ACCT 284Chapter 10

1.Fill in the Bond Terminology definitions:

  1. Face Value
  1. Stated Interest Rate
  1. Market Rate
  1. Issue Price
  1. Discount or Premium

2.When is a bond issued at a premium?

  1. When the Stated Interest Rate is greater than Market Rate
  2. When the Stated Interest Rate is lower than Market Rate
  3. When the bond sells below face value
  4. When the bond sells at face value

3.Bonds Payable usually are classified on the balance sheet as

  1. investments and funds
  2. Current Liabilities
  3. Long-term Liabilities
  4. Current assets

4.Which of the following is NOT a current liability?

  1. Unearned Revenue
  2. Accounts Payable
  3. Deferred Revenue
  4. Long-Term Debt

5.Which of the following is a disadvantage to the corporation issuing bonds?

  1. The required interest payment must be met each period
  2. The liquid nature of the bonds make them attractive to investors who may not want to hold them to maturity
  3. The large principal payment due at maturity
  4. A and C are both disadvantages

6.On Jan 1, 2019, you buy a 6-year bond at par that pays interest at 8%. Interest is paid annually and kept in a separate account on Dec. 31 every year.

  1. How much is the bonds face value?
  1. How much interest would you receive each year?
  1. How much interest would you have collected at maturity?
  1. How much would you receive at maturity?
  1. How much would you receive total?

7.On January 1, 2004, Winston Corporation sold a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9668 based on an 8% effective interest rate. Assuming effective interest amortization is used. The interest expense on the 2004 income statement would be (to the nearest dollar)

  1. $1547
  2. $883
  3. $773
  4. $700

8.Wesley Corporation issued 10 year, 10%, $20,000 bonds when the market rate was 8%. Which of the following statements is true?

  1. The bonds will sell at a premium
  2. The bonds will sell at a discount
  3. The bonds will sell at par value
  4. The bonds will not be sold

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