Question 1

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

Accepted Answer

A) True 
 B)False

Question 2

On January 1,a company issues bonds dated January 1 with a par value of $400,000.The bonds mature in 5 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $383,793.The journal entry to record the second interest payment using the effective interest method of amortization is:

Accepted Answer

A)  Debit Interest Expense $12,648.28; debit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00. 
B)  Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
C)  Debit Interest Expense $12,648.28; debit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
D)  Debit Interest Expense $15,351.72; credit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
E)  Debit Interest Expense $15,405.79; credit Discount on Bonds Payable $1,405.79; credit Cash $14,000.00. 
A)  Debit Interest Expense $12,648.28; debit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00. 
B)  Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
C)  Debit Interest Expense $12,648.28; debit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
D)  Debit Interest Expense $15,351.72; credit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
E)  Debit Interest Expense $15,405.79; credit Discount on Bonds Payable $1,405.79; credit Cash $14,000.00.

Question 3

Interest on bonds is tax deductible.

Accepted Answer

A) True 
 B)False

Question 4

Seedly Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000.Management is considering issuing $5,000,000 of par value bonds (at par)with a maturity date of ten years and a contract rate of 7%.What effect,if any,would issuing the bonds have on the company's debt-to-equity ratio?

Accepted Answer

A)  Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3. 
B)  Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3. 
C)  Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged. 
D)  Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8. 
E)  Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8. 
A)  Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3. 
B)  Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3. 
C)  Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged. 
D)  Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8. 
E)  Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.

Question 5

A bond with a par value of $1,000 trading at 97½ sells for a premium.

Accepted Answer

A) True 
 B)False

Question 6

An advantage of bond financing is that issuing bonds does not affect owner control.

Accepted Answer

A) True 
 B)False

Question 7

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

Accepted Answer

A) True 
 B)False

Question 8

A company purchased equipment and signed a 7-year installment loan at 9% annual interest.The annual payments equal $9,000.The present value of an annuity factor for 7 years at 9% is 5.0330.The present value of a single sum factor for 7 years at 9% is 0.5470.The present value of the loan is:

Accepted Answer

A)  $9,000. 
B)  $4,923. 
C)  $16,453. 
D)  $63,000. 
E)  $45,297. 
A)  $9,000. 
B)  $4,923. 
C)  $16,453. 
D)  $63,000. 
E)  $45,297.

Question 9

A bond sells at a discount when the:

Accepted Answer

A)  Contract rate is above the market rate. 
B)  Contract rate is equal to the market rate. 
C)  Contract rate is below the market rate. 
D)  Bond has a short-term life. 
E)  Bond pays interest only once a year. 
A)  Contract rate is above the market rate. 
B)  Contract rate is equal to the market rate. 
C)  Contract rate is below the market rate. 
D)  Bond has a short-term life. 
E)  Bond pays interest only once a year.

Question 10

A company issued 10%,5-year bonds with a par value of $2,000,000,on January 1.Interest is to be paid semiannually each June 30 and December 31.The bonds were sold at $2,162,290 based on an annual market rate of 8%.The company uses the effective interest method of amortization.
(1)Prepare an amortization table for the first two semiannual payment periods using the format shown below.
 $$\begin{array} { | l | l | l | l | l | l | } 
\hline \text { Semiannual } & \text { Cash } & \text { Bond } & & & \
\hline \text { Interest } & \text { Interest } & \text { Interest } & \text { Premium } & \text { Unamortized } & \text { Carrying } \
\hline \text { Period } & \text { Paid } & \text { Expense } & \text { Amortization } & \text { Premium } & \text { Value } \
\hline & & & & & \
\hline & & & & & \
\hline & & & & & \
\hline
\end{array}$$ 
(2)Prepare the journal entry to record the first semiannual interest payment.

Accepted Answer

(1) \[\begin{array} { | c | c | c | c |

Question 11

Bonds payable to whoever holds them are called ________ bonds.

Accepted Answer

The answer of Bonds payable to whoever holds them are...

Question 12

The carrying value of bonds at maturity always equals:

Accepted Answer

A)  the amount of cash originally received in exchange for the bonds. 
B)  the par value of the bond. 
C)  the amount of discount or premium. 
D)  the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. 
E)  $0. 
A)  the amount of cash originally received in exchange for the bonds. 
B)  the par value of the bond. 
C)  the amount of discount or premium. 
D)  the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. 
E)  $0.

Question 13

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the issuance of the bond is:

Accepted Answer

A)  Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000. 
B)  Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177. 
C)  Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177. 
D)  Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000. 
E)  Debit Cash $312,177; credit Bonds Payable $312,177. 
A)  Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000. 
B)  Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177. 
C)  Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177. 
D)  Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000. 
E)  Debit Cash $312,177; credit Bonds Payable $312,177.

Question 14

A contract pledging title to assets as security for a note or bond is known as a(an):

Accepted Answer

A)  Sinking fund. 
B)  Mortgage. 
C)  Equity. 
D)  Lease. 
E)  Indenture. 
A)  Sinking fund. 
B)  Mortgage. 
C)  Equity. 
D)  Lease. 
E)  Indenture.

Question 15

When the contract rate of a bond is greater than the market rate on the date of issuance,the bond sells at a discount.

Accepted Answer

A) True 
 B)False

Question 16

Zhang Company has a loan agreement that provides it with cash today,and the company must pay $25,000 4 years from today.Zhang agrees to a 6% interest rate.The present value factor for 4 periods at 6% is 0.7921.What is the amount of cash that Zhang Company receives today?

Accepted Answer

$25,000 *

Question 17

The factor for the present value of an annuity for 6 years at 10% is 4.3553.This implies that an annuity of six $2,000 payments at 10% is the equivalent of $8,710.60 today.

Accepted Answer

A) True 
 B)False

Question 18

A discount on bonds payable:

Accepted Answer

A)  Occurs when a company issues bonds with a contract rate less than the market rate. 
B)  Occurs when a company issues bonds with a contract rate more than the market rate. 
C)  Increases the Bond Payable account. 
D)  Decreases the total bond interest expense. 
E)  Is not allowed in many states to protect creditors. 
A)  Occurs when a company issues bonds with a contract rate less than the market rate. 
B)  Occurs when a company issues bonds with a contract rate more than the market rate. 
C)  Increases the Bond Payable account. 
D)  Decreases the total bond interest expense. 
E)  Is not allowed in many states to protect creditors.

Question 19

Sinking fund bonds:

Accepted Answer

A)  Require the issuer to set aside assets at specified amounts to retire the bonds at maturity. 
B)  Require equal payments of both principal and interest over the life of the bond issue. 
C)  Decline in value over time. 
D)  Are registered bonds. 
E)  Are bearer bonds. 
A)  Require the issuer to set aside assets at specified amounts to retire the bonds at maturity. 
B)  Require equal payments of both principal and interest over the life of the bond issue. 
C)  Decline in value over time. 
D)  Are registered bonds. 
E)  Are bearer bonds.

Question 20

Match each of the following terms with the appropriate definitions.
-Bonds with interest coupons attached to their certificates; the bondholders detach the coupons when they mature and present them to a bank or broker for collection.

Accepted Answer

A) Convertible bonds 
B) Coupon bonds 
C) Bearer bonds 
D) Bond indenture 
E) Installment note
F)Unsecured bonds
G)Market rate
H)Serial bonds
I)Effective interest rate method
J)Term bonds 
A) Convertible bonds 
B) Coupon bonds 
C) Bearer bonds 
D) Bond indenture 
E) Installment note
F)Unsecured bonds
G)Market rate
H)Serial bonds
I)Effective interest rate method
J)Term bonds

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

Interest on bonds is tax deductible.

A bond with a par value of $1,000 trading at 97½ sells for a premium.

An advantage of bond financing is that issuing bonds does not affect owner control.

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

A company purchased equipment and signed a 7-year installment loan at 9% annual interest.The annual payments equal $9,000.The present value of an annuity factor for 7 years at 9% is 5.0330.The present value of a single sum factor for 7 years at 9% is 0.5470.The present value of the loan is:

A bond sells at a discount when the:

Bonds payable to whoever holds them are called ________ bonds.

The carrying value of bonds at maturity always equals:

A contract pledging title to assets as security for a note or bond is known as a(an):

When the contract rate of a bond is greater than the market rate on the date of issuance,the bond sells at a discount.

Zhang Company has a loan agreement that provides it with cash today,and the company must pay $25,000 4 years from today.Zhang agrees to a 6% interest rate.The present value factor for 4 periods at 6% is 0.7921.What is the amount of cash that Zhang Company receives today?

The factor for the present value of an annuity for 6 years at 10% is 4.3553.This implies that an annuity of six $2,000 payments at 10% is the equivalent of $8,710.60 today.

A discount on bonds payable:

Sinking fund bonds:

Match each of the following terms with the appropriate definitions. -Bonds with interest coupons attached to their certificates; the bondholders detach the coupons when they mature and present them to a bank or broker for collection.

Accounting in Business

Analyzing for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash, fraud, and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Investments

Partnership Accounting

Filters

Exam 10: Accounting for Long-Term Liabilities

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

Interest on bonds is tax deductible.

A bond with a par value of $1,000 trading at 97½ sells for a premium.

An advantage of bond financing is that issuing bonds does not affect owner control.

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

A company purchased equipment and signed a 7-year installment loan at 9% annual interest.The annual payments equal $9,000.The present value of an annuity factor for 7 years at 9% is 5.0330.The present value of a single sum factor for 7 years at 9% is 0.5470.The present value of the loan is:

A bond sells at a discount when the:

Bonds payable to whoever holds them are called ________ bonds.

The carrying value of bonds at maturity always equals:

A contract pledging title to assets as security for a note or bond is known as a(an):

When the contract rate of a bond is greater than the market rate on the date of issuance,the bond sells at a discount.

Zhang Company has a loan agreement that provides it with cash today,and the company must pay $25,000 4 years from today.Zhang agrees to a 6% interest rate.The present value factor for 4 periods at 6% is 0.7921.What is the amount of cash that Zhang Company receives today?

The factor for the present value of an annuity for 6 years at 10% is 4.3553.This implies that an annuity of six $2,000 payments at 10% is the equivalent of $8,710.60 today.

A discount on bonds payable:

Sinking fund bonds:

Match each of the following terms with the appropriate definitions. -Bonds with interest coupons attached to their certificates; the bondholders detach the coupons when they mature and present them to a bank or broker for collection.

Accounting in Business

Analyzing for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash, fraud, and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Investments

Partnership Accounting

Filters