Corporation issues bonds

Question

Question 1. When a corporation issues bonds, the price that buyers are willing to pay for the bonds does not depend on which of the following below

• Face value of the bonds
• Market rate of interest
• Periodic interest to be paid on the bonds
• Denominations the bonds are sold

Question 2. One potential advantage of financing corporations through the use of bonds rather than common stock is

• The interest on bonds must be paid when due
• The corporation must pay the bonds at maturity
• The interest expense is deductible for tax purposes by the corporation
• A higher earnings per share is guaranteed for existing common shareholders

Question 3. The market interest rate related to a bond is also called the

• Stated interest rate
• Effective interest rate
• Contract interest rate
• Straight-line rate

Question 4. The present value of $40,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar)

• $37,736
• $42,400
• $40,000
• $2,400

Question 5. A corporation issues for cash $8,000,000 of 8%, 25-year bonds, interest payable semiannually. The amount received for the bonds will be

• Present value of 50 semiannual interest payments of $320,000, plus present value
• of $8,000,000 to be repaid in 25 years
• Present value of 25 annual interest payments of $640,000
• Present value of 25 annual interest payments of $640,000, plus present value of
• $8,000,000 to be repaid in 25 years
• Present value of $8,000,000 to be repaid in 25 years, less present value of 50
• semiannual interest payments of $320,000

Question 6. The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium is

• Debit Interest Expense, credit Cash and Premium on Bonds Payable
• Debit Interest Expense, credit Cash
• Debit Interest Expense and Premium on Bonds Payable, credit Cash
• Debit Interest Expense, credit Interest Payable and Premium on Bonds Payable

Question 7. Bonds with a face amount $1,000,000, are sold at 106. The entry to record the issuance:

Question 8. When the bonds are sold for more than their face value, the carrying value of the bonds is equal to

• Face value
• Face value plus the unamortized discount
• Face value minus the unamortized premium
• Face value plus the unamortized premium

Question 9. Balance sheet and income statement data indicate the following:

Based on the data presented above, what is the number of times bond interest charges were earned (round to two decimal places)?

• 5.67
• 4.33
• 3.24
• 3.50

Question 10. The Marx Company issued $100,000 of 12% bonds on April 1, 2007 at face value. The bonds pay interest semiannually on January 1 and July 1. The bonds are dated January 1, 2007, and mature on January 1, 2011. The total interest expense related to these bonds for the year ended December 31, 2007 is

• $1,000
• $3,000
• $9,000
• 12,000

Question 11. If $3,000,000 of 10% bonds are issued at 95, the amount of cash received from the sale is

• $3,300,000
• $3,000,000
• $3,150,000
• $2,850,000

Question 12. The entry to record the amortization of a premium on bonds payable on an interest payment date includes:

• Debit Premium on Bonds Payable, credit Interest Revenue
• Debit Interest Expense, credit Premium on Bond Payable
• Debit Interest Expense, debit Premium on Bonds Payable, credit Cash
• Debit Bonds Payable, credit Interest Expense

Question 13. The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be

• Debit Bonds Payable, credit Cash
• Debit Cash and Discount on Bonds Payable, credit Bonds Payable
• Debit Cash, credit Premium on Bonds Payable and Bonds Payable
• Debit Cash, credit Bonds Payable

Question 14. On the first day of the fiscal year, Hawthorne Company obtained a $ 88,000, seven-year, 5% installment note from Sea Side Bank. The note requires annual payments of $15,208, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $4,400 and principal repayment of $10,808. The journal entry Hawthorne would record to make the first annual payment due on the note would include:

• A debit to Cash of $15,208
• A credit to Notes Payable for $10,808
• A debit to Interest Expense for $4,400
• A debit to Notes Payable for $15,208

Question 15. On January 1, 2010, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2010. The December 31, 2011 carrying amount in the amortization table for this installment note will be equal to:

• $26,000
• $27,635
• $21,642
• $28,402