9.2-16 The bond obligates the issuing company to pay the par value of the bond at a specific future time
called the:
A) issuing date.
B) due date.
C) maturity date.
D) payment date.
9.2-17 The interest rate that the bond issuer will pay the bondholders and that is stated on the bond certificate
is the:
A) stated rate.
B) market rate.
C) contract rate.
D) both A and C.
9.2-18 The organization that purchases the bonds from an issuing corporation and resells them to its clients
or sells the bonds for a commission is the:
A) bank.
B) underwriter.
C) bondholders.
D) shareholders.
9.2-19 Bonds in a particular issue which mature in installments over a period of time are called:
A) callable bonds.
B) convertible bonds.
C) serial bonds.
D) term bonds.
9.2-20 Bonds which are backed only by the good faith of the borrower are referred to as:
A) debenture bonds.
B) junk bonds.
C) insecure bonds.
D) unregistered bonds.
9.2-21 A bond with a stated interest rate of 6% and a market rate of 8% was issued at a price reflecting the
market interest rate. As the bond matures:
A) the Premium on Bonds Payable decreases.
B) the Discount on Bonds Payable decreases.
C) the Premium on Bonds Payable increases.
D) the Discount on Bonds Payable increases.
9.2-22 A bond with a stated interest rate of 8% and a market rate of 7% was issued at a price reflecting the
market interest rate. As the bond matures:
A) the Premium on Bonds Payable decreases.
B) the Discount on Bonds Payable decreases.
C) the Premium on Bonds Payable increases.
D) the Discount on Bonds Payable increases.
9.2-23 The stated interest rate is also referred to as the:
A) present value interest rate.
B) effective interest rate.
C) coupon rate.
D) market interest rate.
9.2-24 The carrying amount of bonds issued at a discount is calculated by:
A) subtracting the sum of Discount on Bonds Payable and Interest Payable from Bonds Payable.
B) subtracting Discount on Bonds Payable from Bonds Payable.
C) subtracting Interest Expense from Bonds Payable.
D) subtracting Interest Payable from Bonds Payable.
9.2-25 The carrying amount of bonds is equal to:
A) the face value of the bonds less the discount on bonds payable.
B) the face value of the bonds plus the premium on bonds payable.
C) the face value of the bonds less the premium on bonds payable.
D) both A and B.
9.2.26 On a bond’s maturity date, its face value will equal the:
A) maturity value.
B) maturity value plus all interest payments.
C) maturity value less all interest payments.
D) present value of the bonds on its issuance date.
92.27 The interest rate that determines the amount of cash paid to the bondholder is referred to as:
A) the contract rate of interest.
B) the market rate of interest.
C) the effective rate of interest.
D) both B and C.
9.2-28 The interest rate that investors demand for loaning their money is referred to as:
A) the rate of interest.
B) the contract rate of interest.
C) the stated rate of interest.
D) both B and C.
9.2-29 Bonds with a 6% interest rate were issued when the market rate of interest was 7%. This bond
was issued at:
A) par value.
B) a premium.
C) a discount.
D) face value.
9.2-30 A bond will sell at a premium when:
A) the coupon rate is equal to the effective rate.
B) the coupon rate is greater than the effective rate.
C) the coupon rate is less than the effective rate.
D) all of the above occur.
9.2-31 A bond will sell at a discount when:
A) the coupon rate is equal to the effective rate.
B) the coupon rate is greater than the effective rate.
C) the coupon rate is less than the effective rate.
D) none of the above occur.
9.2-32 A bond will sell at par when:
A) the coupon rate is equal to the effective rate.
B) the coupon rate is greater than the effective rate.
C) the coupon rate is less than the effective rate.
D) none of the above occur.
9.2-33 Bonds with an 8% interest rate were issued when the market rate of interest was 9%. The quoted
bond price:
A) will be 100.
B) will be greater than 100.
C) will be less than 100.
D) cannot be determined.
9.2-34 A $3,000, 7.5% bond is quoted at 97.5. How much cash will be received when the bond is issued?
A) $3,225
B) $3,000
C) $2,925
D) $2,775
9.2-35 A $3,000, 7.5% bond is quoted at 97.5. When the bond is issued, the Bonds Payable account will be
increased by:
A) $3,225.
B) $3,000.
C) $2,925.
D) $2,775.
9.2-36 A $5,000, 7.5% bond is quoted at 101. How much cash will be received when the bond is issued?
A) $4,950
B) $5,000
C) $5,050
D) $5,375
9.2-37 The normal balance of the premium on bonds payable account and the discount on bonds payable are
respectively:
A) debit, credit.
B) credit, credit.
C) debit, debit.
D) credit, debit.
9.2-38 As a bond nears maturity:
A) a bond issued at a premium carrying value decreases toward the maturity value.
B) a bond issued at a discount carrying value increases toward the maturity value.
C) the carrying value of the bond moves toward the maturity value.
D) all of the above occur.
9.2-39 A $50,000, 7% bond is issued at a $1,500 premium. On the issue date, the carrying value of the bond
is:
A) $48,500.
B) $50,000.
C) $50,150.
D) $51,500.
9.2-40 Bonds with a face value of $100,000 were sold at an effective interest rate of 9% to yield cash
proceeds in excess of $100,000. It is apparent that the bonds had a:
A) market rate greater than 9%.
B) market rate less than 9%.
C) stated rate greater than 9%.
D) stated rate less than 9%.
9.2-41 Hornbeck Company issued $100,000 bonds payable with a 7% interest rate at a price of 97. The
journal entry to record the issue of the bond includes:
A) a debit to Bonds Payable $100,000.
B) a debit to Discount on Bonds Payable, $3,000.
C) a credit to Cash, $97,000.
D) all of the above.
9.2-42 The carrying value of a bond immediately after the bond was issued was $121,250. The bond price
was 97. The face value of the bond was:
A) $121,250.
B) $123,750.
C) $121,250.
D) $125,000.
9.2-43 The amount to invest now to receive more later is the:
A) present value.
B) future value.
C) maturity value.
D) time value.
9.2-44 Which of the following statements regarding the time value of money is NOT true?
A) The exact present value depends on the interest rate, the length of time and the principal amount.
B) Present value is always less than the future value.
C) Money earns interest over time.
D) The amount to invest now to receive more in the future is the future value .
9.2-45 Which statement regarding the sale of bonds is NOT true?
A) Bonds are always sold at their market price.
B) The market price is the present value of the bond.
C) The present value of the bond is the present value of the principal plus the present value of the
cash interest payment.
D) The coupon rate and the effective rate have no effect on the selling price of the bond.
9.2-46 The journal entry to record a semiannual interest payment on a bond payable:
A) debits interest expense and credits cash.
B) debits interest expense and credits bonds payable.
C) decreases both assets and shareholders’ equity.
D) does both A and C)
9.2-47 The journal entry to record the sale of a bond at a discount will include a:
A) debit to the discount on bonds payable account.
B) credit to the discount on bonds payable account.
C) debit to bonds payable.
D) credit to cash.
9.2-48 The journal entry to record payment of the bond payable at maturity will include a:
A) debit to cash and a credit to bonds payable.
B) debit to bonds payable and credit to cash.
C) debit to bonds payable, debit to discount on bonds payable and a credit to cash.
D) debit to bonds payable, credit to premium on bonds payable and a credit to cash.
9.2-49 Which of the following statements about discount on bonds payable is NOT true?
A) Discount on bonds payable is a contra account to bonds payable.
B) Subtracting the discount account from the bonds payable account yields the carrying amount of
the bonds.
C) Adding the discount account to the bonds payable account yields the carrying amount of the
bonds.
D) Discount on bonds payable decreases the company’s liabilities.
9.2-50 The effective-interest method of amortization keeps interest expense at the same dollar amount of the
bond’s carrying value for every interest payment over the bond’s life.
9.2-51 Interest expense increases each period if a company uses the effective-interest method of amortization
and the bonds are issued at a discount.
9.2-52 According to IFRS, the interest paid semiannually on a bond payable can always be computed using
straight-line method.
9.2-53 The interest paid semiannually on a bond payable is set by the bond contract and remains the same
over the life of the bonds.
9.2-54 Amortizing the premium on bonds payable is reported as additional revenue when the bond matures.
9.2-55 Bonds issued at a discount are much more common than bonds issued at a premium, since few
companies issue their bonds to pay cash interest above the market interest rate.
9.2-56 The carrying value of bonds increases each interest period if the bonds were issued at a discount.
9.2-57 Using the effective-interest method of amortization, interest expense is based on the carrying
amounts of the bond times the effective-interest rate for the interest period.
9.2-58 The straight-line method of computing interest expense is preferred over the effective interest method
because it is easier to calculate and is more precise.
9.2-59 At maturity, the discount on bonds payable will have been amortized to zero, and the bonds’ carrying
value will be the face value of the bond.
9.2-60 The allocation process of writing off the bond premium or bond discount to interest expense over the
life of the bond is called amortization.
9.2-61 The principle on a callable bond must be paid upon the demand of the bond holder.
9.2-62 If a bond is redeemed before maturity, the journal entry to record the redemption will debit the bond
payable and debit any unamortized premium.
9.2-63 Convertible bonds allow the investor to exchange a bond receivable for the issuing company’s
preference shares.
9.2-64 The discount on bonds payable:
A) increases the amount of cash paid to bondholders over the stated rate of interest.
B) decreases the amount of cash paid to bondholders over the stated rate of interest.
C) increases interest expense on the income statement.
D) reduces interest expense on the income statement.
9.2-65 The premium on bonds payable:
A) increases interest expense on the income statement.
B) reduces interest expense on the income statement.
C) increases the amount of cash paid to bondholders over the stated rate of interest.
D) decreases the amount of cash paid to bondholders over the stated rate of interest.
9.2-66 The two methods to amortize the bond premium or discount are the:
A) effective-interest method and the par value method.
B) effective-interest method and declining-balance method.
C) effective-interest method and the straight-line method.
D) the straight-line method is the only acceptable method.
9.2-67 Amortizing the discount on bonds payable:
A) increases the carrying amount of the bonds.
B) increases the face value of the bonds.
C) decreases the face value of the bonds.
D) decreases the carrying value of the bonds.
9.2-68 Under the effective-interest method of amortizing bond premium, the interest expense recorded for
each semiannual interest payment:
A) will increase over the life of the bond.
B) will equal the amount of cash paid for each semiannual interest payment.
C) is equal to the carrying value of the bond times the contract rate of interest for each semiannual
interest period.
D) is at the same percentage of the bond’s carrying value for every interest payment.
9.2-69 If bonds are issued at a discount:
A) the amortization of the discount will increase interest expense.
B) the amortization of the discount will decrease interest expense.
C) the amortization of the discount has no affect on interest expense.
D) none of the above occur.
9.2-70 Under the effective-interest method of amortization, the amount of discount amortized each interest
period is equal to the:
A) total amount of interest expense, divided by the number of interest payments to be paid.
B) total discount, divided by the number of interest payments to be made.
C) amount of interest expense plus the cash paid.
D) amount of interest expense less the cash paid.
9.2-71 Under the effective-interest method of amortizing bond discount, the interest expense recorded for
each semiannual interest payment:
A) increases over the life of the bond.
B) decreases over the life of the bond.
C) remains constant over the life of the bond.
D) exceeds the interest expense recognized by the straight-line method.
9.2-72 Under the effective-interest method of amortization, the cash payment on each interest payment is
calculated by multiplying the:
A) carrying value of the bonds times the stated interest rate for the appropriate time period.
B) carrying value of the bonds times the effective-interest rate for the appropriate time period.
C) face value of the bonds times the stated interest rate for the appropriate time period.
D) face value of the bonds times the effective-interest rate for the appropriate time period.
9.2-73 Under the effective-interest method of amortization, the cash payment on each interest payment date
will:
A) decrease if bonds are issued at a premium.
B) remain the same for each interest period.
C) increase if bonds are issued at a discount.
D) increase if bonds are issued at par.
9.2-74 Under the effective-interest method, if bonds are issued at a discount:
A) the amount of interest expense decreases each interest period as the bonds move towards
maturity.
B) the amount of interest expense remains the same for each interest period.
C) the amount of interest expense increases each period as the bonds move towards maturity.
D) none of the above occur.
9.2-75 Under the effective-interest method, if bonds are issued at a premium:
A) the amount of interest expense decreases each interest period as the bonds move towards
maturity value.
B) the amount of interest expense remains the same for each interest period as the bonds move
towards maturity value.
C) the amount of interest expense increases each period as the bonds move towards maturity value.
D) none of the above occur.
9.2-76 The total interest expense over the life of a bond is:
A) the sum of the interest payments less the total discount.
B) the sum of the interest payments plus the total premium.
C) the sum of the interest payments plus the total discount.
D) the sum of the interest payments.
9.2-77 When a bond is issued at a discount:
A) the carrying value of the bond increases each semiannual interest period.
B) the carrying value of the bond decreases each semiannual interest period.
C) the carrying value of the bond remains the same each semiannual interest period.
D) the carrying value is always equal to the par value each semiannual interest period.