COB 241 Ch. 10, 11, and E Quiz

How will borrowing money by issuing a bond affect a company's ledger accounts?

- the balance of the cash account increases - the balance of the bonds payable account increases

When the market rate of interest is higher than the stated rate of interest, bonds will sell at _______________, thereby increasing the effective rate of interest

a discount

On January 1, year 1, Dixon Company issued bonds with a $50000 face value at 104. The bonds had a 10 years term and a 8% stated interest. Recognizing the bond issue would

cause the bond payable account to increase by $50000

Loans that provide flexible borrowing and repayment options are called

lines of credit

The journal entry to record a 10% stock dividend on $10 par value when the market value is $30 a share will include a

- credit to the additional paid in capital in excess of par value account - credit to the common stock account - debit to the retained earnings account

The journal entry to record the issue of bonds payable at a discount will include a

- credit to the bonds payable account - credit to the discount on the bonds payable account - debit to the cash account

The journal entry to record a cash payment for interest on a bond that was issued at a premium will include a

- credit to the cash account - debit to the interest expense account - debit to the premium on bond payable account

During the term of a line of credit, the borrower

- may increase the amount borrowed - may decrease the amount borrowed

Stock certificates are used as evidence of ownership in which of the following types of business organization?

corporations

Which of the following business forms offers the benefit of continuity of existence?

corporations

How will paying a cash dividend that was previously declared affect a corporation's financial statements?

total assets and total liabilities will decrease

Fontaine Incorporated decided to issue a 10% stock dividend on its $20 par value common stock. On the distribution date, the market value of the stock was $25; there were 12000 shares of stock issued; and 10000 shares of stock outstanding. Recognizing the stock dividend will cause an increase in the amount of additional paid-in capital in excess of par value of

$5000 {$25 market value - $20 par value = $5 additional paid-in capital in excess of par value x (10000 shares outstanding x 10% dividend)

On January 1, 2013, Hector Incorporated issued bonds with a face value of $120000, a stated rate of interest of 8% and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 7% at the time the bond were issued. The bonds sold for $124920. Hector used the effective interest rate method to amortize the premium. Based on this information, the amount of interest expense recognized in year 1 was

$8744 ($124920 carrying value x 7% effective interest)

A payment on an installment loan will

- be shown in the financing activities section of the statement of cash flows - be shown in the operating activities section of the statement of cash flows

Bonds issued at a discount means that bonds

are sold less than face value

If a bond sell at a discount, the effective rate of interest will be

higher than the stated rate of interest

Loans that required payments of principle and interest at a regular intervals are called

installment loans

Which of the following is an example of secured bond

mortgage bond

Unrealized gains and losses on held-to-maturity securities affect which of the following statements?

none of these statements

In practice, bonds normally pay interest

semiannually

On January 1, year 1, Dixon Company issued bonds with a $50000 face value at 96. The bonds had a 10 years term and a 8% stated rate of interest. Interest is payable in cash on December 31 of each year. Assuming straight-line amortization, which of the following statements regarding the recognition of interest expense on December 31, year 1 is true?

the carrying value of the bond liability increase by $400{$4000 (50000 / 8%) / 10years} or $200 (for the book)