Question 1

Match each description below to the appropriate term a-g) .
-A form of an interest-bearing note

Accepted Answer

A)  contract rate
B)  effective rate
C)  bond discount
D)  bond premium
E)  bondF) bond indentureG) principalH) C) and D)
I) A) and B)

Question 2

Match each description below to the appropriate term a-g) .
-The return required by the market on the day of issuance

Accepted Answer

A)  contract rate
B)  effective rate
C)  bond discount
D)  bond premium
E)  bondF) bond indentureG) principalH) C) and F)
I) D) and E)

Question 3

Selling the bonds at a premium has the effect of

Accepted Answer

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 paidE) C) and D)
F) A) and D) D

Question 4

Match each description below to the appropriate term a-g) .
-A measure of income earned by each share of common stock

Accepted Answer

A)  EPS
B)  face value
C)  callable bond
D)  indenture
E)  term bondF) convertible bondG) serial bondH) D) and E)
I) B) and G)

Question 5

The amortization of a premium on bonds payable decreases bond interest expense.

Accepted Answer

A) True 
 B)False

Question 6

The Glenn Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a

Accepted Answer

A)   debit to Discount on Bonds Payable for $80,000
B)   debit to Cash of $2,000,000
C)   credit to Bonds Payable for $1,920,000
D)   credit to Cash for $1,920,000E) A) and B)
F) A) and C)

Question 7

Given the following data, determine the number of times interest charges are earned ratio.
Net income, $70,000
Bonds payable, issued at face value, 8%, $5,000,000
Preferred Stock, $50 par value, 6%, 10,000 shares issued & outstanding Tax rate is 30%

Accepted Answer

Number of times interest charges are ear...

Question 8

Match each description below to the appropriate term a-g) .
-The legal contract between issuer and bond holder

Accepted Answer

A)  EPS
B)  face value
C)  callable bond
D)  indenture
E)  term bondF) convertible bondG) serial bondH) B) and E)
I) A) and E)

Question 9

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Accepted Answer

A) True 
 B)False

Question 10

Match each description below to the appropriate term a-g) .
-The rate printed on the bond certificate

Accepted Answer

A)  contract rate
B)  effective rate
C)  bond discount
D)  bond premium
E)  bondF) bond indentureG) principalH) A) and B)
I) A) and E)

Question 11

The market interest rate related to a bond is also called the

Accepted Answer

A)   stated interest rate
B)   effective interest rate
C)   contract interest rate
D)   straight-line rateE) A) and B)
F) A) and C)

Question 12

An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

Accepted Answer

A) True 
 B)False

Question 13

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

Accepted Answer

A) True 
 B)False

Question 14

Use the following tables to calculate the present value of a $25,000, 7%, 5-year bond that pays $1,750 $25,000 ×
7%) interest annually, if the market rate of interest is 7%
Present Value of $1 at Compound Interest  Present Value of Annuity of $1 at Compound Interest

Accepted Answer

Present value of face value of $25,000 d...

Question 15

On January 1, $2,000,000, 5-year, 10% bonds, were issued for $1,960,000. 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

Accepted Answer

A)   $8,000
B)   $2,000
C)   $4,000
D)   $10,000E) B) and C)
F) B) and D)

Question 16

Jenson Co. is considering the following alternative plans for financing the company:  Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

Accepted Answer

The answer of Jenson Co. is considering the following alternative...

Question 17

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

Accepted Answer

A) True 
 B)False

Question 18

The present value of $40,000 to be received in two years, at 12% compounded annually, is rounded to nearest dollar)

Accepted Answer

A)   $31,888
B)   $48,112
C)   $8,112
D)   $40,000E) None of the above
F) A) and D) A

Question 19

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was

Accepted Answer

A)   $321,970
B)   $1,000,000
C)   $943,494
D)   $621,524E) All of the above
F) A) and D) C

Question 20

Which of the following is not an advantage of issuing bonds instead of common stock?

Accepted Answer

A)   Tax savings result.
B)   Income to common shareholders may increase.
C)   Earnings per share on common stock may be lower.
D)   Stockholder control is not affected.E) A) and B)
F) B) and C)

Exam 12: Long-Term Liabilities: Bonds and Notes

Match each description below to the appropriate term a-g) . -A form of an interest-bearing note

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Match each description below to the appropriate term a-g) . -The return required by the market on the day of issuance

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Selling the bonds at a premium has the effect of

Correct AnswerverifiedD

Match each description below to the appropriate term a-g) . -A measure of income earned by each share of common stock

Correct AnswerverifiedShow Answer

The amortization of a premium on bonds payable decreases bond interest expense.

Correct AnswerverifiedShow Answer

The Glenn Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a

Correct AnswerverifiedShow Answer

Given the following data, determine the number of times interest charges are earned ratio. Net income, $70,000 Bonds payable, issued at face value, 8%, $5,000,000 Preferred Stock, $50 par value, 6%, 10,000 shares issued & outstanding Tax rate is 30%

Correct AnswerverifiedNumber of times interest charges are ear...View AnswerShow Answer

Match each description below to the appropriate term a-g) . -The legal contract between issuer and bond holder

Correct AnswerverifiedShow Answer

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.

Correct AnswerverifiedShow Answer

Match each description below to the appropriate term a-g) . -The rate printed on the bond certificate

Correct AnswerverifiedShow Answer

The market interest rate related to a bond is also called the

Correct AnswerverifiedShow Answer

An installment note is a debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

Correct AnswerverifiedShow Answer

The interest portion of an installment note payment is computed by multiplying the interest rate by the carrying amount of the note at the end of the period.

Correct AnswerverifiedShow Answer

Use the following tables to calculate the present value of a $25,000, 7%, 5-year bond that pays $1,750 $25,000 × 7%) interest annually, if the market rate of interest is 7% Present Value of $1 at Compound Interest Present Value of Annuity of $1 at Compound Interest

Correct AnswerverifiedPresent value of face value of $25,000 d...View AnswerShow Answer

On January 1, $2,000,000, 5-year, 10% bonds, were issued for $1,960,000. 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

Correct AnswerverifiedShow Answer

Jenson Co. is considering the following alternative plans for financing the company: Income tax is estimated at 40% of income. Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.

Correct AnswerverifiedShow Answer

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

Correct AnswerverifiedShow Answer

The present value of $40,000 to be received in two years, at 12% compounded annually, is rounded to nearest dollar)

Correct AnswerverifiedA

When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that pay interest annually. The selling price of this bond issue was

Correct AnswerverifiedC

Which of the following is not an advantage of issuing bonds instead of common stock?

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Number of times interest charges are ear...
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Present value of face value of $25,000 d...
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A

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C

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