Question 1

A company prepared the following journal entry: Interest expense
  \quad  \quad  Discount on bonds payable 
  \quad  \quad  Cash 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. E) B) and D)
F) C) and D)

Question 2

When a company prepares a bond indenture,certain provisions of the bonds are included.Which of the following is/are not specified in the indenture?

Accepted Answer

A)  Dates of each interest payment.
B)  The stated interest rate.
C)  The maturity date.
D)  The market rate of interest.E) B) and C)
F) C) and D)

Question 3

A company issued bonds when the stated rate of interest was 10% and the market rate was 10%.Which of the following statements is incorrect?

Accepted Answer

A)  The bonds were issued at par.
B)  Annual interest expense will equal the company's annual cash payments for interest.
C)  The book value of the bonds will decrease as cash interest payments are made.
D)  Annual interest expense is the same regardless of whether the effective- interest or straight-line method of amortization is used.E) A) and B)
F) A) and D)

Question 4

Which of the following statements doesn't correctly describe the accounting for bonds that were issued at a discount?

Accepted Answer

A)  The interest expense over the life of the bond exceeds the cash interest payments.
B)  The interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used.
C)  The amortization of the discount on bonds payable account decreases as the bonds mature when the effective interest method is used.
D)  The book value of the bond liability increases when interest payments are made on the due dates when the effective interest method of amortization is used.E) B) and C)
F) All of the above

Question 5

On January 1,2010,Tonika Corporation issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Assuming effective-interest amortization is used,what is the December 31,2011 book value after the December 31,2011 interest payment was made (to the nearest dollar) ?

Accepted Answer

A)  $9,662
B)  $9,820
C)  $9,668
D)  $9,723E) B) and C)
F) None of the above

Question 6

The issuing company and the bond underwriter determine the selling price of a bond.

Accepted Answer

A) True 
 B)False

Question 7

A company prepared the following journal entry: Bonds payable
Premium on bonds payable 
  \quad  \quad  Gain on bond retirement 
  \quad  \quad  Cash Which of the following statements is incorrect?

Accepted Answer

A)  The book value of the bonds was less than the cash payment.
B)  The increase in stockholders' equity equals the gain on the bond retirement.
C)  The decrease in assets is less than the decrease in liabilities.
D)  The net cash flow from financing activities decreases by the cash payment. E) A) and B)
F) None of the above

Question 8

On January 1,2010,a corporation issued a $400,000,12% bond.The interest is payable semi-annually on June 30 and December 31.The issue price was $413,153.Assuming the effective-interest method of amortization is used,which of the following statements is incorrect?

Accepted Answer

A)  The market rate of interest on the sale date was less than the stated rate of interest.
B)  The book value of the bond will decrease as the bond matures.
C)  The interest expense will decrease as the bond matures.
D)  The amortization of the premium on bonds payable will decrease as the bond matures.E) C) and D)
F) B) and D)

Question 9

The payment of bond interest on the interest payment date,for bonds issued at par value,reduces both the bond liability and assets,assuming that interest expense is recorded at the time of the cash payment.

Accepted Answer

A) True 
 B)False

Question 10

If a bond is issued at 98,the stated rate of interest was

Accepted Answer

A)  higher than the market rate of interest.
B)  lower than the market rate of interest.
C)  equal to the market rate of interest.
D)  not related to the market rate of interest.E) A) and D)
F) All of the above

Question 11

On January 1,2010,Tonika Corporation issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Assuming effective-interest amortization is used,what is the 2011 interest expense (to the nearest dollar) ?

Accepted Answer

A)  $779
B)  $796
C)  $677
D)  $700E) A) and D)
F) A) and B)

Question 12

A company issued bonds when the stated rate of interest was 10% and the market rate 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 was used.E) A) and C)
F) C) and D)

Question 13

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.E) A) and B)
F) B) and D)

Question 14

A company prepared the following journal entry: Bonds payable
Premium on bonds payable 
Loss on bond retirement 
  \quad  Cash Which of the following statements is correct?

Accepted Answer

A)  The book value of the bonds was less than the cash payment.
B)  The increase in stockholders' equity equals the loss on the bond retirement.
C)  The decrease in assets is greater than the decrease in liabilities, therefore stockholders' equity decreases.
D)  The net cash flow from financing activities decreases by the bonds payable book value. E) All of the above
F) A) and B)

Question 15

The journal entry to record the interest cash payment for a bond issued at a discount results in an increase in the book value of the bond liability.

Accepted Answer

A) True 
 B)False

Question 16

On January 1,2010,Tonika Corporation issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Assuming effective-interest amortization is used,what is the book value of the bonds as of December 31,2010 (to the nearest dollar) ?

Accepted Answer

A)  $8,968
B)  $9,945
C)  $9,641
D)  $9,741E) A) and B)
F) C) and D)

Question 17

On July 1,2010,Garden Works,Inc.issued $300,000 of ten-year,7% bonds for $303,000.The bonds were dated July 1,2010,and semi-annual interest will be paid each December 31 and June 30.Garden Works Inc.uses straight-line amortization.What is the bond liability to be reported on the December 31,2011 balance sheet?

Accepted Answer

A)  $300,000
B)  $302,550
C)  $302,700
D)  $303,000E) None of the above
F) C) and D)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The debt-to-equity ratio is calculated by dividing total liabilities by total liabilities plus stockholders' equity.

Accepted Answer

A) True 
 B)False

Exam 10: Reporting and Interpreting Bonds

The payment of bond interest on the interest payment date,for bonds issued at par value,reduces both the bond liability and assets,assuming that interest expense is recorded at the time of the cash payment.

Correct Answer
verified

If a bond is issued at 98,the stated rate of interest was

Correct Answer
verified

The debt-to-equity ratio is calculated by dividing total liabilities by total liabilities plus stockholders' equity.

Correct Answer
verified

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

Correct Answer
verified

A company issued bonds when the stated rate of interest was 10% and the market rate was 10%.Which of the following statements is incorrect?

Correct Answer
verified

A company issued bonds when the stated rate of interest was 10% and the market rate was 8%.Which of the following statements is incorrect?

Correct Answer
verified

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

Correct Answer
verified

The issuing company and the bond underwriter determine the selling price of a bond.

Correct Answer
verified

The journal entry to record the interest cash payment for a bond issued at a discount results in an increase in the book value of the bond liability.

Correct Answer
verified

Correct Answer
verified

On January 1,2010,Tonika Corporation issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Assuming effective-interest amortization is used,what is the 2011 interest expense (to the nearest dollar) ?

Correct Answer
verified

A company prepared the following journal entry: Interest expense $\quad$ $\quad$ Discount on bonds payable $\quad$ $\quad$ Cash Which of the following statements correctly describes the effect of this journal entry on the financial statements?

Correct Answer
verified

On January 1,2010,a corporation issued a $400,000,12% bond.The interest is payable semi-annually on June 30 and December 31.The issue price was $413,153.Assuming the effective-interest method of amortization is used,which of the following statements is incorrect?

Correct Answer
verified

Which of the following statements best describes convertible bonds?

Correct Answer
verified

A company prepared the following journal entry: Bonds payable Premium on bonds payable Loss on bond retirement $\quad$ Cash Which of the following statements is correct?

Correct Answer
verified

A company prepared the following journal entry: Bonds payable Premium on bonds payable $\quad$ $\quad$ Gain on bond retirement $\quad$ $\quad$ Cash Which of the following statements is incorrect?

Correct Answer
verified

Correct Answer
verified

Which of the following statements doesn't correctly describe the accounting for bonds that were issued at a discount?

Correct Answer
verified

When a company prepares a bond indenture,certain provisions of the bonds are included.Which of the following is/are not specified in the indenture?

Correct Answer
verified

Correct Answer
verified

Exam 10: Reporting and Interpreting Bonds

The payment of bond interest on the interest payment date,for bonds issued at par value,reduces both the bond liability and assets,assuming that interest expense is recorded at the time of the cash payment.

Correct AnswerverifiedShow Answer

If a bond is issued at 98,the stated rate of interest was

Correct AnswerverifiedShow Answer

The debt-to-equity ratio is calculated by dividing total liabilities by total liabilities plus stockholders' equity.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A company issued bonds when the stated rate of interest was 10% and the market rate was 10%.Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

A company issued bonds when the stated rate of interest was 10% and the market rate was 8%.Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The issuing company and the bond underwriter determine the selling price of a bond.

Correct AnswerverifiedShow Answer

The journal entry to record the interest cash payment for a bond issued at a discount results in an increase in the book value of the bond liability.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On January 1,2010,Tonika Corporation issued a four-year,$10,000,7% bond.The interest is payable annually each December 31.The issue price was $9,668 based on an 8% effective interest rate.Assuming effective-interest amortization is used,what is the 2011 interest expense (to the nearest dollar) ?

Correct AnswerverifiedShow Answer

A company prepared the following journal entry: Interest expense \quad \quad Discount on bonds payable \quad \quad Cash Which of the following statements correctly describes the effect of this journal entry on the financial statements?

Correct AnswerverifiedShow Answer

On January 1,2010,a corporation issued a $400,000,12% bond.The interest is payable semi-annually on June 30 and December 31.The issue price was $413,153.Assuming the effective-interest method of amortization is used,which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

Which of the following statements best describes convertible bonds?

Correct AnswerverifiedShow Answer

A company prepared the following journal entry: Bonds payable Premium on bonds payable Loss on bond retirement \quad Cash Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A company prepared the following journal entry: Bonds payable Premium on bonds payable \quad \quad Gain on bond retirement \quad \quad Cash Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements doesn't correctly describe the accounting for bonds that were issued at a discount?

Correct AnswerverifiedShow Answer

When a company prepares a bond indenture,certain provisions of the bonds are included.Which of the following is/are not specified in the indenture?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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A company prepared the following journal entry: Interest expense $\quad$ $\quad$ Discount on bonds payable $\quad$ $\quad$ Cash Which of the following statements correctly describes the effect of this journal entry on the financial statements?

Correct Answer
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Correct Answer
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Correct Answer
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A company prepared the following journal entry: Bonds payable Premium on bonds payable Loss on bond retirement $\quad$ Cash Which of the following statements is correct?

Correct Answer
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A company prepared the following journal entry: Bonds payable Premium on bonds payable $\quad$ $\quad$ Gain on bond retirement $\quad$ $\quad$ Cash Which of the following statements is incorrect?

Correct Answer
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