Question 1

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 2

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

Accepted Answer

A) True 
 B)False

Question 3

The contract rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

Accepted Answer

A) True 
 B)False

Question 4

Term bonds are scheduled for maturity on one specified date, whereas serial bonds mature at more than one date.

Accepted Answer

A) True 
 B)False

Question 5

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the first interest payment using the effective interest method of amortization is:

Accepted Answer

A) Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
B) Debit Interest Expense $15,351.72; credit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00. 
C) Debit Interest Expense $12,648.28; debit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
D) Debit Interest Expense $15,351.72; credit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
E) Debit Interest Expense $12,648.28; debit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00. 
A) Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
B) Debit Interest Expense $15,351.72; credit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00. 
C) Debit Interest Expense $12,648.28; debit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
D) Debit Interest Expense $15,351.72; credit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
E) Debit Interest Expense $12,648.28; debit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00.

Question 6

A bond is issued at par value when:

Accepted Answer

A) Straight line amortization is used by the company. 
B) The bond pays no interest. 
C) The bond is callable. 
D) The bond is not between interest payment dates. 
E) The market rate of interest is the same as the contract rate of interest. 
A) Straight line amortization is used by the company. 
B) The bond pays no interest. 
C) The bond is callable. 
D) The bond is not between interest payment dates. 
E) The market rate of interest is the same as the contract rate of interest.

Question 7

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

Question 8

A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6.

Accepted Answer

A) True 
 B)False

Question 9

Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.

Accepted Answer

A) True 
 B)False

Question 10

A bond's par value is not necessarily the same as its market value.

Accepted Answer

A) True 
 B)False

Question 11

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

Accepted Answer

A) True 
 B)False

Question 12

On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the first interest payment is:

Accepted Answer

A) $400,000. 
B) $396,200. 
C) $399,800. 
D) $400,200. 
E) $395,800. 
A) $400,000. 
B) $396,200. 
C) $399,800. 
D) $400,200. 
E) $395,800.

Question 13

A disadvantage of bond financing over equity financing is the burden on the cash flows of the company.

Accepted Answer

A) True 
 B)False

Question 14

An annuity is a series of equal payments at equal time intervals.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

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

Question 16

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

Accepted Answer

A) True 
 B)False

Question 17

On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,087 every six months.
The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:

Accepted Answer

A) $224,826. 
B) $245,000. 
C) $132,500. 
D) $225,000. 
E) $265,174. 
A) $224,826. 
B) $245,000. 
C) $132,500. 
D) $225,000. 
E) $265,174.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest. The present value of an annuity factor for 6 years at 7% is 4.7665.The present value of a single sum factor for 6 years at 7% is 0.6663. The annual annuity payments equal:

Accepted Answer

A) $8,391.90. 
B) $40,000.00. 
C) $60,033.02. 
D) $190,660.00. 
E) $26,652.00. 
A) $8,391.90. 
B) $40,000.00. 
C) $60,033.02. 
D) $190,660.00. 
E) $26,652.00.

Question 20

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker for collection, are called:

Accepted Answer

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

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.

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

The contract rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

Term bonds are scheduled for maturity on one specified date, whereas serial bonds mature at more than one date.

A bond is issued at par value when:

A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6.

Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.

A bond's par value is not necessarily the same as its market value.

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

A disadvantage of bond financing over equity financing is the burden on the cash flows of the company.

An annuity is a series of equal payments at equal time intervals.

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

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

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

A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest. The present value of an annuity factor for 6 years at 7% is 4.7665.The present value of a single sum factor for 6 years at 7% is 0.6663. The annual annuity payments equal:

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker 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 Resoures, 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

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Exam 14: Long-Term Liabilities

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.

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

The contract rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

Term bonds are scheduled for maturity on one specified date, whereas serial bonds mature at more than one date.

A bond is issued at par value when:

A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6.

Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.

A bond's par value is not necessarily the same as its market value.

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

A disadvantage of bond financing over equity financing is the burden on the cash flows of the company.

An annuity is a series of equal payments at equal time intervals.

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

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

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

A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest. The present value of an annuity factor for 6 years at 7% is 4.7665.The present value of a single sum factor for 6 years at 7% is 0.6663. The annual annuity payments equal:

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker 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 Resoures, 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

Filters