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Question(s) / Instruction(s):

A company issues 9%, 20-year bonds with a par value of $780,000. The current market rate is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is:

a)            $390,000

b)            $70,200

c)            $62,400

d)            $31,200

e)            $35,100

 

2. A company issued 8%, 15-year bonds with a par value of $550,000. The current market rate is 8%. The journal entry to record each semiannual interest payment is:

a)            Debit Bond Interest Expense $22,000; credit Cash $22,000.

b)            Debit Bond Interest Expense $44,000; credit Cash $44,000.

c)            Debit Bond Interest Expense $36,667; credit Cash $36,667.

d)            Debit Bond Interest Expense $500,000; credit Cash $500,000.

e)            No entry is needed, since no interest is paid until the bond is due.

 

3. The legal contract between the issuing corporation and the bondholders is called the bond indenture.

a)            True

b)            False

4. Term bonds are scheduled for maturity on one specified date, whereas serial bonds mature at more than one date.

a)            True

b)            False

 

5. Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

a)            True

b)            False

 

6. A bond's par value is not necessarily the same as its market value.

a)            True

b)            False

 

7. An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

a)            True

b)            False

 

8. A basic present value concept is that cash paid or received in the future is worth less than the same amount of cash today.

a)            True

b)            False

 

9. Premium on Bonds Payable is an adjunct or accretion liability account.

a)            True

b)            False

 

10. Sinking fund bonds:

a)            Require the issuer to set aside assets to retire the bonds at maturity.

b)            Require equal payments of both principal and interest over the life of the bond issue

c)            Decline in value over time

d)            Are registered bonds

e)            Are bearer bonds

 

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