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Principles of Accounting, Volume 1: Financial Accounting

Multiple Choice

Principles of Accounting, Volume 1: Financial AccountingMultiple Choice
1.

LO 13.1An amortization table ________.

  1. breaks each payment into the amount that goes toward interest and the amount that goes toward the principal
  2. is a special table used in a break room to make people feel equitable
  3. separates time value of money tables into present value and future value
  4. separates time value of money tables into single amounts and streams of cash
2.

LO 13.1A debenture is ________.

  1. the interest paid on a bond
  2. a type of bond that can be sold back to the issuing company whenever the bondholder wishes
  3. a bond with only the company’s word that they will pay it back
  4. a bond with assets such as land to back their word that they will pay it back
3.

LO 13.1The principal of a bond is ________.

  1. the person who sold the bond for the company
  2. the person who bought the bond
  3. the interest rate printed on the front of the bond
  4. the face amount of the bond that will be paid back at maturity
4.

LO 13.1A convertible bond can be converted into ________.

  1. preferred stock
  2. common stock and then converted into preferred stock
  3. common stock of a different company
  4. common stock of the company
5.

LO 13.1On January 1, a company issued a 5-year $100,000 bond at 6%. Interest payments on the bond of $6,000 are to be made annually. If the company received proceeds of $112,300, how would the bond’s issuance be quoted?

  1. 1.123
  2. 112.30
  3. 0.890
  4. 89.05
6.

LO 13.1On July 1, a company sells 8-year $250,000 bonds with a stated interest rate of 6%. If interest payments are paid annually, each interest payment will be ________.

  1. $120,000
  2. $60,000
  3. $7,500
  4. $15,000
7.

LO 13.1On January 1 a company issues a $75,000 bond that pays interest semi-annually. The first interest payment of $1,875 is paid on July 1. What is the stated annual interest rate on the bond?

  1. 5.00%
  2. 2.50%
  3. 1.25%
  4. 10.00%
8.

LO 13.1On October 1 a company sells a 3-year, $2,500,000 bond with an 8% stated interest rate. Interest is paid quarterly and the bond is sold at 89.35. On October 1 the company would collect ________.

  1. $200,000
  2. $558,438
  3. $2,233,750
  4. $6,701,250
9.

LO 13.1On April 1 a company sells a 5-year, $60,000 bond with a 7% stated interest rate. The market interest on that day was also 7%. If interest is paid quarterly, the company makes interest payments of ________.

  1. $1,050
  2. $3,150
  3. $4,200
  4. $5,250
10.

LO 13.2The effective-interest method of bond amortization finds the difference between the ________ times the ________ and the ________ times the ________.

  1. stated interest rate, principal, stated interest rate, carrying value
  2. stated interest rate, principal, market interest rate, carrying value
  3. stated interest rate, carrying value, market interest rate, principal
  4. market interest rate, carrying value, market interest rate, principal
11.

LO 13.2When a bond sells at a discount, the carrying value ________ after each amortization entry.

  1. increases
  2. decreases
  3. stays the same
  4. cannot be determined
12.

LO 13.2The International Financial Reporting Standards require the use of ________.

  1. any method of amortization of bond premiums
  2. the straight-line method of amortization of bond discounts
  3. the effective-interest method of amortization of bond premiums and discounts
  4. any method approved by US GAAP
13.

LO 13.2The cash interest payment a corporation makes to its bondholders is based on ________.

  1. the market rate times the carrying value
  2. the stated rate times the principal
  3. the stated rate times the carrying value
  4. the market rate times the principal
14.

LO 13.2Whirlie Inc. issued $300,000 face value, 10% paid annually, 10-year bonds for $319,251 when the market of interest was 9%. The company uses the effective-interest method of amortization. At the end of the year, the company will record ________.

  1. a credit to cash for $28,733
  2. a debit to interest expense for $31,267
  3. a debit to Discount on Bonds Payable for $1,267
  4. a debit to Premium on Bonds Payable for $1.267
15.

LO 13.3Naval Inc. issued $200,000 face value bonds at a discount and received $190,000. At the end of 2018, the balance in the Discount on Bonds Payable account is $5,000. This year’s balance sheet will show a net liability of ________.

  1. $200,000
  2. $180,000
  3. $195,000
  4. $205,000
16.

LO 13.3Keys Inc. issued 100 bonds with a face value of $1,000 and a rate of 8% at $1,025 each. The journal entry to record this transaction includes ________.

  1. a credit to Bonds Payable for $102,500
  2. a credit to cash for $102,500
  3. a debit to cash for $100,000
  4. a credit to Premium on Bonds Payable for $2,500
17.

LO 13.3Huang Inc. issued 100 bonds with a face value of $1,000 and a 5-year term at $960 each. The journal entry to record this transaction includes ________.

  1. a debit to Bonds Payable for $100,000
  2. a debit to Discount on Bonds Payable for $4,000
  3. a credit to cash for $96,000
  4. a credit to Discount on Bonds Payable for $4,000
18.

LO 13.3O’Shea Inc. issued bonds at a face value of $100,000, a rate of 6%, and a 5-year term for $98,000. From this information, we know that the market rate of interest was ________.

  1. more than 6%
  2. less than 6%
  3. equal to 6%
  4. cannot be determined from the information given.
19.

LO 13.3Gingko Inc. issued bonds with a face value of $100,000, a rate of 7%, and a 10-yearterm for $103,000. From this information, we know that the market rate of interest was ________.

  1. more than 7%
  2. less than 7%
  3. equal to 7%
  4. equal to 1.3%
20.

LO 13.4The difference between equity financing and debt financing is that

  1. equity financing involves borrowing money.
  2. equity financing involves selling part of the company.
  3. debt financing involves selling part of the company.
  4. debt financing means the company has no debt.
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