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

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

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

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

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

The higher the times interest earned ratio, the better the creditors' protection.

Balance sheet and income statement data indicate the following: Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

Balance sheet and income statement data indicate the following: Based on the data presented above, what is the times interest earned ratio? (Round to two decimal places.)

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

Using the table, calculate the present value of an annuity of $50,0000 to be received at the end of each of five years at 6 percent interest? Present value of an annuity of $1 at compound interest:

A bond indenture is

Bonds with a face amount of $1,000,000 are sold at 106. The journal entry to record the issuance is

Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

The Accounting Cycle

Accounting for Retail Businesses

Inventories

Internal Control and Cash

Receivables

Long-Term Assets: Fixed and Intangible

Liabilities: Current, Installment Notes, and Contingencies

Corporations: Organization, Stock Transactions, and Dividends

Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Cost Systems

Activity-Based Costing

Support Department and Joint Cost Allocation

Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Evaluating Variances From Standard Costs

Evaluating Decentralized Operations

Differential Analysis and Product Pricing

Capital Investment Analysis

Lean Manufacturing and Activity Analysis

The Balanced Scorecard and Corporate Social Responsibility

Investments

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