Saturday, June 11, 2011

Chapter 12

1.

A corporation would not be successfully trading on equity if it gathered funds by
Student ResponseValueCorrect AnswerFeedback
Student Response issuing common stock100%Student Response
issuing bonds
issuing preferred stock
issuing notes
Score:1/1

2.

A bond is simply a form of an interest bearing note.
Student ResponseValueCorrect AnswerFeedback
False
Student Response True100%Student Response
Score:1/1

3.

When there are material differences between the results of using the straight-line method and using the effective interest method of amortization, the effective interest method should be used.
Student ResponseValueCorrect AnswerFeedback
False
Student Response True100%Student Response
Score:1/1

4.

The Designer Company issued 10-year bonds on January 1, 2009. The 6% bonds have a face value of $800,000 and pay interest every January 1 and July 1. The bonds were sold for $690,960 based on the market interest rate of 8%. Designer uses the effective-interest method to amortize bond discounts and premiums. On July 1, 2009, Designer should record interest expense (round to the nearest dollar) of
Student ResponseValueCorrect AnswerFeedback
$27,638Student Response
$48,000
$24,000
Student Response $55,2770%
Score:0/1

5.

The balance in a bond discount account should be reported on the balance sheet as a deduction from the related bonds payable.
Student ResponseValueCorrect AnswerFeedback
Student Response True100%Student Response
False
Score:1/1

6.

Bonds payable would be listed at their carrying value on the balance sheet.
Student ResponseValueCorrect AnswerFeedback
Student Response True100%Student Response
False
Score:1/1

7.

Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.
Student ResponseValueCorrect AnswerFeedback
Student Response True100%Student Response
False
Score:1/1

8.

The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2009, at 96. The journal entry to record the issuance will show a
Student ResponseValueCorrect AnswerFeedback
credit to Cash for $960,000.
Student Response debit to Discount on Bonds Payable for $40,000.100%Student Response
credit to Bonds Payable for $960,000.
debit to Cash of $1,000,000.
Score:1/1

9.

The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.
Student ResponseValueCorrect AnswerFeedback
True
Student Response False100%Student Response
Score:1/1

10.

If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.
Student ResponseValueCorrect AnswerFeedback
True
Student Response False100%Student Response
Score:1/1

11.

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.
Student ResponseValueCorrect AnswerFeedback
False
Student Response True100%Student Response
Score:1/1

12.

On January 1, 2010, Gemstone Company obtained a $280,000, 10-year, 11% installment note from Guarantee Bank. The note requires annual payments of $47,544, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $30,800 and principal repayment of $16,744. The journal entry to record the issuance of the installment notes for cash on January 1, 2010 would include:
Student ResponseValueCorrect AnswerFeedback
a debit to Interest Expense of $30,800
a debit to Notes Payable of $475,440
Student Response a credit to Notes Payable of $280,000100%Student Response
a credit to Interest Payable of $195,440
Score:1/1

13.

The journal entry a company records for the issuance of bonds when the contract rate and the market rate are the same is
Student ResponseValueCorrect AnswerFeedback
Student Response debit Cash, credit Bonds Payable100%Student Response
debit Cash, credit Premium on Bonds Payable and Bonds Payable
debit Bonds Payable, credit Cash
debit Cash and Discount on Bonds Payable, credit Bonds Payable
Score:1/1

14.

If sinking fund cash is used to purchase investments, those investments are reported on the balance sheet as marketable securities.
Student ResponseValueCorrect AnswerFeedback
Student Response False100%Student Response
True
Score:1/1

15.

The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date.
Student ResponseValueCorrect AnswerFeedback
Student Response True0%
FalseStudent Response
Score:0/1

16.

The present value of $40,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar)
Student ResponseValueCorrect AnswerFeedback
$2,400
Student Response $37,736100%Student Response
$42,400
$40,000
Score:1/1

17.

The Reagan Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2009, at 95. The journal entry to record the issuance will show a
Student ResponseValueCorrect AnswerFeedback
debit to Cash of $1,000,000.
credit to Cash for $950,000.
Student Response credit to Bonds Payable for $1,000,000.100%Student Response
credit to Discount on Bonds Payable for $50,000.
Score:1/1

18.

The price of a bond is equal to the sum of the interest payments and the face amount of the bonds.
Student ResponseValueCorrect AnswerFeedback
Student Response True0%
FalseStudent Response
Score:0/1

19.

When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at
Student ResponseValueCorrect AnswerFeedback
their maturity value
a premium
their face value
Student Response a discount100%Student Response
Score:1/1

20.

If the market rate of interest is greater than the contractual rate of interest, bonds will sell
Student ResponseValueCorrect AnswerFeedback
Student Response at a discount.100%Student Response
only after the stated rate of interest is increased.
at a premium.
at face value.
Score:1/1

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