Question 1

Which of the following statements is TRUE if a bond is issued for an amount equal to its face value?

Accepted Answer

A)  The bond's stated interest rate is less than the prevailing market interest rate at time of sale. 
B)  The bond's stated interest rate is the same as the prevailing market interest rate at time of sale. 
C)  The bond's stated interest rate is more than the prevailing market interest rate at time of sale. 
D)  The bond is not secured by specific assets of the issuer. 
A)  The bond's stated interest rate is less than the prevailing market interest rate at time of sale. 
B)  The bond's stated interest rate is the same as the prevailing market interest rate at time of sale. 
C)  The bond's stated interest rate is more than the prevailing market interest rate at time of sale. 
D)  The bond is not secured by specific assets of the issuer.

Question 2

On July 1,2018,Mason & Beech Services issued $33,000 of 10% bonds that mature in five years.They were issued at par.The bonds pay semiannual interest payments on June 30 and December 31 of each year.On December 31,2018,what is the total amount paid to bondholders?

Accepted Answer

A)  $1650 
B)  $3300 
C)  $825 
D)  $1100 
A)  $1650 
B)  $3300 
C)  $825 
D)  $1100

Question 3

On January 1,2018,Ling Services issued $168,000 of six-year,12% bonds when the market interest rate was 11%.The issue price of the bonds was $177,110.Ling uses the effective-interest method to amortize the bond premium.Semiannual interest payments are made on June 30 and December 31 of each year.How much interest expense will be recorded when the first interest payment is made? (Round the final answer to the nearest dollar.)

Accepted Answer

A)  $10,627 
B)  $9741 
C)  $10,080 
D)  $9240 
A)  $10,627 
B)  $9741 
C)  $10,080 
D)  $9240

Question 4

Using the effective-interest amortization method,the calculation for the amount of premium amortization is the difference between the cash paid for interest and the calculated interest expense based on the effective interest rate.

Accepted Answer

A) True 
 B)False

Question 5

State Street Beverage Company issues $805,000 of 9%,10-year bonds on March 31,2017.The bonds pay interest on March 31 and September 30.Which of the following statements is TRUE?

Accepted Answer

A)  If the market rate of interest is 10%, the bonds will issue at a premium. 
B)  If the market rate of interest is 10%, the bonds will issue at a discount. 
C)  If the market rate of interest is 10%, the bonds will issue at par. 
D)  If the market rate of interest is 10%, the bonds will issue above par. 
A)  If the market rate of interest is 10%, the bonds will issue at a premium. 
B)  If the market rate of interest is 10%, the bonds will issue at a discount. 
C)  If the market rate of interest is 10%, the bonds will issue at par. 
D)  If the market rate of interest is 10%, the bonds will issue above par.

Question 6

On January 1,2019,French Company issued $74,000 of five-year,8% bonds when the market interest rate was 12%.The issue price of the bonds was $62,000.French uses the effective-interest method of amortization for bond discount.Semiannual interest payments are made on June 30 and December 31 of each year.How much interest expense will be recorded when the first interest payment is made? (Round your answer to the nearest dollar number.)

Accepted Answer

A)  $2480 
B)  $3720 
C)  $2960 
D)  $4440 
A)  $2480 
B)  $3720 
C)  $2960 
D)  $4440

Question 7

Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.

Accepted Answer

A) True 
 B)False

Question 8

Bonds affect the percentage of ownership of a corporation.

Accepted Answer

A) True 
 B)False

Question 9

The interest rate on which cash payments to bondholders are based is the ________.

Accepted Answer

A)  market rate 
B)  discount rate 
C)  stated rate 
D)  amortization rate 
A)  market rate 
B)  discount rate 
C)  stated rate 
D)  amortization rate

Question 10

Celebrate Holidays Company signed a 7%,10-year note for $161,000.The company paid an installment of $2500 for the first month.What portion of the first monthly payment is principal? (Do not round any intermediate calculations,and round your final answer to the nearest dollar.)

Accepted Answer

A)  $1561 
B)  $4061 
C)  $4830 
D)  $15,917 
A)  $1561 
B)  $4061 
C)  $4830 
D)  $15,917

Question 11

The effective-interest amortization method allocates an amount of bond discount or premium,based on the market interest rate at issuance,to each interest period over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 12

Compute the present value of $46,000,invested for six years at 8%. Present value of $1:
$$\begin{array} { | l | l | l | l | l | l | } 
\hline & 5 \% & 6 \% & 7 \% & 8 \% & 9 \% \
\hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 \
\hline 4 & 0.823 & 0.792 & 0.763 & 0.735 & 0.708 \
\hline 5 & 0.784 & 0.747 & 0.713 & 0.681 & 0.650 \
\hline 6 & 0.746 & 0.705 & 0.666 & 0.630 & 0.596 \
\hline 7 & 0.711 & 0.665 & 0.623 & 0.583 & 0.547 \
\hline
\end{array}$$

Accepted Answer

A)  $36,647 
B)  $25,300 
C)  $32,660 
D)  $28,980 
A)  $36,647 
B)  $25,300 
C)  $32,660 
D)  $28,980

Question 13

The issuance of a note is recorded,on the books of the borrower,by crediting Cash and debiting Notes Receivable.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is the amount the borrower must pay back to the bondholders at maturity?

Accepted Answer

A)  market value 
B)  present value 
C)  stated interest value 
D)  principal amount 
A)  market value 
B)  present value 
C)  stated interest value 
D)  principal amount

Question 15

Why would a corporation issue bonds payable instead of issuing stock?

Accepted Answer

A)  Debt is a less expensive source of capital than stock. 
B)  Borrowing by issuing bonds payable carries no risk to the company. 
C)  Debt affects the percentage of ownership of the corporation by the stockholders. 
D)  Debt does not have to be shown on the balance sheet. 
A)  Debt is a less expensive source of capital than stock. 
B)  Borrowing by issuing bonds payable carries no risk to the company. 
C)  Debt affects the percentage of ownership of the corporation by the stockholders. 
D)  Debt does not have to be shown on the balance sheet.

Question 16

Regarding the time value of money,which of the following statements is incorrect?

Accepted Answer

A)  The time value of money is recognition that money earns interest over time. 
B)  The time value of money affects bond prices. 
C)  Present value is always greater than future value. 
D)  Future value is the value of an investment at the end of a specific time frame. 
A)  The time value of money is recognition that money earns interest over time. 
B)  The time value of money affects bond prices. 
C)  Present value is always greater than future value. 
D)  Future value is the value of an investment at the end of a specific time frame.

Question 17

Earning more income on borrowed money than the related interest expense is called ________.

Accepted Answer

A)  operating leverage 
B)  financial leverage 
C)  annuity 
D)  amortization 
A)  operating leverage 
B)  financial leverage 
C)  annuity 
D)  amortization

Question 18

If $30,000 is invested for one year at an annual interest rate of 13%,it will grow in value to ________.

Accepted Answer

A)  $33,900 
B)  $36,208 
C)  $3900 
D)  $32,308 
A)  $33,900 
B)  $36,208 
C)  $3900 
D)  $32,308

Question 19

On March 1,2018,Mandy Services issued a 3% long-term notes payable for $15,000.It is payable over a 3-year term in $5000 principal installments on March 1 of each year,beginning March 1,2019.Each yearly installment will include both principal repayment of $5000 and interest payment for the preceding one-year period.What is the amount of total cash payment that Mandy will make on March 1,2019?

Accepted Answer

A)  $5000 
B)  $5450 
C)  $15,000 
D)  $5225 
A)  $5000 
B)  $5450 
C)  $15,000 
D)  $5225

Question 20

In order to expand its business,the management of Areos,Inc.issued a long-term notes payable for $50,000.The note will be paid over a 10-year period with equal annual principal payments,beginning in one year.The annual interest rate is 12%.Prepare the journal entry for the issuance of the note.Omit explanation.

Accepted Answer

\[\begin{array} { | l | r | r

Exam 14: Long-Term Liabilities

Which of the following statements is TRUE if a bond is issued for an amount equal to its face value?

On July 1,2018,Mason & Beech Services issued $33,000 of 10% bonds that mature in five years.They were issued at par.The bonds pay semiannual interest payments on June 30 and December 31 of each year.On December 31,2018,what is the total amount paid to bondholders?

Using the effective-interest amortization method,the calculation for the amount of premium amortization is the difference between the cash paid for interest and the calculated interest expense based on the effective interest rate.

State Street Beverage Company issues $805,000 of 9%,10-year bonds on March 31,2017.The bonds pay interest on March 31 and September 30.Which of the following statements is TRUE?

Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.

Bonds affect the percentage of ownership of a corporation.

The interest rate on which cash payments to bondholders are based is the ________.

Celebrate Holidays Company signed a 7%,10-year note for $161,000.The company paid an installment of $2500 for the first month.What portion of the first monthly payment is principal? (Do not round any intermediate calculations,and round your final answer to the nearest dollar.)

The effective-interest amortization method allocates an amount of bond discount or premium,based on the market interest rate at issuance,to each interest period over the life of the bond.

Compute the present value of $46,000,invested for six years at 8%. Present value of $1: 5\% 6\% 7\% 8\% 9\% 3 0.864 0.840 0.816 0.794 0.772 4 0.823 0.792 0.763 0.735 0.708 5 0.784 0.747 0.713 0.681 0.650 6 0.746 0.705 0.666 0.630 0.596 7 0.711 0.665 0.623 0.583 0.547

The issuance of a note is recorded,on the books of the borrower,by crediting Cash and debiting Notes Receivable.

Which of the following is the amount the borrower must pay back to the bondholders at maturity?

Why would a corporation issue bonds payable instead of issuing stock?

Regarding the time value of money,which of the following statements is incorrect?

Earning more income on borrowed money than the related interest expense is called ________.

If $30,000 is invested for one year at an annual interest rate of 13%,it will grow in value to ________.

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

Filters