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| 1.
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A bond issued and supported only by the general credit standing of the issuing corporation is called a(an): |
| | A) | debenture |
| | B) | indenture |
| | C) | term bond |
| | D) | serial bond |
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| 2.
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Which of the following statements is not true? |
| | A) | every bond has a face amount |
| | B) | every bond has a maturity date |
| | C) | every bond has a bond rate of interest |
| | D) | every bond is a coupon bond |
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| 3.
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Which is a disadvantage of bonds? |
| | A) | interest on bonds is tax deductible |
| | B) | bonds can increase return on equity |
| | C) | bonds require payment of periodic interest and maturity value |
| | D) | bonds do not affect shareholder control |
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| 4.
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Which type of bond gives the issuing corporation the option of retiring the bond, at a predetermined price, prior to the maturity date of the bond? |
| | A) | callable bond |
| | B) | convertible bond |
| | C) | serial bond |
| | D) | secured bond |
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| 5.
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Which is not true of bonds sold at a discount? |
| | A) | the bond carrying amount gets larger each year |
| | B) | the Discount on Bonds Payable account gets smaller each year |
| | C) | at maturity, the face value and carrying amount will be equal |
| | D) | the balance of Bonds Payable account will get larger each year |
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| 6.
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When $100,000 of 5% annual interest, 10-year bonds are sold at 98 (98.0%), the total interest expense on the bonds will be: |
| | A) | $2,000 |
| | B) | $50,000 |
| | C) | $48,000 |
| | D) | $52,000 |
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| 7.
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When $100,000 of 5% semiannual interest, 10-year bonds are sold at 98 (98.0%), the amount of periodic bond discount using the straight-line method of discount amortization will be: |
| | A) | $100 |
| | B) | $10,000 |
| | C) | $200 |
| | D) | $9,900 |
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| 8.
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$100,000 of 5% annual interest, 10-year bonds were sold at 98 (98.0%) when the market rate of interest was 6%. The amount of periodic bond discount using the effective interest method of discount amortization for the first annual interest period will be: |
| | A) | $880 |
| | B) | $5,880 |
| | C) | $4,120 |
| | D) | $440 |
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| 9.
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When $100,000 of 5% annual interest, 10-year bonds are sold at 103.5 (103.50%), the total interest expense on the bonds will be: |
| | A) | $3,500 |
| | B) | $46,500 |
| | C) | $50,000 |
| | D) | $53,500 |
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| 10.
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$100,000 of 8% annual interest, 10-year bonds were sold at 105.5 (105.50%) when the market rate of interest was 7%. The amount of periodic bond premium using the effective interest method of bond premium amortization for the first interest period will be: |
| | A) | $880 |
| | B) | $615 |
| | C) | $7,365 |
| | D) | $440 |
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| 11.
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Bonds with a par value of $100,000, which pay 9% annual interest and pay interest on June 30 and December 31, were sold on July 31 at par value. What is the amount of cash the issuer will receive? |
| | A) | $100,000 |
| | B) | $109,000 |
| | C) | $104,500 |
| | D) | $100,750 |
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| 12.
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Selected accounts of the corporation had the following balances:
Bonds Payable $200,000
Discount on Bonds Payable 3,000
The corporation retired the $1,000, 8%, 10-year bonds at a price of $1,010 per bond, three years prior to maturity. The bond redemption resulted in a: |
| | A) | gain on retirement of $2,000 |
| | B) | gain on retirement of $1,000 |
| | C) | loss on retirement of $3,000 |
| | D) | loss on retirement of $5,000 |
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| 13.
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Ten-year bonds with a par value of $100,000, 8% annual interest, were sold for $106,000 on September 30, when the market rate of interest was 7%. The issuer uses straight-line amortization of premium. The December 31, year-end adjusting entry for accrued interest will include a: |
| | A) | debit to Interest Payable for $2,000 |
| | B) | credit to Interest Payable for $1,850 |
| | C) | debit to Premium on Bonds Payable for $150 |
| | D) | debit to Bond Interest Expense of $1,850 |
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| 14.
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When $500,000 of 10-year, 10% bonds that pay interest semiannually are sold when the market rate of interest is 14%, which of the following lines describes the calculation of the selling price of the bonds? (Pv = present value of $1, Pva = present value of $1 annuity). |
| | A) | (Pv of 5% x $500,000) + (Pv of 5% x $50,000) = bond selling price |
| | B) | (Pva of 14% x $500,000) + (Pv of 7% x $50,000) = bond selling price |
| | C) | (Pv of 7% x $500,000) + (Pva of 10% x $50,000) = bond selling price |
| | D) | (Pv of 7% x $500,000) + (Pva of 7% x $25,000) = bond selling price |
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| 15.
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$100,000 bonds with a carrying value of $103,600 were retired at a call price of $101,000. The journal entry to retire the bonds would include a: |
| | A) | credit to Cash for $101,000 |
| | B) | debit to Bonds Payable for $101,000 |
| | C) | credit to Gain on Retirement of Bonds for $3,600 |
| | D) | debit to Premium on Bonds Payable for $2,600 |
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| 16.
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Ignacious Construction purchased a tractor by issuing a 5-year non-interest-bearing note for $100,000 when the market rate of interest was 10%. The note's fair value when issued using a 10% rate is $62,090. When the note was issued, the tractor was recorded at a value of: |
| | A) | $100,000 |
| | B) | $62,090 |
| | C) | $90,000 |
| | D) | $37,910 |
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| 17.
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Lack-Luster Corporation borrowed money by issuing a $100,000 installment note payable that required $10,000 annual payments, plus interest of 12% on the unpaid balance prior to the payment. The interest expense at the end of the third year was: |
| | A) | $8,400 |
| | B) | $7,200 |
| | C) | $9,600 |
| | D) | $18,400 |
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| 18.
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A $40,000 installment note requires the borrower to repay the note with five (5) annual payments of equal amounts of principal plus 8% accrued interest on the unpaid balance. The recorded interest expense for the third payment will be |
| | A) | $1,920 |
| | B) | $1,280 |
| | C) | $3,200 |
| | D) | $3,100 |
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| 19.
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A $40,000 installment note requires the borrower to repay the note with five (5) equal payments of principal and 8% interest on the unpaid balance. Each payment is $10,018. The amount applied to the unpaid principal from the second payment will be (to the nearest dollar) |
| | A) | $6,818 |
| | B) | $7,363 |
| | C) | $4,000 |
| | D) | $2,655 |
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| 20.
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The legal agreement that offers protection to a lender by giving the lender the right to be paid from the cash proceeds from the sale of specified assets that belong to the borrower and are identified in the agreement is called a(an): |
| | A) | mortgage contract |
| | B) | mortgage |
| | C) | bond certificate |
| | D) | debenture |
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| 21.
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Which of the following statements is NOT correct regarding a capital lease? |
| | A) | The PV of the minimum lease payment is 90% or more of the fair value of the property at the inception of the lease. |
| | B) | The lease term is 75% or more of the asset’s economic life. |
| | C) | Ownership remains with the lessor at the end of the lease term. |
| | D) | the lease has a bargain purchase option allowing the lessee to purchase the asset at less than the fair market value. |
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| 22.
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Which of the following is NOT an advantage of bonds? |
| | A) | Bonds do not affect shareholder control. |
| | B) | Bonds require fixed payments of interest and the par value at maturity. |
| | C) | Interest on bonds is tax deductible. |
| | D) | Bonds can increase then return on equity. |
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