Question 1

Issuing bonds rather than stock will result in an increase in the debt-to-equity ratio.

Accepted Answer

A) True 
 B)False

Question 2

Steamboat Company issued the following ten-year bonds on January 1,2019: $100,000 maturity value,6% interest payable annually on each December 31.The bonds were dated January 1,2019 and the accounting period ends December 31.The bonds were issued for $93,000.Steamboat uses the effective-interest method for amortization.The amortization for 2019 was $510.
A.
   B.Assuming instead that the accounting period ends on June 30,prepare the adjusting entry related to interest expense and the interest accrual at June 30.No adjusting entries have been made during the year.

Accepted Answer

The answer of Steamboat Company issued the following ten-year bonds...

Question 3

A bond's interest payments are determined by multiplying the bond's principal amount by the coupon rate.

Accepted Answer

A) True 
 B)False

Question 4

The major disadvantages of issuing a bond are the risk of bankruptcy and the negative impact on cash flow because debt must be repaid at a specified date in the future.

Accepted Answer

A) True 
 B)False

Question 5

Zero coupon bonds are bonds that are issued:

Accepted Answer

A) With a zero effective interest rate. 
B) At a rate that provides a large discount at issuance. 
C) At a rate that has zero difference between the coupon rate and the market rate of interest. 
D) As bonds that will have zero amortization recorded over the life of the bond. 
A) With a zero effective interest rate. 
B) At a rate that provides a large discount at issuance. 
C) At a rate that has zero difference between the coupon rate and the market rate of interest. 
D) As bonds that will have zero amortization recorded over the life of the bond.

Question 6

On March 31,2019,Topper Corp.retired bonds early by repurchasing them in the market for $9,700,000.The total face value of the bonds retired at March 31,2019 was $10 million for which there remained a balance of $450,000 of unamortized discount.
Prepare the journal entry to retire the bonds.

Accepted Answer

The answer of On March 31,2019,Topper Corp.retired bonds early by...

Question 7

The issuance price of a bond is the present value of both the principal,plus the cash interest to be received over the life of the bond,discounted at the coupon rate.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements best describes convertible bonds?

Accepted Answer

A) They can be turned in for early retirement at the option of the bondholder. 
B) They can be converted to common stock at the option of the bondholder. 
C) They can be called for early retirement at the option of the issuer. 
D) They can be converted to common stock at the option of the issuer. 
A) They can be turned in for early retirement at the option of the bondholder. 
B) They can be converted to common stock at the option of the bondholder. 
C) They can be called for early retirement at the option of the issuer. 
D) They can be converted to common stock at the option of the issuer.

Question 9

Gammell Company issued $50,000 of 9% bonds with annual interest payments.The bonds mature in ten years.The bonds were issued at $48,000.Gammell Company uses the straight-line method of amortization.
- Which of the following statements is incorrect?

Accepted Answer

A) The market rate of interest exceeded the coupon rate of interest when the bonds were issued. 
B) The annual interest expense exceeds the annual cash interest payment by $200. 
C) The annual increase in the bond book value is $200. 
D) The annual interest expense is $4,300. 
A) The market rate of interest exceeded the coupon rate of interest when the bonds were issued. 
B) The annual interest expense exceeds the annual cash interest payment by $200. 
C) The annual increase in the bond book value is $200. 
D) The annual interest expense is $4,300.

Question 10

A company has a December 31 fiscal year-end and a bond on which interest is paid annually on December 31.When the bond initially sells at par value,the bond interest expense on the income statement equals the amount of the interest cash payment.

Accepted Answer

A) True 
 B)False

Question 11

A company retired $500,000 of bonds,which have an unamortized discount of $10,000,by repurchasing them for $500,000.What is the amount of the gain or loss on the retirement of the bonds?

Accepted Answer

A) There was no gain or loss. 
B) There was a $10,000 loss. 
C) There was a $10,000 gain. 
D) There was a $500,000 loss. 
A) There was no gain or loss. 
B) There was a $10,000 loss. 
C) There was a $10,000 gain. 
D) There was a $500,000 loss.

Question 12

Which of the following is correct when using the effective-interest method of amortizing the discount on bonds payable?

Accepted Answer

A) Interest expense is computed by adding the portion of amortized discount to the cash interest paid. 
B) The amount of interest expense recognized each period increases over time. 
C) The amount of discount amortized each period decreases over time. 
D) The book value of the bonds payable liability decreases. 
A) Interest expense is computed by adding the portion of amortized discount to the cash interest paid. 
B) The amount of interest expense recognized each period increases over time. 
C) The amount of discount amortized each period decreases over time. 
D) The book value of the bonds payable liability decreases.

Question 13

Which of the following statements best describes callable bonds?

Accepted Answer

A) They can be turned in for early retirement at the option of the bondholder. 
B) They can be converted to common stock at the option of the bondholder. 
C) They can be called for early retirement at the option of the issuer. 
D) They can be called for early retirement at the option of the lien holder. 
A) They can be turned in for early retirement at the option of the bondholder. 
B) They can be converted to common stock at the option of the bondholder. 
C) They can be called for early retirement at the option of the issuer. 
D) They can be called for early retirement at the option of the lien holder.

Question 14

Eaton Company issued $5 million of bonds with a 10% coupon rate of interest. When Eaton issued the bonds,the market rate of interest was 8%.Which of the following statements is incorrect?

Accepted Answer

A) The bonds were issued at a premium. 
B) Annual interest expense will be less than the company's annual cash payments for interest. 
C) The book value of the bonds will decrease as the bond matures. 
D) The annual interest expense will increase if the effective-interest method of amortization is used. 
A) The bonds were issued at a premium. 
B) Annual interest expense will be less than the company's annual cash payments for interest. 
C) The book value of the bonds will decrease as the bond matures. 
D) The annual interest expense will increase if the effective-interest method of amortization is used.

Question 15

Newton Company issued its $1,000,000,7%,ten-year bonds to the public on January 1,2019.The bonds pay interest annually,beginning on December 31,2019.Newton Company received $1,154,420 in cash at the issuance of the bonds.The market rate of interest when the bonds were issued was 5%.Newton Company has a December 31 year-end.Assume that no adjusting journal entries have been made during the year.
A.Compute the amount of the premium that Newton Company should amortize on December 31,2019,assuming the effective-interest method is used.
B.Compute the amount of the premium that Newton Company should amortize on December 31,2019,assuming the straight-line method is used.
C.Which method above is theoretically the better method to use for amortizing a bond premium?

Accepted Answer

A.($1,000,000 × 7% = $70,000)-

Question 16

Issuing bonds dilutes the voting power of the common shareholders because bonds have preferential voting rights.

Accepted Answer

A) True 
 B)False

Question 17

Interest expense decreases over time when a bond is initially issued at a premium and the effective-interest method is used.

Accepted Answer

A) True 
 B)False

Question 18

When the market rate of interest is greater than the coupon rate,the bond will sell at a discount.

Accepted Answer

A) True 
 B)False

Question 19

A company prepared the following journal entry:    Which of the following statements correctly describes the effect of this journal entry on the financial statements?

Accepted Answer

A) The bonds payable book value increases by the amount of the credit to discount on bonds payable. 
B) The bonds payable book value decreases by the amount of the credit to cash. 
C) Stockholders' equity decreases by the amount of the credit to cash. 
D) The cash payment is reported as a cash flow from financing activities. 
A) The bonds payable book value increases by the amount of the credit to discount on bonds payable. 
B) The bonds payable book value decreases by the amount of the credit to cash. 
C) Stockholders' equity decreases by the amount of the credit to cash. 
D) The cash payment is reported as a cash flow from financing activities.

Question 20

The annual interest rate specified within a bond indenture is called which of the following?

Accepted Answer

A) The coupon rate of interest. 
B) The market rate of interest. 
C) The effective rate of interest. 
D) The actual rate of interest. 
A) The coupon rate of interest. 
B) The market rate of interest. 
C) The effective rate of interest. 
D) The actual rate of interest.

Issuing bonds rather than stock will result in an increase in the debt-to-equity ratio.

A bond's interest payments are determined by multiplying the bond's principal amount by the coupon rate.

The major disadvantages of issuing a bond are the risk of bankruptcy and the negative impact on cash flow because debt must be repaid at a specified date in the future.

Zero coupon bonds are bonds that are issued:

On March 31,2019,Topper Corp.retired bonds early by repurchasing them in the market for $9,700,000.The total face value of the bonds retired at March 31,2019 was $10 million for which there remained a balance of $450,000 of unamortized discount. Prepare the journal entry to retire the bonds.

The issuance price of a bond is the present value of both the principal,plus the cash interest to be received over the life of the bond,discounted at the coupon rate.

Which of the following statements best describes convertible bonds?

Gammell Company issued $50,000 of 9% bonds with annual interest payments.The bonds mature in ten years.The bonds were issued at $48,000.Gammell Company uses the straight-line method of amortization. - Which of the following statements is incorrect?

A company has a December 31 fiscal year-end and a bond on which interest is paid annually on December 31.When the bond initially sells at par value,the bond interest expense on the income statement equals the amount of the interest cash payment.

A company retired $500,000 of bonds,which have an unamortized discount of $10,000,by repurchasing them for $500,000.What is the amount of the gain or loss on the retirement of the bonds?

Which of the following is correct when using the effective-interest method of amortizing the discount on bonds payable?

Which of the following statements best describes callable bonds?

Eaton Company issued $5 million of bonds with a 10% coupon rate of interest. When Eaton issued the bonds,the market rate of interest was 8%.Which of the following statements is incorrect?

Issuing bonds dilutes the voting power of the common shareholders because bonds have preferential voting rights.

Interest expense decreases over time when a bond is initially issued at a premium and the effective-interest method is used.

When the market rate of interest is greater than the coupon rate,the bond will sell at a discount.

A company prepared the following journal entry: Which of the following statements correctly describes the effect of this journal entry on the financial statements?

The annual interest rate specified within a bond indenture is called which of the following?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments,financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue,receivables,and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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Exam 10: Reporting and Interpreting Bond Securities

Issuing bonds rather than stock will result in an increase in the debt-to-equity ratio.

A bond's interest payments are determined by multiplying the bond's principal amount by the coupon rate.

The major disadvantages of issuing a bond are the risk of bankruptcy and the negative impact on cash flow because debt must be repaid at a specified date in the future.

Zero coupon bonds are bonds that are issued:

On March 31,2019,Topper Corp.retired bonds early by repurchasing them in the market for $9,700,000.The total face value of the bonds retired at March 31,2019 was $10 million for which there remained a balance of $450,000 of unamortized discount. Prepare the journal entry to retire the bonds.

The issuance price of a bond is the present value of both the principal,plus the cash interest to be received over the life of the bond,discounted at the coupon rate.

Which of the following statements best describes convertible bonds?

Gammell Company issued $50,000 of 9% bonds with annual interest payments.The bonds mature in ten years.The bonds were issued at $48,000.Gammell Company uses the straight-line method of amortization. - Which of the following statements is incorrect?

A company has a December 31 fiscal year-end and a bond on which interest is paid annually on December 31.When the bond initially sells at par value,the bond interest expense on the income statement equals the amount of the interest cash payment.

A company retired $500,000 of bonds,which have an unamortized discount of $10,000,by repurchasing them for $500,000.What is the amount of the gain or loss on the retirement of the bonds?

Which of the following is correct when using the effective-interest method of amortizing the discount on bonds payable?

Which of the following statements best describes callable bonds?

Eaton Company issued $5 million of bonds with a 10% coupon rate of interest. When Eaton issued the bonds,the market rate of interest was 8%.Which of the following statements is incorrect?

Issuing bonds dilutes the voting power of the common shareholders because bonds have preferential voting rights.

Interest expense decreases over time when a bond is initially issued at a premium and the effective-interest method is used.

When the market rate of interest is greater than the coupon rate,the bond will sell at a discount.

A company prepared the following journal entry: Which of the following statements correctly describes the effect of this journal entry on the financial statements?

The annual interest rate specified within a bond indenture is called which of the following?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments,financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue,receivables,and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property,plant,and Equipment;intangibles;and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Stockholders Equity

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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