Question 1

If bonds are issued at a premium,the stated interest rate is
A)higher than the market rate of interest.
B)lower than the market rate of interest.
C)too low to attract investors.
D)adjusted to a higher rate of interest.

Accepted Answer

If bonds are issued at a premium, it means that the selling price of the bond is greater than its face value or par value. This is usually because the stated interest rate on the bond is higher than the market rate of interest. Investors are willing to pay a premium for the bond because they can earn a higher return on their investment compared to other bonds that are currently available in the market. Therefore, the stated interest rate on a bond issued at a premium is higher than the market rate of interest.

Question 2

If the market rate of interest is 10%,a $10,000,12%,10-year bond that pays interest semiannually would sell at an amount
A)less than face value.
B)equal to the face value.
C)greater than face value.
D)that cannot be determined.

Accepted Answer

The answer of If the market rate of interest is...

Question 3

A corporation issues $100,000,10%,5-year bonds on January 1,2011,for $104,200.Interest is paid semiannually on January 1 and July 1.If the corporation uses the straight-line method of amortization of bond premium,the amount of bond interest expense to be recognized on July 1,2011,is
A)$10,420.
B)$5,420.
C)$5,000.
D)$4,580.

Accepted Answer

The answer of A corporation issues $100,000,10%,5-year bonds on January...

Question 4

The Reagan Corporation issues 1,000,10-year,8%,$1,000 bonds dated January 1,2014,at 92.The journal entry to record the issuance will show a
A)credit to Discount on Bonds Payable for $80,000.
B)debit to Cash of $1,000,000.
C)credit to Bonds Payable for $1,000,000.
D)credit to Cash for $920,000.

Accepted Answer

The answer of The Reagan Corporation issues 1,000,10-year,8%,$1,000 bonds dated...

Question 5

The cash and securities comprising a sinking fund established to redeem bonds at maturity in 2015 should be classified on the balance sheet as
A)fixed assets
B)current assets
C)intangible assets
D)investments

Accepted Answer

The answer of The cash and securities comprising a sinking...

Question 6

Sinking Fund Investments would be classified on the balance sheet as
A)a current asset
B)a fixed asset
C)an investment
D)a deferred debit

Accepted Answer

Sinking Fund Investments are investments and should be classified on the balance sheet as such. They are not current assets, fixed assets, or deferred debits.

Question 7

When callable bonds are redeemed below carrying value
A)Gain on Redemption of Bonds is credited
B)Loss on Redemption of Bonds is debited
C)Retained Earnings is credited
D)Retained Earnings is debited

Accepted Answer

The answer of When callable bonds are redeemed below carrying...

Question 8

Selling the bonds at a premium has the effect of
A)raising the effective interest rate above the stated interest rate.
B)attracting investors that are willing to pay a lower rate of interest than on similar bonds.
C)causing the interest expense to be higher than the bond interest paid.
D)causing the interest expense to be lower than the bond interest paid.

Accepted Answer

The answer of Selling the bonds at a premium has...

Question 9

If bonds are issued at a discount,it means that the
A)bondholder will receive effectively less interest than the contractual rate of interest.
B)market interest rate is lower than the contractual interest rate.
C)market interest rate is higher than the contractual interest rate.
D)financial strength of the issuer is suspect.

Accepted Answer

When bonds are issued at a discount, it means the market interest rate is higher than the contractual interest rate. This causes the bonds to sell for less than their face value to make them more attractive to buyers, who can earn a higher return through the market's prevailing rates.

Question 10

The Miracle Corporation issues 1,000,10-year,8%,$1,000 bonds dated January 1,2011,at 96.The journal entry to record the issuance will show a
A)debit to Discount on Bonds Payable for $40,000.
B)debit to Cash of $1,000,000.
C)credit to Bonds Payable for $960,000.
D)credit to Cash for $960,000.

Accepted Answer

The answer of The Miracle Corporation issues 1,000,10-year,8%,$1,000 bonds dated...

Question 11

Sinking Fund Cash would be classified on the balance sheet as
A)a current asset
B)a fixed asset
C)an intangible asset
D)an investment

Accepted Answer

The answer of Sinking Fund Cash would be classified on...

Question 12

If the market rate of interest is greater than the contractual rate of interest,bonds will sell
A)at a premium.
B)at face value.
C)at a discount.
D)only after the stated rate of interest is increased.

Accepted Answer

When the market rate of interest is greater than the contractual rate of interest, it means that the bond's interest rate is lower than what the market is offering. Investors will demand a higher return on their investment, which will result in a lower price for the bond. As a result, the bonds will be sold at a discount.

Question 13

Bonds with a face amount $1,000,000,are sold at 108.The entry to record the issuance is
A)Cash 1,000,000 Premium on Bonds Payable 80,000
Bonds Payable 1,080,000
B)Cash 1,080,000 Premium on Bonds Payable 80,000
Bonds Payable 1,000,000
C)Cash 1,080,000 Discount on Bonds Payable 80,000
Bonds Payable 1,000,000
D)Cash 1,080,000 Bonds Payable 1,080,000

Accepted Answer

The face amount of the bond is $1,000,000, but it was sold at a premium (108% of face value), which means the company received $1,080,000 (1,000,000 x 1.08). The entry to record this issuance is to debit Cash for $1,080,000 and credit Bonds Payable for $1,000,000, and credit Premium on Bonds Payable for $80,000 (the difference between the cash received and the face value of the bonds). Therefore, Choice B is the correct entry to record the issuance.

Question 14

On January 1,2014,$1,000,000,5-year,10% bonds,were issued for $980,000.Interest is paid semiannually on January 1 and July 1.If the issuing corporation uses the straight-line method to amortize discount on bonds payable,the semiannual amortization amount is
A)$8,000.
B)$4,000.
C)$2,000
D)$5,000

Accepted Answer

The answer of On January 1,2014,$1,000,000,5-year,10% bonds,were issued for $980,000.Interest...

Question 15

If bonds payable are not callable,the issuing corporation
A)can exchange it for common stock
B)can repurchase them in the open market
C)must get special permission from the SEC to repurchase them
D)is more likely to repurchase them if the interest rates increase

Accepted Answer

If bonds payable are not callable, the issuing corporation cannot exchange them for common stock or repurchase them directly from the bondholders. However, they can repurchase them in the open market if they are available for sale. The corporation does not need special permission from the SEC to repurchase them, but they may have to follow certain regulations and disclose their actions to stockholders. The interest rates do not necessarily affect the corporation's decision to repurchase the bonds, as it depends on various factors such as the company's financial position and market conditions.

Question 16

The bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the life of the issue.The amounts set aside are kept separate from other assets in a special fund called a(n)
A)enterprise fund
B)sinking fund
C)special assessments fund
D)general fund

Accepted Answer

The term "sinking fund" refers to a special fund where money is set aside over time for the purpose of redeeming or retiring a bond issue at its maturity. This ensures that the issuer has sufficient funds to pay back bondholders when the bonds become due at maturity.

Question 17

Sinking Fund Income is reported in the income statement as
A)income from operations
B)extraordinary
C)gain on sinking fund transactions
D)other income

Accepted Answer

The answer of Sinking Fund Income is reported in the...

Question 18

The Victor Corporation issues 1,000,10-year,8%,$1,000 bonds dated January 1,2011,at 96.The journal entry to record the issuance will show a
A)debit to Cash of $1,000,000.
B)credit to Discount on Bonds Payable for $40,000.
C)credit to Bonds Payable for $960,000.
D)debit to Cash for $960,000.

Accepted Answer

The answer of The Victor Corporation issues 1,000,10-year,8%,$1,000 bonds dated...

Question 19

The interest expense recorded on an interest payment date is increased
A)only if the market rate of interest is less than the stated rate of interest on that date.
B)by the amortization of premium on bonds payable.
C)by the amortization of discount on bonds payable.
D)only if the bonds were sold at face value.

Accepted Answer

The interest expense recorded on an interest payment date is increased by the amortization of discount on bonds payable. This is because a bond issued at a discount has a stated interest rate that is less than the market rate, resulting in a lower cash interest payment. The difference between the cash payment and the interest expense is amortized over the life of the bond and added to the interest expense on each payment date.

Question 20

Bonds with a face amount $1,000,000,are sold at 96.The entry to record the issuance is
A)Cash 1,000,000 Premium on Bonds Payable 40,000
Bonds Payable 960,000
B)Cash 960,000 Premium on Bonds Payable 40,000
Bonds Payable 1,000,000
C)Cash 960,000 Discount on Bonds Payable 40,000
Bonds Payable 1,000,000
D)Cash 960,000 Bonds Payable 960,000

Accepted Answer

The answer of Bonds with a face amount $1,000,000,are sold...

Quiz 12: Long-Term Liabilities: Bonds and Notes

If bonds are issued at a premium,the stated interest rate is

If the market rate of interest is 10%,a $10,000,12%,10-year bond that pays interest semiannually would sell at an amount

A corporation issues $100,000,10%,5-year bonds on January 1,2011,for $104,200.Interest is paid semiannually on January 1 and July 1.If the corporation uses the straight-line method of amortization of bond premium,the amount of bond interest expense to be recognized on July 1,2011,is

The Reagan Corporation issues 1,000,10-year,8%,$1,000 bonds dated January 1,2014,at 92.The journal entry to record the issuance will show a

The cash and securities comprising a sinking fund established to redeem bonds at maturity in 2015 should be classified on the balance sheet as

Sinking Fund Investments would be classified on the balance sheet as

When callable bonds are redeemed below carrying value

Selling the bonds at a premium has the effect of

If bonds are issued at a discount,it means that the

The Miracle Corporation issues 1,000,10-year,8%,$1,000 bonds dated January 1,2011,at 96.The journal entry to record the issuance will show a

Sinking Fund Cash would be classified on the balance sheet as

If the market rate of interest is greater than the contractual rate of interest,bonds will sell

Bonds with a face amount $1,000,000,are sold at 108.The entry to record the issuance is

On January 1,2014,$1,000,000,5-year,10% bonds,were issued for $980,000.Interest is paid semiannually on January 1 and July 1.If the issuing corporation uses the straight-line method to amortize discount on bonds payable,the semiannual amortization amount is

If bonds payable are not callable,the issuing corporation

The bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the life of the issue.The amounts set aside are kept separate from other assets in a special fund called a(n)

Sinking Fund Income is reported in the income statement as

The Victor Corporation issues 1,000,10-year,8%,$1,000 bonds dated January 1,2011,at 96.The journal entry to record the issuance will show a

The interest expense recorded on an interest payment date is increased

Bonds with a face amount $1,000,000,are sold at 96.The entry to record the issuance is