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| 1 | |
The person issuing a non-interest-bearing note will always receive less cash than the face value of the note. |
| | A) | True |
| | B) | False |
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| 2 | |
Perfect Seed Inc. signed a $20,000 note requiring 24 monthly payments of principal and interest of $947.47 with an annual rate of interest of 12%. After the second monthly payment is made, what is the amount of loan payable to be reported on the balance sheet (rounded to dollars)? |
| | A) | $18,497.59 |
| | B) | $18,505.06 |
| | C) | $19,602.00 |
| | D) | $19,252.53 |
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| 3 | |
Nolan Smith obtained a loan that requires him to make one payment at the end of 48 months. If the note requires a repayment at maturity of $10,000 and the proceeds were $6,200, what is the annual interest rate of this loan (compounded monthly, using tables, round to nearest percent)? |
| | A) | 2% |
| | B) | 1% |
| | C) | 12% |
| | D) | 6% |
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| 4 | |
When the market rate of interest is greater than the face rate of interest; the cash proceeds will be ______ than the face value and the difference between the proceeds and the face value is called a _____. |
| | A) | greater, discount |
| | B) | less, premium |
| | C) | greater, premium |
| | D) | less, discount |
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| 5 | |
You are reviewing the most recent three years financial statements of a potential partner and notice that their loan balances and their interest expense is declining slowing over the three-year period. They have told you that they have had the same loans outstanding over the three-year period (no loans paid off and no new loans signed). What is the likely explanation for the decrease in loan balances and interest expense? |
| | A) | They have lump sum payment (non-interest bearing) loans. |
| | B) | They have periodic payment (installment) notes. |
| | C) | They have only bonds with market interest rates declining. |
| | D) | Their loans only require interest payments until maturity. |
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| 6 | |
The carrying value of interest-bearing and non-interest-bearing notes can be all of the following except: |
| | A) | face value less the discount |
| | B) | face value plus a premium |
| | C) | face value with no premium or discount |
| | D) | face value less the portion of each payment that reduces the principal |
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| 7 | |
When a company signs a lease agreement that is classified as a capital lease which of the following is NOT true? |
| | A) | An asset is recorded |
| | B) | The company does not legally own the leased asset. |
| | C) | A liability is recorded |
| | D) | A discount is used to recognize the interest on the lease. |
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| 8 | |
A $5,000 bond with a quoted price of 102 indicates: |
| | A) | Market interest rate is higher than face rate. |
| | B) | Interest expense on the issuer's books is too high. |
| | C) | Face interest rate is higher than market rate. |
| | D) | An error in the broker's pricing model. |
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| 9 | |
A bond issue which specifies that the company can buy back its bonds before the due date at a specified price is called a: |
| | A) | serial bond |
| | B) | callable bond |
| | C) | convertible bond |
| | D) | redeemable bond |
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| 10 | |
Binko Corp issued debentures with a face interest rate of 8 percent and a market interest rate of 9 percent. The debentures will be issued at a _______ and the interest expense will be _______ than cash interest paid. |
| | A) | premium; less |
| | B) | discount; greater |
| | C) | premium; greater |
| | D) | discount; less |
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| 11 | |
If a firm's bonds payable are issued at a premium, which of the following statements is NOT true? |
| | A) | At the issue date, the face interest rate is greater than the market interest rate |
| | B) | On the date the bond is issued the firm will receive more cash than the face value of the bond. |
| | C) | The interest expense for a year will be less than the cash interest paid |
| | D) | The cash paid at the maturity date will be less than the face value. |
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| 12 | |
Which of the following statements about installment notes is NOT true? |
| | A) | All payments are the same over the life of the note. |
| | B) | The earlier payments will cover more interest expense than the later payments. |
| | C) | With each subsequent payment, a larger portion of the payment covers the principal of the note. |
| | D) | Depending on maturity dates, a portion of an installment note maybe classified as current and the rest as a long-term liability. |
| | E) | All of the above are true. |
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| 13 | |
If Old Miss Corporation issues a $400,000 three-year non-interest bearing note how much cash will it receive if the interest rate is 8 percent compounded semiannually (use tables, round to dollars)? |
| | A) | $506,120 |
| | B) | $252,068 |
| | C) | $316,120 |
| | D) | $317,520 |
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| 14 | |
Rooks Corporation issued a four-year $30,000 installment note with an annual market interest rate of 8 percent and 16 quarterly payments. What is the amount of the quarterly payments and what amount of the first payment is interest (using tables, round to dollars)? |
| | A) | $2,210 pmt, $600 interest |
| | B) | $1,610 pmt, $600 interest |
| | C) | $2,210 pmt, $2,400 interest |
| | D) | $1,610 pmt, $200 interest |
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| 15 | |
Rossville Corporation issued a ten-year $2,000,000 bond that had a 10 percent face interest rate that is paid semi-annually when the market interest rate was 8 percent. What are the proceeds generated by this bond issue (using tables, round to dollars)? |
| | A) | $2,000,000 proceeds |
| | B) | $2,271,830 proceeds |
| | C) | $2,342,016 proceeds |
| | D) | $1,359,030 proceeds |
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