1. The contract interest rate for bonds:
A. must equal the effective interest rate.
B. is greater than the effective interest rate when bonds are issued at a premium.
C. has no relation to the cash flow associated with a particular bond.
D. will fluctuate over the life of a bond.
E. None of these.
2. Frick Corporation issued $100,000 of 7%, 15-year bonds on June 1, 2014 (dated April 1 2014) at 101 plus accrued interest, which is paid on April 1 and October 1. The proper entry to record issuance of the bonds includes a debit to Cash for:
a. $100,000.
b. $101,000.
c. $101,167.
d. $102,167.
e. None of these.
3. Which of the following statements about treasury stock is true?
a. Excess of the sales price over cost should be credited to retained earnings.
b. Gains are not recorded on treasury stock transactions but losses are.
c. Losses on treasury stock transactions are recorded in income.
d. Reacquiring treasury stock causes stockholders equity to decrease.
e. None of these.
4. Frick Company has 100,000 shares of common stock outstanding. On April 15, the board declared a $.30 dividend to be paid to stockholders of record on May 4. The dividend was distributed on May 15. The proper journal entry for Frick Company on May 15 does not include:
a. a credit to Dividends Payable for $30,000.
b. a debit to Dividends for $30,000.
c. a credit to Cash for $30,000.
d. Both A and B, above.
e. None of these.