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 B

Question 2

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.

Accepted Answer

A) True 
 B)False  False

Question 3

Sorenson Co., is considering the following alternative plans for financing their company:
   Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

Accepted Answer

The answer of Sorenson Co., is considering the following alternative...

Question 4

When the maturities of a bond issue are spread over several dates, the bonds are called

Accepted Answer

A)  serial bonds 
B)  bearer bonds 
C)  debenture bonds 
D)  term bonds 
A)  serial bonds 
B)  bearer bonds 
C)  debenture bonds 
D)  term bonds

Question 5

The unamortized Discount on Bonds Payable account is a contra-liability account.

Accepted Answer

A) True 
 B)False

Question 6

The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a

Accepted Answer

A)  debit to Discount on Bonds Payable for $40,000. 
B)  debit to Cash of $1,000,000. 
C)  credit to Bonds Payable for $960,000. 
D)  credit to Cash for $960,000. 
A)  debit to Discount on Bonds Payable for $40,000. 
B)  debit to Cash of $1,000,000. 
C)  credit to Bonds Payable for $960,000. 
D)  credit to Cash for $960,000.

Question 7

On August 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds, dated August 1, for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the following transactions for the current year:

Accepted Answer

The answer of On August 1, Clayton Co. issued $1,300,000...

Question 8

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. Present entries to record the following transactions for the current fiscal year:

Accepted Answer

(a)
 @#IMG-DLM& (b)

Question 9

If the market rate of interest is 8%, the price of 6% bonds paying interest semiannually with a face value of $250,000 will be

Accepted Answer

A)  Equal to $250,000 
B)  Greater than $250,000 
C)  Less than $250,000 
D)  Greater than or less than $250,000, depending on the maturity date of the bonds 
A)  Equal to $250,000 
B)  Greater than $250,000 
C)  Less than $250,000 
D)  Greater than or less than $250,000, depending on the maturity date of the bonds

Question 10

When the effective interest method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000. If the issuing corporation redeems the bonds at 101, what is the amount of gain or loss on redemption?

Accepted Answer

A)  $3,000 loss 
B)  $3,000 gain 
C)  $7,000 loss 
D)  $7,000 gain 
A)  $3,000 loss 
B)  $3,000 gain 
C)  $7,000 loss 
D)  $7,000 gain

Question 13

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 14

A bond is usually divided into a number of individual bonds of $500 each.

Accepted Answer

A) True 
 B)False

Question 15

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 liability 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 liability section 
A)  a direct deduction from the face amount of the bonds in the liability 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 liability section

Question 16

When the effective-interest method is used, the amortization of the bond premium

Accepted Answer

A)  increases interest expense each period 
B)  decreases interest expense each period 
C)  increases interest expense in some periods and decreases interest expense in other periods 
D)  has no effect on the interest expense in any period 
A)  increases interest expense each period 
B)  decreases interest expense each period 
C)  increases interest expense in some periods and decreases interest expense in other periods 
D)  has no effect on the interest expense in any period

Question 17

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 18

On January 1, 2015, Yeargan Company obtained an $125,000, seven year 5% installment note from Farmers Bank. The note requires annual payments of $21,602, with the first payment occurring on the last day of the fiscal year. The first payment consists of $6,250 interest and principal repayment of $15,352.
Requirement:

(1)

Accepted Answer

The answer of On January 1, 2015, Yeargan Company obtained...

Question 19

When the market rate of interest was 11%, Munson Corporation issued $1,000,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was

Accepted Answer

A)  $1,052,310 
B)  $1,154,387 
C)  $1,000,000 
D)  $ 720,495 
A)  $1,052,310 
B)  $1,154,387 
C)  $1,000,000 
D)  $ 720,495

Question 20

Balance sheet and income statement data indicate the following:

Accepted Answer

The answer of Balance sheet and income statement data indicate...

Exam 12: Long-Term Liabilities: Bonds and Notes

The interest rate specified in the bond indenture is called the

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.

Sorenson Co., is considering the following alternative plans for financing their company: Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

When the maturities of a bond issue are spread over several dates, the bonds are called

The unamortized Discount on Bonds Payable account is a contra-liability account.

The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a

On August 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds, dated August 1, for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the following transactions for the current year:

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. Present entries to record the following transactions for the current fiscal year:

If the market rate of interest is 8%, the price of 6% bonds paying interest semiannually with a face value of $250,000 will be

When the effective interest method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

Selling the bonds at a premium has the effect of

Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000. If the issuing corporation redeems the bonds at 101, what is the amount of gain or loss on redemption?

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

A bond is usually divided into a number of individual bonds of $500 each.

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

When the effective-interest method is used, the amortization of the bond premium

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

When the market rate of interest was 11%, Munson Corporation issued $1,000,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was

Balance sheet and income statement data indicate the following:

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 and Product Pricing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Cost Management for Just-In-Time Environments

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