# FINAL REVIEW (Ch. 12)

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question
The market interest rate related to a bond is also called the: A) effective interest rate. B) contract rate. C) coupon rate. D) face interest rate.
A
question
A \$1,000 bond quoted at 98 could be purchased or sold for: A) \$1,098. B) \$1,000. C) between \$1,000 and \$1,098, depending on the maturity date of the bond. D) \$980.
(\$1,000) (98%) = \$980
question
Callable bonds are advantageous to the corporation because: A) the corporation reserves the right to redeem them early. B) they can be exchanged for other securities. C) Callable bonds are advantageous to the purchaser, not the corporation. D) they mature on the same date.
A
question
If \$1,000,000 of 8% bonds are issued at 101 1/2, the amount of cash received from the sale is: A) \$1,000,000. B) \$1,080,000. C) \$1,015,000. D) \$985,000.
\$1,000,000 * [ ((101 *2) +1 ) / 2) / (100%) ] = \$1,015,000
question
A \$1,000 bond quoted at 100 could be purchased or sold at: A) \$1,000 B) \$100 C) \$1,100 D) \$900
A
question
A corporation issues for cash \$1,000,000 of 8%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 10%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following is true: A) The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity. B) The amount of the annual interest expense is computed at 8% of the bond carrying amount at the beginning of the year. C) The amount of unamortized premium decreases from its balance at issuance date to a zero balance at maturity. D) The amount of the annual interest expense gradually decreases over the life of the bonds.
A
question
Hsu Company issued \$100,000 of 8% bonds on January 1, 2016 at face value. The bonds pay interest semiannually on January 1 and July 1. The total interest expense related to these bonds for the year ended December 31, 2016, is: A) \$8,000. B) \$2,000. C) 12,000. D) \$4,000.
(\$100,000) (8%) = \$8,000
question
The balance in Unamortized Discount on Bonds Payable: A) would be added to the face amount of the related bonds payable on the balance sheet. B) should be reported on the balance sheet as a deduction from the face amount of the related bonds payable. C) should be reported in the Paid-in Capital section of the balance sheet. D) should be reported separately in the Current Liabilities section of the balance sheet.
B
question
The portion of bonds or notes payable that is due within one year is reported as: A) a current liability on the balance sheet. B) a long-term liability on the balance sheet. C) a part of stockholders' equity. D) an expense on the income statement.
A
question
Any unamortized premium is reported: A) on the income statement. B) as an addition to the face amount of the bonds. C) in the stockholders' equity section of the balance sheet. D) as a deduction to the face amount of the bonds.
B
question
A bond indenture is: A) a bond that is unsecured. B) a bond that is secured by specific assets of the issuing corporation. C) the underlying contract between the corporation issuing the bonds and the bondholders. D) a bond that has past due interest payments.
C
question
Bonds that may be exchanged for other securities, such as common stock, are called: A) callable. B) coupon. C) debenture. D) convertible.
D
question
_______________ are issued at a discount; however, there is no interest paid on these: A) US Treasury notes B) US Treasury bonds C) US Treasury bills D) None of these choices are correct.
C
question
If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of \$300,000 will be: A) equal to \$300,000. B) greater than \$300,000. C) less than \$300,000. D) greater than or less than \$300,000, depending on the maturity date of the bonds.
C
question
If the market rate of interest is equal to the contract rate of interest: A) the bonds will sell for their face amount. B) the bonds will sell for less than their face amount. C) the bonds will sell for more than their face amount. D) None of these choices are correct.
A
question
Any unamortized discount is reported: A) as an addition to the face amount of the bonds. B) on the income statement. C) as a deduction to the face amount of the bonds. D) in the stockholders' equity section of the balance sheet.
C
question
When a corporation issues bonds, the price that buyers are willing to pay for the bonds does NOT depend on which of the following: A) denominations in which the bonds are sold B) contract rate of the bonds C) market rate of interest D) periodic interest to be paid on the bonds
A
question
On January 1, 2016, Quinton Corporation issued 8% bonds with a face value of \$100,000. The bonds are sold for \$98,000. The bonds pay interest semiannually on June 30 and December 31, and the maturity date is December 31, 2020. Quinton Corporation records straight-line amortization of the bond discount. The bond interest expense for the year ended December 31, 2016, is: A) \$8,200. B) \$8,000. C) \$8,400. D) \$7,600.
C
question
Bonds Payable has a balance of \$1,000,000 and the Discount on Bonds Payable has a balance of \$12,500. If the issuing corporation redeems the bonds at 99, what is the amount of gain or loss on redemption: A) \$22,500 gain B) \$2,500 gain C) \$2,500 loss D) \$22,500 loss