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Chapter Quiz
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1
Which of the following may be a disadvantage to issuing bonds to raise long-term capital?
A)issuing bonds increase the risk of bankruptcy.
B)ownership and control of the company are unaffected
C)the impact on earnings is positive.
D)interest expense is tax deductible.
2
Dino's Donuts issued a $100,000 bond on January 1 with semi-annual interest payments on June 30 and December 31. The bond has a stated rate of interest of 5% and an effective rate of interest of 6%. What is the amount of cash paid to bondholders on June 30?
A)$5,000
B)$6,000
C)$2,500
D)$3,000
3
Bonds with a par value of $500,000 are sold at discount for $481,000. What account, other than the Cash account, will be debited when recording the issuance of the bonds?
A)Premium on Bonds Payable
B)Discount on Bonds Payable
C)Bonds Payable
D)Interest Expense
4
A corporation with a high times interest earned ratio means that:
A)the company's operating income is equal to its interest obligations.
B)the company's net income is less than its interest obligations.
C)the company is not meeting its interest obligations.
D)the company's net income plus interest expense plus income tax is greater than its interest obligations.
5
When the premium on bonds is amortized, the amount of recognized interest expense is:
A)greater than the amount of cash paid for interest.
B)equal to the amount of cash paid for interest.
C)equal to the amount of cash paid for interest less the amount of premium amortization.
D)equal to the premium amortization recognized and recorded.
6
Present Value of $1
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Present Value of Annuity of $1
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If interest is paid on an annual basis, what is the selling price (to the nearest dollar) of a 4-year bond with a par value of $200,000 and a coupon rate of 8% that are sold when the market rate of interest is 12%?
A)$180,093
B)$175,697
C)$199,994
D)$200,000
7
When the principal of a bond is repaid, the debt-to-equity ratio:
A)increases.
B)decreases.
C)can do either.
D)is not affected.
8
A $100,000, 10-year, 8% bond that pays interest semiannually was sold for $87,539 when the market rate of interest was 10%. Using the effective-interest method, how much would the unamortized bond discount decrease at the end of the first interest period?
A)$377
B)$754
C)$2,000
D)$4,377
9
A $100,000, 10-year, 8% bond that pays interest semiannually was sold for $87,539 when the market rate of interest was 10%. Using the effective-interest method, what is the amount of interest expense, to the nearest dollar, at the end of the second interest period?
A)$4,377
B)$4,596
C)$4,396
D)$4,158
10
Consider the following information:
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Assuming the bonds are retired early at the call price, the loss on the bond call will be:
A)$40,000
B)$100,000
C)$60,000
D)$50,000





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