Question # 00003368 Posted By: spqr Updated on: 11/10/2013 01:49 PM Due on: 11/30/2013
Subject Accounting Topic Accounting Tutorials:
Question
61. When authorizing bonds to be issued, the board of directors does not specify the

a. total number of bonds authorized to be sold.

b. contractual interest rate.

c. selling price.

d. total face value of the bonds.

62. The following exhibit is for Kmart bonds.

Bonds Close Yield Volume Net Change

Kmart 8 3/8 17 100¼ 8.4 35 +7/8

The contractual interest rate of the K mart bonds is

a. greater than the market interest rate.

b. less than the market interest rate.

c. equal to the market interest rate.

d. not determinable.

63. The following exhibit is for Kmart bonds.

Bonds Close Yield Volume Net Change

Kmart 8 3/8 17 100¼ 8.4 35 +7/8

On the day of trading referred to above,

a. no Kmart bonds were traded.

b. bonds with market prices of \$3,500 were traded.

c. at closing, the selling price of the bond was higher than the previous day's price.

d. the bond sold for \$100.25

64. A \$1,000 face value bond with a quoted price of 97 is selling for

a. \$1,000.

b. \$970.

c. \$907.

d. \$97.

65. A bond with a face value of \$200,000 and a quoted price of 102¼ has a selling price of

a. \$240,450.

b. \$204,050.

c. \$200,450.

d. \$204,500.

a. has a debit balance.

b. is a contra account.

c. is considered to be a reduction in the cost of borrowing.

d. is deducted from bonds payable on the balance sheet.

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

b. at face value.

c. at a discount.

d. only after the stated interest rate is increased.

68. On January 1, 2012, Carter Corporation issued \$5,000,000, 10-year, 8% bonds at 103. Interest is payable semiannually on January 1 and July 1. The journal entry to record this transaction on January 1, 2010 is

a. Cash....................................................................................... 5,000,000

Bonds Payable.............................................................. 5,000,000

b. Cash....................................................................................... 5,150,000

Bonds Payable.............................................................. 5,150,000

c. Premium on Bonds Payable.................................................. 150,000

Cash....................................................................................... 5,000,000

Bonds Payable.............................................................. 5,150,000

d. Cash....................................................................................... 5,150,000

Bonds Payable.............................................................. 5,000,000

:

69. The total cost of borrowing is increased only if the

a. bonds were issued at a premium.

b. bonds were issued at a discount.

c. bonds were sold at face value.

d. market interest rate is less than the contractual interest rate on that date.

70. If the market interest rate 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 face value.

c. greater than face value.

d. that cannot be determined.

71. The present value of a \$10,000, 5-year bond, will be less than \$10,000 if the

a. contractual interest rate is less than the market interest rate.

b. contractual interest rate is greater than the market interest rate.

c. bond is convertible.

d. contractual interest rate is equal to the market interest rate.

72. Hernandez Corporation issues 3,000, 10-year, 8%, \$1,000 bonds dated January 1, 2012, at 98. The journal entry to record the issuance will show a

a. debit to Cash of \$3,000,000.

b. credit to Discount on Bonds Payable for \$60,000.

c. credit to Bonds Payable for \$3,040,000.

d. debit to Cash for \$2,960,000.

73. The market interest rate is often called the

a. stated rate.

b. effective rate.

c. coupon rate.

d. contractual rate.

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

a. financial strength of the issuer is suspect.

b. market interest rate is higher than the contractual interest rate.

c. market interest rate is lower than the contractual interest rate.

d. bondholder will receive effectively less interest than the contractual interest rate.

75. Each of the following accounts is reported as long-term liabilities except

a. Interest Payable.

b. Bonds Payable.

c. Discount on Bonds Payable.

76. The statement that "Bond prices vary inversely with changes in the market interest rate" means that if the

a. market interest rate increases, the contractual interest rate will decrease.

b. contractual interest rate increases, then bond prices will go down.

c. market interest rate decreases, then bond prices will go up.

d. contractual interest rate increases, the market interest rate will decrease.

77. The carrying value of bonds will equal the market price

a. at the close of every trading day.

b. at the end of the fiscal period.

c. on the date of issuance.

d. every six months on the date interest is paid.

78. The sale of bonds above face value

a. is a rare occurrence.

b. will cause the total cost of borrowing to be less than the bond interest paid.

c. will cause the total cost of borrowing to be more than the bond interest paid.

d. will have no net effect on Interest Expense by the time the bonds mature.

79. In the balance sheet, the account, Premium on Bonds Payable, is

b. deducted from bonds payable.

c. classified as a stockholders' equity account.

d. classified as a revenue account.

80. Four thousand bonds with a face value of \$1,000 each, are sold at 104. The entry to record the issuance is

a. Cash ...................................................................................... 4,160,000

Bonds Payable ............................................................. 4,160,000

b. Cash ...................................................................................... 4,000,000

Premium on Bonds Payable ................................................. 160,000

Bonds Payable ............................................................. 4,160,000

c. Cash ...................................................................................... 4,160,000

Premium on Bonds Payable ........................................ 160,000

Bonds Payable ............................................................. 4,000,000

d. Cash ...................................................................................... 4,160,000

Discount on Bonds Payable ........................................ 160,000

Bonds Payable ............................................................. 4,000,000

81. Bond interest paid is

a. higher when bonds sell at a discount.

b. lower when bonds sell at a premium.

c. the same whether bonds sell at a discount or a premium.

d. higher when bonds sell at a discount and lower when bonds sell at a premium.

82. Ward Corporation issues 5,000, 10-year, 8%, \$1,000 bonds dated January 1, 2012, at 104. The journal entry to record the issuance will show a

a. debit to Cash of \$5,000,000.

b. credit to Premium on Bonds Payable for \$200,000.

c. credit to Bonds Payable for \$5,040,000.

d. credit to Cash for \$5,020,000.

83. Lake Company received proceeds of \$188,500 on 10-year, 8% bonds issued on January 1, 2011. The bonds had a face value of \$200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Lake uses the straight-line method of amortization.

What is the amount of interest Lake must pay the bondholders in 2011?

a. \$15,080

b. \$16,000

c. \$17,150

d. \$14,850

a84. Hooke Company received proceeds of \$188,500 on 10-year, 8% bonds issued on January 1, 2011. The bonds had a face value of \$200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Hooke uses the straight-line method of amortization.

What is the amount of interest expense Hooke will show with relation to these bonds for the year ended December 31, 2012?

a. \$16,000

b. \$15,080

c. \$17,150

d. \$14,850

a85. Jarmin Company received proceeds of \$188,500 on 10-year, 8% bonds issued on January 1, 2011. The bonds had a face value of \$200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Jarmin uses the straight-line method of amortization.

What is the carrying value of the bonds on January 1, 2013?

a. \$200,000

b. \$190,800

c. \$197,700

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