Question 1

The market interest rate related to a bond is also called the

Accepted Answer

A)  stated interest rate 
B)  effective interest rate 
C)  contract interest rate 
D)  straight-line rate 
A)  stated interest rate 
B)  effective interest rate 
C)  contract interest rate 
D)  straight-line rate

Question 2

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 3

The special fund that is set aside to provide for the payment of bonds at maturity is called a sinking fund.

Accepted Answer

A) True 
 B)False

Question 4

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $530,000. Journalize the entry to record the issuance of the bonds.

Accepted Answer

The answer of On the first day of the fiscal...

Question 5

Using the following table, what is the present value of $5,000 to be received 5 years, if the market rate is 10% compounded annually?

Accepted Answer

X = $5,000

Question 6

Debtors are interested in the times-interest-earned ratio because they want to

Accepted Answer

A)  know what rate of interest the corporation is paying 
B)  have adequate protection against a potential drop in earnings jeopardizing their interest payments 
C)  be sure their debt is backed by collateral 
D)  know the tax effect of lending to a corporation 
A)  know what rate of interest the corporation is paying 
B)  have adequate protection against a potential drop in earnings jeopardizing their interest payments 
C)  be sure their debt is backed by collateral 
D)  know the tax effect of lending to a corporation

Question 7

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 8

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

Accepted Answer

A) True 
 B)False

Question 9

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $437,740. Journalize the entry to record the issuance of the bonds.

Accepted Answer

The answer of On the first day of the fiscal...

Question 10

Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.

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

One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Zero-coupon bonds do provide for interest payments.

Accepted Answer

A) True 
 B)False

Question 15

A bond is simply a form of an interest bearing note.

Accepted Answer

A) True 
 B)False

Question 16

The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount.

Accepted Answer

A) True 
 B)False

Question 17

On January 1, 2011, Citrus Retail Co. issued a $500,000, 5 year, 8% installment note payable with payments of $100,000 principal plus interest due on January 1 of each year for the next 5 years.
1. Prepare the adjusting journal entry at December 31, 2011 to accrue interest for the year.
2. Show the account(s) and amount(s) and where it will appear on a multi-step income statement prepared on December 31, 2011.
3. Show the account(s) and amount(s) and where they will appear on a classified balance sheet prepared on December 31, 2011.

Accepted Answer

The answer of On January 1, 2011, Citrus Retail Co....

Question 18

The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

Accepted Answer

A) True 
 B)False

Question 19

Balance sheet and income statement data indicate the following:   Based on the data presented above, what is the number of times bond interest charges were earned (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 20

The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.

Accepted Answer

A) True 
 B)False

Exam 14: Long-Term Liabilities: Bonds and Notes

The market interest rate related to a bond is also called the

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.

The special fund that is set aside to provide for the payment of bonds at maturity is called a sinking fund.

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $530,000. Journalize the entry to record the issuance of the bonds.

Using the following table, what is the present value of $5,000 to be received 5 years, if the market rate is 10% compounded annually?

Debtors are interested in the times-interest-earned ratio because they want to

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

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $437,740. Journalize the entry to record the issuance of the bonds.

Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.

Selling the bonds at a premium has the effect of

One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.

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?

Zero-coupon bonds do provide for interest payments.

A bond is simply a form of an interest bearing note.

The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount.

The times interest earned ratio is calculated by dividing Bonds Payable by Interest Expense.

Balance sheet and income statement data indicate the following: Based on the data presented above, what is the number of times bond interest charges were earned (round to two decimal places)?

The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting Systems

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Accounting for Partnerships and Limited Liability Companies

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

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis and Product Pricing

Capital Investment Analysis

Filters