Question 1

A $200,000 bond issue with a carrying value of $194,000 is called at 101 and retired.The entry to record the retirement of bonds is:

Accepted Answer

A) 
 
B) 
 
C) 
 
D)

Question 2

A company issued $300,000 of 20-year,8 percent bonds at 96.If interest is paid semiannually,the entry to record the amount of bond interest expense recorded (assuming the straight-line method of amortization)on any interest date is:

Accepted Answer

A)  
B)  
C)  
D)

Question 3

When bonds are sold at face value between interest dates,the result is a debit to the Cash account that

Accepted Answer

A) equals face value. 
B) depends on the circumstances. 
C) is less than face value. 
D) exceeds face value.

Question 4

The market interest rate is also called the face interest rate.

Accepted Answer

A) True 
 B)False

Question 5

Financial leverage refers to the issuance of stock to raise cash.

Accepted Answer

A) True 
 B)False

Question 6

Term bonds are of shorter duration than serial bonds.

Accepted Answer

A) True 
 B)False

Question 7

A bond agreement is referred to as the bond indenture.

Accepted Answer

A) True 
 B)False

Question 8

The interest coverage ratio is expressed as a percentage.

Accepted Answer

A) True 
 B)False

Question 9

Bonds that contain a provision that allows the holders to exchange the bonds for other securities of the issuing corporation are called

Accepted Answer

A) debenture bonds. 
B) secured bonds. 
C) callable bonds. 
D) convertible bonds.

Question 10

A ten-year bond has a face value of $10,000,a face interest rate of 11 percent,an unamortized bond premium of $400,and an effective interest rate of 10 percent.The bonds were issued on one of its semi-annual interest payment dates.The entry to record the bond interest expense on the first semi-annual interest payment date is : (assuming the effective interest method of amortization),

Accepted Answer

A)  
B)  
C)  
D)

Question 11

Which of the following is not needed in calculating the value of a bond?

Accepted Answer

A) Face interest rate 
B) Market interest rate 
C) Dollar amount periodic interest payments 
D) Future value of face (maturity)amount

Question 12

Market interest rate is another term for effective interest rate.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not an advantage of issuing long-term debt?

Accepted Answer

A) The stockholders do not relinquish any control. 
B) The interest is tax-deductible. 
C) The risk of becoming bankrupt is reduced. 
D) Increased earnings accrue to the stockholders.

Question 14

Under a defined benefit pension plan,retirement benefits are based entirely on the annual contribution to the fund plus earnings thereon.

Accepted Answer

A) True 
 B)False

Question 15

If a bond with a face value of $1,000 and a face interest rate of 7 percent is issued for $970,the market interest rate at the date of issuance must have been less than 7 percent.

Accepted Answer

A) True 
 B)False

Question 16

A bond sells at the face value when the face interest rate of the bond is identical to the market interest rate for similar bonds on the date of the issue.

Accepted Answer

A) True 
 B)False

Question 17

A bond issue of $50,000 with a carrying value of $49,000 is converted into $10 par value common stock at the rate of fifty shares for each $1,000 bond.The entry to be recorded on the conversion of bonds is:

Accepted Answer

A) 
 
B) 
 
C) 
 
D)

Question 18

Promises to pay employees pensions after they retire are difficult to identify and value and therefore need not be recognized in the financial statements until cash payment is made.

Accepted Answer

A) True 
 B)False

Question 19

Term bonds are

Accepted Answer

A) bonds that have a single maturity date. 
B) bonds secured by specific assets of the issuing corporation. 
C) issued only by the federal government. 
D) issued on the general credit of the corporation and do not pledge certain assets as collateral.

Question 20

Accounting for a defined contribution pension plan is simpler than accounting for a defined benefit plan.

Accepted Answer

A) True 
 B)False

Exam 11: Long-Term Liabilities

A $200,000 bond issue with a carrying value of $194,000 is called at 101 and retired.The entry to record the retirement of bonds is:

A company issued $300,000 of 20-year,8 percent bonds at 96.If interest is paid semiannually,the entry to record the amount of bond interest expense recorded (assuming the straight-line method of amortization) on any interest date is:

When bonds are sold at face value between interest dates,the result is a debit to the Cash account that

The market interest rate is also called the face interest rate.

Financial leverage refers to the issuance of stock to raise cash.

Term bonds are of shorter duration than serial bonds.

A bond agreement is referred to as the bond indenture.

The interest coverage ratio is expressed as a percentage.

Bonds that contain a provision that allows the holders to exchange the bonds for other securities of the issuing corporation are called

Which of the following is not needed in calculating the value of a bond?

Market interest rate is another term for effective interest rate.

Which of the following is not an advantage of issuing long-term debt?

Under a defined benefit pension plan,retirement benefits are based entirely on the annual contribution to the fund plus earnings thereon.

If a bond with a face value of $1,000 and a face interest rate of 7 percent is issued for $970,the market interest rate at the date of issuance must have been less than 7 percent.

A bond sells at the face value when the face interest rate of the bond is identical to the market interest rate for similar bonds on the date of the issue.

A bond issue of $50,000 with a carrying value of $49,000 is converted into $10 par value common stock at the rate of fifty shares for each $1,000 bond.The entry to be recorded on the conversion of bonds is:

Promises to pay employees pensions after they retire are difficult to identify and value and therefore need not be recognized in the financial statements until cash payment is made.

Term bonds are

Accounting for a defined contribution pension plan is simpler than accounting for a defined benefit plan.