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Exam 14: Long-Term Liabilities: Bonds and Notes

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Question 41

Multiple Choice

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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.

E) A) and B)
F) A) and C)

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Question 42

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One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.

A) True
B) False

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Question 43

Multiple Choice

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A $300,000 bond was redeemed at 98 when the carrying value of the bond was $296,000. The entry to record the redemption would include a

When there are material differences between the results of using the straight-line method and using the effective interest method of amortization, the effective interest method should be used.

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

Match the following terms to the most appropriate answer:

On January 1, 2014, the Baker Corporation issued 10% bonds with a face value of $50,000. The bonds are sold for $46,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is December 31, 2023. Baker records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2014, is

At 12/31/2009, the cash and securities held in a sinking fund to redeem bonds in 2011 are classified on the balance sheet as current assets.

The present value of an annuity is the sum of the present values of each cash flow.

The face value of a term bond is payable at a single specific date in the future.

Present entries to record the selected transactions described below:

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

Jenson Co., is considering the following alternative plans for financing their 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.

When the market rate of interest was 11%, Munson Corporation issued $1,000,000, 12%, 8-year bonds that pay interest semiannually. The selling price of this bond issue was

Sinking Fund Investments would be classified on the balance sheet as

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 corporation issues for cash $2,000,000 of 8%, 15-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?

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

The Marx Company issued $100,000 of 12% bonds on April 1, 2010 at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, 2010, and mature on January 1, 2014. The total interest expense related to these bonds for the year ended December 31, 2010 is

Match the following descriptions to their terms