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Chapter 11 - Liabilities: Bonds Payable
Copyright Cengage Learning. Powered by Cognero.
Page 21
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-APP1 - LO: 11-APP1
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
55. A bond indenture is
a.
a contract between the corporation issuing the bonds and the underwriters selling the bonds
b.
the amount due at the maturity date of the bonds
c.
a contract between the corporation issuing the bonds and the bondholders
d.
the amount for which the corporation can buy back the bonds prior to the maturity date
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 - LO: 11-01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
56. When the corporation issuing the bonds has the right to redeem the bonds prior to the maturity, the bonds are
a.
convertible bonds
b.
unsecured bonds
c.
debenture bonds
d.
callable bonds
ANSWER:
d
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 - LO: 11-01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.BB.01 - Industry
ACCT.AICPA.FN.03 - Measurement
Chapter 11 - Liabilities: Bonds Payable
Copyright Cengage Learning. Powered by Cognero.
Page 23
d.
greater than or less than $500,000, depending on the maturity date of the bonds
ANSWER:
c
RATIONALE:
If the market rate is greater than the contract rate, the bonds will sell for less than their
face value. Thus, the price of the bond will be less than $500,000.
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 - LO: 11-01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
60. When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at
a.
a premium
b.
their face value
c.
their maturity value
d.
a discount
ANSWER:
d
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 - LO: 11-01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
61. The interest rate specified in the bond indenture is called the
a.
discount rate
b.
contract rate
c.
market rate
d.
effective rate
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
Chapter 11 - Liabilities: Bonds Payable
Copyright Cengage Learning. Powered by Cognero.
Page 25
are sold for $191,000. The bonds pay interest semiannually on June 30 and December 31 and the maturity date is
December 31, five years from now. Barton records straight-line amortization of the bond discount. The bond interest
expense for the year ended December 31 is
a.
$10,900
b.
$18,200
c.
$21,800
d.
$29,000
ANSWER:
c
RATIONALE:
Bond interest expense = {[(Face value of bonds × 10% × 1/2 year)] + [Discount on
issue ÷ (5 years × 2)]} × 2 = {[$200,000 × 10% × 1/2 year] + [($200,000 – $191,000) /
(5 × 2)]} × 2 = ($10,000 + $900) × 2 = $21,800
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
65. If $1,000,000 of 8% bonds are issued at 102 3/4, the amount of cash received from the sale is
a.
$1,080,000
b.
$972,500
c.
$1,000,000
d.
$1,027,500
ANSWER:
d
RATIONALE:
Amount of cash received from the sale of bonds = Face value of bond × Bond quote =
$1,000,000 × 102.75/100 = $1,027,500
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 - LO: 11-01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
66. If $2,000,000 of 10% bonds are issued at 97, the amount of cash received from the sale is
a.
$2,060,000
b.
$2,000,000
Chapter 11 - Liabilities: Bonds Payable
Copyright Cengage Learning. Powered by Cognero.
Page 26
c.
$2,100,000
d.
$1,940,000
ANSWER:
d
RATIONALE:
Amount of cash received from the sale of bonds = Face value of bonds × Bond quote =
$2,000,000 × 0.97 = $1,940,000
POINTS:
1
DIFFICULTY:
Bloom's: Applying
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 - LO: 11-01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
67. Selling the bonds at a premium has the effect of
a.
raising the effective interest rate above the stated interest rate
b.
attracting investors that are willing to pay a lower rate of interest than on similar bonds
c.
causing the interest expense to be higher than the bond interest paid
d.
causing the interest expense to be lower than the bond interest paid
ANSWER:
d
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 - LO: 11-01
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
68. If bonds are issued at a discount, it means that the
a.
bondholder will receive effectively less interest than the contractual rate of interest
b.
market interest rate is lower than the contractual interest rate
c.
market interest rate is higher than the contractual interest rate
d.
financial strength of the issuer is suspect
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
Chapter 11 - Liabilities: Bonds Payable
Copyright Cengage Learning. Powered by Cognero.
Page 30
d.
debit Cash, credit Bonds Payable
ANSWER:
d
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Easy
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
76. The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate
would be
a.
debit Bonds Payable, credit Cash
b.
debit Cash and Discount on Bonds Payable, credit Bonds Payable
c.
debit Cash, credit Premium on Bonds Payable and Bonds Payable
d.
debit Cash, credit Bonds Payable
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 - LO: 11-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.06 - Recording Transactions
ACCT.ACBSP.APC.22 - Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:29 PM
DATE MODIFIED:
10/16/2017 6:10 PM
77. The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate
would be
a.
debit Bonds Payable, credit Cash
b.
debit Cash and Discount on Bonds Payable, credit Bonds Payable
c.
debit Cash, credit Premium on Bonds Payable and Bonds Payable
d.
debit Cash, credit Bonds Payable
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
