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1
Bonds may be redeemed only when they mature.
A)True
B)False
2
Bondholders are entitled to dividends.
A)True
B)False
3
The establishment of a bond sinking fund is stipulated in the bond agreement.
A)True
B)False
4
In a corporation, bondholders are allowed to vote.
A)True
B)False
5
Premium on Bonds Payable is presented on the balance sheet as an asset.
A)True
B)False
6
With respect to bonds, the terms contract rate and stated rate have the same meaning.
A)True
B)False
7
7Long term bonds are usually reported in the Current Liability section of the Balance Sheet.
A)True
B)False
8
Bonds with a contract interest rate lower than the market rate for similar bonds will probably sell at a premium.
A)True
B)False
9
Bond interest expense can be paid only at the maturity date of the bond.
A)True
B)False
10
One advantage of issuing bonds to raise money is that the interest payments are deductible.
A)True
B)False
11
One disadvantage of issuing bonds to raise money is that the interest payments can be burdensome.
A)True
B)False
12
Discount on Bonds Payable usually has a credit balance.
A)True
B)False
13
To decrease the Premium on Bonds Payable account, you would debit it.
A)True
B)False
14
If the market rate at the time that a bond is issued is lower than the stated rate of a bond, then the bond will be issued at a premium
A)True
B)False
15
When a bond is issued at a Discount and the company makes a bond interest payment, the company will debit the Discount on Bonds Payable account in the journal entry.
A)True
B)False
16
The balance of Discount on Bonds Payable on a balance sheet should be shown as
A)an addition to Bonds Payable.
B)a deduction from Sinking Fund Cash.
C)an expense.
D)a deduction from Bonds Payable.
E)none of these.
17
To record the payment of interest when a bond was issued at a premium includes
A)debit Cash and credit Premium on Bonds Payable.
B)debit Premium on Bonds Payable and debit Cash and credit Interest Expense.
C)debit Premium on Bonds Payable and debit Interest Expense and credit Cash.
D)debit Interest Expense and credit Premium on Bonds Payable.
E)none of these.
18
If the market rate of interest is 8 percent, and 9 percent is stated on the face of a bond, the bond is likely to sell at
A)8 percent.
B)par.
C)a premium.
D)a discount.
E)none of these.
19
If a 1,000 bond with an annual contract rate of 10%, is sold when the market rate for similar investments is 9.5%, these bonds are sold at
A)a discount.
B)a premium
C)face value.
D)below the $1,000 face amount.
E).5% more than $950.
20
The Discount on Bonds Payable account appears on
A)the balance sheet as an addition to liabilities.
B)the balance sheet as paid-in capital.
C)the income statement as an expense.
D)the balance sheet as a deduction from liabilities.
E)none of these.
21
The bond indenture will list
A)the contract interest rate to be paid on the bond.
B)how often interest will be paid.
C)the maturity date of the bond.
D)all of the above.
E)none of the above.
22
A bondholder of a corporation is
A)an owner.
B)a debtor.
C)a creditor.
D)a stockholder.
E)none of these.
23
When a corporation deposits cash in its sinking fund, it records the transaction as
A)debit to Bond Sinking Fund, credit to Cash.
B)debit to Bond Sinking Fund Payable, credit to Cash.
C)debit to Bond Sinking Fund, credit to Sinking Fund Payable.
D)debit to Cash, credit to Bond Sinking Fund.
E)none of these.
24
On September 30, Rodgers, Inc., buys back for redemption $200,000 of its 12 percent bonds on the open market at 105% of face. The amount of cash paid by Rodgers, Inc., is
A)$222,600.
B)$210,000.
C)$212,000.
D)$214,000.
E)none of these.
25
ABC Company receives $105,120 for its bonds; in return, it pays bondholders $100,000 after ten years (plus semiannual interest payments). The $5,120 premium is amortized using the straight-line method. What amount of premium will be amortized at its first semi-annual interest payment.
A)$5,256.
B)$5,000.
C)$512
D)$256
E)none of these.
26
ABC Company issues 10-year, 8%, bonds with a par value of $100,000 for $105,120. The bonds will mature after ten years and they pay interest semi-annually. The $5,120 premium is amortized using the straight-line method. The journal entry to record the first interest payment will include
A)credit to Premium on Bonds Payable for $512
B)debit to Bonds Payable for $4,000
C)credit to Cash for $8,000
D)credit to Cash for $4,000
E)none of these
27
ABC Company issues 10-year, 8%, bonds with a par value of $100,000 for $95,120. The bonds pay interest semi-annually. The discount is amortized using the straight-line method. The journal entry to record the first interest payment will include
A)credit to Discount on Bonds Payable for $244
B)debit to Bonds Payable for $10,000
C)debit to Discount on Bonds Payable for $244
D)credit to Discount on Bonds Payable for $488
E)none of these
28
A company's Bond Sinking Fund is
A)an asset
B)a long-term liability
C)part of stockholder's equity
D)reported on the Income Statement
E)none of these
29
A measure to assess the risk of a company's financing structure is the debt-to-equity ratio. The formula to determine this is:
A)Current Assets divided by Current Liabilities
B)Total Liabilities divided by Total Equity
C)Total Liabilities divided by Total Assets
D)Total Current Liabilities divided by Total Equity
E)none of these
30
During the year, ABC earns $2,000 of investment income on its bond sinking fund investments. The end of year journal entry to record this year's investment income will include
A)Credit to Cash for $2,000
B)debit to Bonds Payable for $2,000
C)credit to Bond Sinking Fund for $2,000
D)credit to Bond Sinking Fund Income for $2,000
E)none of these





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