Question 1

Bonds that mature at different dates with the result that the entire debt is repaid gradually over a number of years are called:

Accepted Answer

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

Question 2

Emilia Inc issued $200,000, 6%, 10-year bonds, with interest payable semiannually. The market rate on the issue date was 5.5%. Emilia received $206,948 in proceeds. Which statement best describes Emilia' responsibility to the bondholders?

Accepted Answer

A)  Emilia must pay $206,948 at maturity. 
B)  Emilia must pay $200,000 at maturity. 
C)  Emilia must pay $200,000 at maturity plus 20 interest payments of $6,000. 
D)  Emilia must pay $200,000 at maturity plus 10 interest payments of $12,000. 
E)  Emilia must pay $206,948 at maturity plus 20 interest payments of $6,000.

Question 3

Mike Limited issues $200,000 of its 9% bonds at par on April 1, which is 4 months after the original issue date. How much interest should Mike collect from the buyer?

Accepted Answer

A)  $3,000. 
B)  $1,500. 
C)  $5,250. 
D)  $750. 
E)  $6,000.

Question 4

The issue price of a bond is equal to the present value of all future cash payments to be received from the bond.

Accepted Answer

A) True 
 B)False

Question 5

On January 1, Gary Corporation signs a 6-year lease, which requires annual payments of $51,000 on December 31. The lease meets the requirements of a finance lease.Assuming an interest rate of 5%, calculate the value of the Lease Liability after the first payment.

Accepted Answer

A)  $258,861. 
B)  $220,804. 
C)  $138,543. 
D)  $106,941. 
E)  $110,834.

Question 6

The Discount on Bonds Payable account is:

Accepted Answer

A)  A contra equity. 
B)  A contra liability. 
C)  A contra expense. 
D)  An expense. 
E)  A liability.

Question 7

Bonds that give the issuer an option of retiring them before they mature are known as:

Accepted Answer

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

Question 8

In the event of bankruptcy, owners of secured bonds receive their share of the firm's assets as payment before the owners of other unsecured debt.

Accepted Answer

A) True 
 B)False

Question 9

Payments on installment notes normally include interest accruing to the date of the payment plus a portion of the principal.

Accepted Answer

A) True 
 B)False

Question 10

If a bond is issued at a premium, interest expense will decrease over the term of the bond.

Accepted Answer

A) True 
 B)False

Question 11

On January 1, 2015, SuperBowl Inc signed a two-year, 7% $5,000 note payable. The note plus interest is due on December 31, 2016. The amount of interest expense to be recorded for 2015 is $375.

Accepted Answer

A) True 
 B)False

Question 12

An advantage of bond financing is that interest does not have to be paid.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Toopy Corp issues $650,000, 9%, 10-year bonds. The bonds trade at 105.5. The total amount of interest to be paid to the bondholders for the semiannual interest payments, assuming the effective interest method is used, is

Accepted Answer

A)  $516,425. 
B)  $63,750. 
C)  $58,500. 
D)  $585,000. 
E)  $68,575.

Question 15

Paul Corporation has $100,000 in bonds outstanding. The unamortized discount on these bonds is $4,500. If the corporation redeems these bonds at 97, what is the gain loss) on retirement?

Accepted Answer

A)  $1,500). 
B)  $3,000). 
C)  $1,500. 
D)  $3,000. 
E)  $4,500).

Question 16

A note is initially measured and recorded at its selling price.

Accepted Answer

A) True 
 B)False

Question 17

The contract rate is also called the:

Accepted Answer

A)  Coupon rate. 
B)  Interest rate. 
C)  Stated rate. 
D)  Nominal rate. 
E)  All of these answers are correct.

Question 18

Explain the amortization of bond premium.

Accepted Answer

The answer of Explain the amortization of bond premium....

Question 19

A premium on bonds payable arises when the bonds carry a contract rate greater than the current market rate.

Accepted Answer

A) True 
 B)False

Question 20

A bondholder who owns a $1,000, 10%, 10-year bond has the right to:

Accepted Answer

A)  Vote. 
B)  Receive $1,000 at maturity. 
C)  Receive dividends. 
D)  Receive $10 per year until maturity. 
E)  None of these answers is correct.

Exam 14: Bonds and Long-Term Notes Payable

Bonds that mature at different dates with the result that the entire debt is repaid gradually over a number of years are called:

Emilia Inc issued $200,000, 6%, 10-year bonds, with interest payable semiannually. The market rate on the issue date was 5.5%. Emilia received $206,948 in proceeds. Which statement best describes Emilia' responsibility to the bondholders?

Mike Limited issues $200,000 of its 9% bonds at par on April 1, which is 4 months after the original issue date. How much interest should Mike collect from the buyer?

The issue price of a bond is equal to the present value of all future cash payments to be received from the bond.

On January 1, Gary Corporation signs a 6-year lease, which requires annual payments of $51,000 on December 31. The lease meets the requirements of a finance lease.Assuming an interest rate of 5%, calculate the value of the Lease Liability after the first payment.

The Discount on Bonds Payable account is:

Bonds that give the issuer an option of retiring them before they mature are known as:

In the event of bankruptcy, owners of secured bonds receive their share of the firm's assets as payment before the owners of other unsecured debt.

Payments on installment notes normally include interest accruing to the date of the payment plus a portion of the principal.

If a bond is issued at a premium, interest expense will decrease over the term of the bond.

On January 1, 2015, SuperBowl Inc signed a two-year, 7% $5,000 note payable. The note plus interest is due on December 31, 2016. The amount of interest expense to be recorded for 2015 is $375.

An advantage of bond financing is that interest does not have to be paid.

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

Toopy Corp issues $650,000, 9%, 10-year bonds. The bonds trade at 105.5. The total amount of interest to be paid to the bondholders for the semiannual interest payments, assuming the effective interest method is used, is

Paul Corporation has $100,000 in bonds outstanding. The unamortized discount on these bonds is $4,500. If the corporation redeems these bonds at 97, what is the gain loss) on retirement?

A note is initially measured and recorded at its selling price.

The contract rate is also called the:

Explain the amortization of bond premium.

A premium on bonds payable arises when the bonds carry a contract rate greater than the current market rate.

A bondholder who owns a $1,000, 10%, 10-year bond has the right to: