Question 1

A basic present value concept is that cash paid or received in the future is worth more than the same amount of cash received today.

Accepted Answer

A) True 
 B)False

Question 2

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 3

If an issuer sells bonds at a date other than an interest payment date:

Accepted Answer

A)  This means the bonds sell at a premium. 
B)  This means the bonds sell at a discount. 
C)  The issuing company will report a loss on the sale of the bonds. 
D)  The issuing company will report a gain on the sale of the bonds. 
E)  The buyers normally pay the issuer the purchase price plus any interest accrued since the prior interest payment date. 
A)  This means the bonds sell at a premium. 
B)  This means the bonds sell at a discount. 
C)  The issuing company will report a loss on the sale of the bonds. 
D)  The issuing company will report a gain on the sale of the bonds. 
E)  The buyers normally pay the issuer the purchase price plus any interest accrued since the prior interest payment date.

Question 4

Bonds can be issued:

Accepted Answer

A)  At par. 
B)  At a premium. 
C)  At a discount. 
D)  Between interest payment dates. 
E)  All of these. 
A)  At par. 
B)  At a premium. 
C)  At a discount. 
D)  Between interest payment dates. 
E)  All of these.

Question 5

_______________ bonds have specific assets of the issuing company pledged as collateral.

Accepted Answer

The answer of _______________ bonds have specific assets of the...

Question 6

___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Accepted Answer

The answer of ___________________ bonds have an option exercisable by...

Question 7

The effective interest method yields increasing amounts of bond interest expense and decreasing amounts of premium amortization over the bond's life for bonds issued at a premium.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

The answer of Shin Company has a loan agreement that...

Question 9

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 first interest payment using the effective interest method of amortization is:

Accepted Answer

A)  Debit Interest Expense $12,487.08; debit Premium on Bonds Payable $1,012.92; credit Cash $13,500.00. 
B)  Debit Interest Payable $13,500; credit Cash $13,500.00. 
C)  Debit Interest Expense $12,487.08; debit Discount on Bonds Payable $1,012.92; credit Cash $13,500.00. 
D)  Debit Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E)  Debit Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
A)  Debit Interest Expense $12,487.08; debit Premium on Bonds Payable $1,012.92; credit Cash $13,500.00. 
B)  Debit Interest Payable $13,500; credit Cash $13,500.00. 
C)  Debit Interest Expense $12,487.08; debit Discount on Bonds Payable $1,012.92; credit Cash $13,500.00. 
D)  Debit Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E)  Debit Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.

Question 10

On March 1, a company issues bonds with a par value of $300,000. The bonds mature in 10 years, and pay 6% annual interest, payable each June 30 and December 31. The bonds sell at par value plus interest accrued since January 1. Prepare the general journal entry to record the issuance of the bonds on March 1.

Accepted Answer

The answer of On March 1, a company issues bonds...

Question 11

The issue price of bonds is found by computing the future value of the bond's cash payments, discounted at the market rate of interest.

Accepted Answer

A) True 
 B)False

Question 12

Secured bonds:

Accepted Answer

A)  Are called debentures. 
B)  Have specific assets of the issuing company pledged as collateral. 
C)  Are backed by the issuer's bank. 
D)  Are subordinated to those of other unsecured liabilities. 
E)  Are the same as sinking fund bonds. 
A)  Are called debentures. 
B)  Have specific assets of the issuing company pledged as collateral. 
C)  Are backed by the issuer's bank. 
D)  Are subordinated to those of other unsecured liabilities. 
E)  Are the same as sinking fund bonds.

Question 13

Describe the recording procedures for the issuance, retirement, and paying of interest for notes.

Accepted Answer

At issuance, the proceeds from a note mu

Question 14

What is a bond? Identify and discuss the different types of bonds.

Accepted Answer

A bond is a written promise to pay an am

Question 15

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Accepted Answer

A) True 
 B)False

Question 16

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Accepted Answer

A) True 
 B)False

Question 17

On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the first semiannual interest payment, assuming it uses the straight-line method of amortization.

Accepted Answer

The answer of On January 1, a company issued 10%,...

Question 18

The Premium on Bonds Payable account is a(n):

Accepted Answer

A)  Revenue account. 
B)  Adjunct or accretion liability account. 
C)  Contra revenue account. 
D)  Contra asset account. 
E)  Contra liability account. 
A)  Revenue account. 
B)  Adjunct or accretion liability account. 
C)  Contra revenue account. 
D)  Contra asset account. 
E)  Contra liability account.

Question 19

Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called:

Accepted Answer

A)  Coupon bonds. 
B)  Callable bonds. 
C)  Serial bonds. 
D)  Convertible bonds. 
E)  Registered bonds. 
A)  Coupon bonds. 
B)  Callable bonds. 
C)  Serial bonds. 
D)  Convertible bonds. 
E)  Registered bonds.

Question 20

On August 1, a company issues bonds with a par value of $600,000. The bonds mature in 10 years, and pay 6% annual interest, payable each February 1 and August 1. The bonds sold at $592,000. The company uses the straight-line method of amortizing bond discounts. The company's year-end is December 31. Prepare the general journal entry to record the interest accrued at December 31.

Accepted Answer

The answer of On August 1, a company issues bonds...

Exam 14: Long-Term Liabilities

A basic present value concept is that cash paid or received in the future is worth more than the same amount of cash received today.

A bond sells at a discount when the:

If an issuer sells bonds at a date other than an interest payment date:

Bonds can be issued:

_______________ bonds have specific assets of the issuing company pledged as collateral.

___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

The effective interest method yields increasing amounts of bond interest expense and decreasing amounts of premium amortization over the bond's life for bonds issued at a premium.

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

The issue price of bonds is found by computing the future value of the bond's cash payments, discounted at the market rate of interest.

Secured bonds:

Describe the recording procedures for the issuance, retirement, and paying of interest for notes.

What is a bond? Identify and discuss the different types of bonds.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

The Premium on Bonds Payable account is a(n):

Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called:

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Time Value of Money

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