Question 1

Secured bonds:

Accepted Answer

A)   Are always callable.
B)   Have specific assets of the issuing corporation pledged as collateral.
C)   Are second to unsecured liabilities.
D)   Are backed by the issuer's general credit standing.
E)   Are called debentures.F) A) and D)
G) A) and B)

Question 2

Lucie Industrial Inc. retires its bonds par value $100,000)  at 105 on January 1immediately following the payment of semiannual interest. The carrying value of thebonds at retirement date is $103,745. Lucie's journal entry to record the retirement will include a:

Accepted Answer

A)   Credit to Gain on Retirement of Bonds.
B)   Debit to Premium on Bonds.
C)   Debit to Discount on Bonds.
D)   Credit to Premium on Bonds.
E)   Credit to Bonds Payable.F) A) and D)
G) B) and C)

Question 3

Over the life of a note payable, the amount of interest expense allocated to each period is calculated by:

Accepted Answer

A)   Multiplying the market interest rate at issuance of the note by the beginning-of-period balance of the note.
B)   Multiplying the interest rate at issuance of the note by the end-of-period balance of the note.
C)   Multiplying the interest rate at issuance of the note by the beginning-of-period balance of the note.
D)   Dividing the interest rate at issuance of the note by the beginning-of-period balance of the note.
E)   Multiplying either the interest rate or the market interest rate at issuance of the note by the beginning-of-period balance of the note.F) C) and D)
G) A) and D)

Question 4

A corporation must buy back its callable bonds through open market transactions.

Accepted Answer

A) True 
 B)False

Question 5

When a bond sells at a premium, it means that:

Accepted Answer

A)   The bond is always callable.
B)   The contract rate is above the market rate.
C)   The contract rate is below the market rate.
D)   The bond is secured by corporation assets.
E)   The contract rate is equal to the market rate.F) B) and E)
G) A) and E)

Question 6

Most mortgage contracts grant the lender the right to foreclose on the property used assecurity for the note if the borrower fails to pay in accordance with the terms of the debt agreement.

Accepted Answer

A) True 
 B)False

Question 7

A discount on bonds payable:

Accepted Answer

A)   Occurs when a corporation issues bonds with a contract rate less than the market rate.
B)   Only occurs when unsecured bonds are issued.
C)   Is recorded as a contra equity account.
D)   Occurs when a corporation issues bonds with a contract rate higher than the market rate.
E)   Never happens in the real world.F) None of the above
G) A) and B)

Question 8

Discount on Bonds Payable is a contra liability account.

Accepted Answer

A) True 
 B)False

Question 9

The payment pattern for an installment note with accrued interest plus equal amounts of principal includes:

Accepted Answer

A)   Constant interest payments.
B)   Constant principal payments.
C)   Increasing total payments.
D)   Increasing accrued interest.
E)   Equal periodic payments.F) A) and B)
G) C) and E)

Question 10

Bonds that have interest coupons attached to their certificates, which the bondholders detach when they mature and present to a bank for collection, are called:

Accepted Answer

A)   Serial bonds.
B)   Coupon bonds.
C)   Convertible bonds.
D)   Callable bonds.
E)   Registered bonds.F) A) and E)
G) B) and E)

Question 11

Any discount is added to the par value of bonds to produce the carrying value of bonds payable.

Accepted Answer

A) True 
 B)False

Question 12

Promissory notes that require the borrower to make a series of periodic payments consisting of interest and principal are:

Accepted Answer

A)   Debentures.
B)   Simple notes.
C)   Installment notes.
D)   Investment notes.
E)   Indentures.F) B) and D)
G) None of the above

Question 13

Scott Corporation issued $1,000,000, 8% bonds, receiving a $30,000 premium. On the interest payment date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the openmarket at 95 and retired the issue. As a result, the gain on retirement was:

Accepted Answer

A)   $18,000.
B)   $12,000.
C)   $13,000.
D)   $130,000.
E)   $68,000.F) C) and D)
G) A) and E)

Question 14

When bonds are issued, the carrying book) value is always the par value of the bond.

Accepted Answer

A) True 
 B)False

Question 15

On January 1, 2015, a $60,000, 6%, 6-year installment note payable is issued by the Terry Corporation. The note requires that $10,000 of principal plus accrued interest be paid at the end of each year December 31) . The journal entry to record the secondannual payment would include:

Accepted Answer

A)   A debit to Interest Expense for $3,000.
B)   A debit to Notes Payable for $3,600.
C)   A credit to Cash for $3,000.
D)   A debit to Interest Expense for $3,600.
E)   A credit to Cash for $3,600.F) B) and C)
G) B) and E)

Question 16

How much depreciation expense should DuMont report for the lease on its 2018 income statement?

Accepted Answer

A)   $15,900
B)   $8,833
C)   $8,722
D)   $7,476
E)   $7,850F) A) and E)
G) B) and E)

Question 17

If Cee Ltd borrows $50,000 by issuing a 6%, three-year note, the total interest to be paid will be $9,000.

Accepted Answer

A) True 
 B)False

Question 18

The effective interest rate method:

Accepted Answer

A)   Allocates bond interest expense using a constant interest rate.
B)   Allocates a decreasing amount of interest expense over the life of a bond originally sold at a discount.
C)   Allocates interest expense using the contract rate.
D)   Allocates bond interest expense using a changing interest rate.
E)   Allocates interest expense based on a constant carrying value.F) A) and D)
G) A) and E)

Question 19

If a bond sells at a discount, the amortization of the discount will:

Accepted Answer

A)   Have interest payment each period equal to interest expense
B)   Have no effect on interest expense for the period
C)   Have interest expense and interest payment computed on face value
D)   Have interest payments each period greater than interest expense
E)   Have interest payments each period less than interest expenseF) B) and C)
G) A) and E)

Question 20

Bonds can be issued:

Accepted Answer

A)   At par.
B)   At a discount.
C)   At a premium.
D)   Between interest payment dates.
E)   All of these answers are correct.F) A) and C)
G) C) and D)

Exam 14: Bonds and Long-Term Notes Payable

Secured bonds:

Correct Answer
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A discount on bonds payable:

Correct Answer
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How much depreciation expense should DuMont report for the lease on its 2018 income statement?

Correct Answer
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Bonds can be issued:

Correct Answer
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The payment pattern for an installment note with accrued interest plus equal amounts of principal includes:

Correct Answer
verified

Most mortgage contracts grant the lender the right to foreclose on the property used assecurity for the note if the borrower fails to pay in accordance with the terms of the debt agreement.

Correct Answer
verified

If a bond sells at a discount, the amortization of the discount will:

Correct Answer
verified

When bonds are issued, the carrying book) value is always the par value of the bond.

Correct Answer
verified

If Cee Ltd borrows $50,000 by issuing a 6%, three-year note, the total interest to be paid will be $9,000.

Correct Answer
verified

Over the life of a note payable, the amount of interest expense allocated to each period is calculated by:

Correct Answer
verified

A corporation must buy back its callable bonds through open market transactions.

Correct Answer
verified

When a bond sells at a premium, it means that:

Correct Answer
verified

Correct Answer
verified

Promissory notes that require the borrower to make a series of periodic payments consisting of interest and principal are:

Correct Answer
verified

On January 1, 2015, a $60,000, 6%, 6-year installment note payable is issued by the Terry Corporation. The note requires that $10,000 of principal plus accrued interest be paid at the end of each year December 31) . The journal entry to record the secondannual payment would include:

Correct Answer
verified

Lucie Industrial Inc. retires its bonds par value $100,000) at 105 on January 1immediately following the payment of semiannual interest. The carrying value of thebonds at retirement date is $103,745. Lucie's journal entry to record the retirement will include a:

Correct Answer
verified

The effective interest rate method:

Correct Answer
verified

Discount on Bonds Payable is a contra liability account.

Correct Answer
verified

Any discount is added to the par value of bonds to produce the carrying value of bonds payable.

Correct Answer
verified

Bonds that have interest coupons attached to their certificates, which the bondholders detach when they mature and present to a bank for collection, are called:

Correct Answer
verified

Exam 14: Bonds and Long-Term Notes Payable

Secured bonds:

Correct AnswerverifiedShow Answer

A discount on bonds payable:

Correct AnswerverifiedShow Answer

How much depreciation expense should DuMont report for the lease on its 2018 income statement?

Correct AnswerverifiedShow Answer

Bonds can be issued:

Correct AnswerverifiedShow Answer

The payment pattern for an installment note with accrued interest plus equal amounts of principal includes:

Correct AnswerverifiedShow Answer

Most mortgage contracts grant the lender the right to foreclose on the property used assecurity for the note if the borrower fails to pay in accordance with the terms of the debt agreement.

Correct AnswerverifiedShow Answer

If a bond sells at a discount, the amortization of the discount will:

Correct AnswerverifiedShow Answer

When bonds are issued, the carrying book) value is always the par value of the bond.

Correct AnswerverifiedShow Answer

If Cee Ltd borrows $50,000 by issuing a 6%, three-year note, the total interest to be paid will be $9,000.

Correct AnswerverifiedShow Answer

Over the life of a note payable, the amount of interest expense allocated to each period is calculated by:

Correct AnswerverifiedShow Answer

A corporation must buy back its callable bonds through open market transactions.

Correct AnswerverifiedShow Answer

When a bond sells at a premium, it means that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Promissory notes that require the borrower to make a series of periodic payments consisting of interest and principal are:

Correct AnswerverifiedShow Answer

On January 1, 2015, a $60,000, 6%, 6-year installment note payable is issued by the Terry Corporation. The note requires that $10,000 of principal plus accrued interest be paid at the end of each year December 31) . The journal entry to record the secondannual payment would include:

Correct AnswerverifiedShow Answer

Lucie Industrial Inc. retires its bonds par value $100,000) at 105 on January 1immediately following the payment of semiannual interest. The carrying value of thebonds at retirement date is $103,745. Lucie's journal entry to record the retirement will include a:

Correct AnswerverifiedShow Answer

The effective interest rate method:

Correct AnswerverifiedShow Answer

Discount on Bonds Payable is a contra liability account.

Correct AnswerverifiedShow Answer

Any discount is added to the par value of bonds to produce the carrying value of bonds payable.

Correct AnswerverifiedShow Answer

Bonds that have interest coupons attached to their certificates, which the bondholders detach when they mature and present to a bank for collection, are called:

Correct AnswerverifiedShow Answer

Correct Answer
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