ACCT Chapter 10 Quiz

Bennington Corp. issued a $40,000, ten-year bond at the face rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period?

$1,600

On January 2, 2017, Roof Master Construction, Inc. issued $500,000, ten-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8%, and the market rate is 6%. At the maturity date, besides an interest payment, Roof Master would repay the bondholders

$500,000.

On the issuance date, the Bonds Payable account had a balance of $50,000,000 and Premium on Bonds Payable had a balance of $1,000,000. What was the issue price of the bonds in dollars?

$51,000,000

Bonds in the amount of $100,000 with a life of ten years were issued by Focus Company. If the face rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds?

$60,000

Irwin, Inc. issued $41,000,000 of bonds. Assuming the most common denomination of bonds, the number of bonds sold was

41,000.

Flagg Company issued $500,000 of bonds for $498,351. Interest is paid semiannually. The bond markets and the financial press are likely to state the bond issue price as

99.67.

Churchill Company planned to raise $100,000 by issuing bonds. The bond certificates were printed bearing an interest rate of 8%, which was equal to the market rate of interest at the time. However, before the bonds could be issued, economic conditions forced the market rate up to 9%. If the life of the bonds is six years and interest is paid annually on December 31, how much will Churchill receive from the sale of the bonds?

Churchill will receive less than $100,000 because the market rate of interest at 9% was more than the face rate.

Which of the following statements is true with respect to long-term liabilities? a. An account payable is a good example of a long-term liability because it is interest-bearing. b. Long-term liabilities include bonds, other long-term liabilities, and deferred income taxes. c. They are obligations that will be satisfied within one year. d. Accrued expenses are considered to be long-term liabilities.

Long-term liabilities include bonds, other long-term liabilities, and deferred income taxes.

Which of the following terms does not describe an interest rate used to calculate the interest expense on the income statement? a. Market rate b. Nominal rate c. Effective rate d. Yield rate

Nominal rate

If bonds are issued at 101.25, this means that

a $1,000 bond sold for $1,012.50

The Premium on Bonds Payable account is shown on the balance sheet as a(n)

addition to a long-term liability.

Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issued

at a discount.

The Discount on Bonds Payable account is shown on the balance sheet as a(n)

contra long-term liability.

When bonds are sold for less than the face amount, this means that the

face rate of interest is less than the market rate of interest.

The bond issue price is determined by calculating the

present value of the stream of interest payments and the present value of the maturity amount.

Bonds will sell at a discount when

the face rate of interest is less than the market rate of interest at the time of issue.

If a company's bonds are callable,

the issuing company is likely to retire the bonds before maturity if, for example, the bonds are paying 9% interest while the market rate of interest is 6%.