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| 1.
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The par value of the bond is the amount to be paid at maturity, but the face amount of the bond is the current issue price of the bond. |
| | A) | True |
| | B) | False |
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| 2.
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Unlike installment notes or notes payable which involve a single lender, bonds offer companies the opportunity to borrow money from several lenders, rather than one. |
| | A) | True |
| | B) | False |
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| 3.
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A company can increase its rate of return on common shareholders' equity through issuing bonds rather than selling more shares of common stock. |
| | A) | True |
| | B) | False |
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| 4.
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An advantage of issuing bonds over stock, as a means of financing, is that bond interest is a deductible expense but dividends to shareholders are not. |
| | A) | True |
| | B) | False |
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| 5.
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When the bonds in a bond issue have different maturity dates, the bonds are known as serial bonds. |
| | A) | True |
| | B) | False |
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| 6.
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Registered bonds provide more security than bearer bonds, should the bondholder lose the bonds by accident or theft. |
| | A) | True |
| | B) | False |
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| 7.
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One reason why coupon bonds are seldom issued anymore by corporations is that there is no readily available record of who actually receives the interest. |
| | A) | True |
| | B) | False |
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| 8.
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Convertible bonds contain an exercisable option for the issuer. |
| | A) | True |
| | B) | False |
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| 9.
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The formal name of the contract between the issuing company and its bondholders is called a debenture. |
| | A) | True |
| | B) | False |
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| 10.
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It is the responsibility of the underwriter for a bond issue to monitor the corporation's actions to ensure that the corporation fulfills its obligations as stated in the bond indenture. |
| | A) | True |
| | B) | False |
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| 11.
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Market rate tends to go up when the demand for bonds decreases or the supply increases. |
| | A) | True |
| | B) | False |
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| 12.
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When the market rate of interest is greater than the contract rate of bond interest, the bonds will sell for an amount in excess of the bond par value. |
| | A) | True |
| | B) | False |
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| 13.
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The Discount on Bonds Payable will appear as a contra-liability account in the long-term liability section of the balance sheet. |
| | A) | True |
| | B) | False |
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| 14.
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When a bond with a contract rate of bond interest of 10% is sold at a discount, the bondholder's rate of return will be greater than 10%. |
| | A) | True |
| | B) | False |
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| 15.
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Straight-line amortization is an acceptable method for amortizing bond discounts when the term of the bonds is less than five years. |
| | A) | True |
| | B) | False |
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| 16.
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The effective-interest method (or interest method) of amortizing bond discount yields a constant rate of interest. |
| | A) | True |
| | B) | False |
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| 17.
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When bonds are sold at a premium, the carrying amount of the bonds payable will become progressively larger as the bonds near the maturity date. |
| | A) | True |
| | B) | False |
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| 18.
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When five-year bonds are sold with an 8% contract rate of interest, with interest payments made semi-annually, the present value factor that is used to determine the present value of the bonds would be at 10 time periods for one-half the market rate of interest on the date of the bond issue. |
| | A) | True |
| | B) | False |
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| 19.
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When a bond with a contract rate of bond interest of 10% is sold at a premium, the corporation's cost to borrow is less than 10%. |
| | A) | True |
| | B) | False |
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| 20.
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When bonds are sold between interest dates, the purchaser pays the accrued interest to the bond issuer. |
| | A) | True |
| | B) | False |
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| 21.
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When bonds are redeemed at a price below the carrying amount of the bonds, the gain is credited to contributed capital. |
| | A) | True |
| | B) | False |
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| 22.
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A non-interest-bearing note is desired by issuers who wish to avoid periodic interest payments. |
| | A) | True |
| | B) | False |
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| 23.
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When an installment note of equal payments includes interest, the unpaid principal is reduced at a faster rate than if the installment note required equal payments on principal plus interest. |
| | A) | True |
| | B) | False |
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| 24.
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To determine the amount of equal payments which would include principal and interest on an installment note, divide the face value of the note (the original principal) by the appropriate present value factor from a present value table for a single amount. |
| | A) | True |
| | B) | False |
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| 25.
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The mortgage and the mortgage contract are not the same document. |
| | A) | True |
| | B) | False |
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| 26.
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Bonds can be retired early by the issuer only by exercising a call option. |
| | A) | True |
| | B) | False |
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| 27.
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When bonds are issued at a premium, the issuer records a debit to Cash and credits both the Premium on Bonds Payable and the Bonds Payable (at par). |
| | A) | True |
| | B) | False |
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| 28.
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When bonds are issued at a discount, the issuer records a debit to Cash and credits both the Discount on Bonds Payable and the Bonds Payable (at par). |
| | A) | True |
| | B) | False |
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