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Principles of Accounting: 20 MCQs (Bonds)

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Principles of Accounting

20 MCQs – Bonds

 

1 .Bonds with a face value of $200,000 were issued at 103. The entry to record the issuance will include a credit to the Bonds Payable account for:

a) $206,000

b) $200,000

c) $103,000

d) $230,000

 

2. On December 31, 2010, a corporation issued $200,000 face value, 12 percent bonds that mature 10 years from the date of issue. The issue price was 97. If the firm uses the straight-line method of amortization, interest expense for 2011 will be reported at:

a) $24,600

b) $24,000

c) $23,400

d) $19,400

 

3. The Premium on Bonds Payable account is shown in the:

a) Current Assets section of the balance sheet.

b) Current Liabilities section of the balance sheet.

c) Long-Term Liabilities section of the balance sheet.

d) Revenue section of the income statement

 

4. The entry to record the adjustments for accrued bond interest includes a debit to _______ and a credit to______.

a) Bond Interest Expense;Cash

b) Bond Interest Expense; Bond Interest Payable

c) Bond Interest Payable; the Bond Interest Expense

d) Bond Interest Expense; Bonds Payable

 

5. Bonds with a face value of $400,000 were issued at 98. The entry to record the issuance will include a credit to the Bonds Payable account for:

a) $408,000

b) $392,000

c) $400,000

d) $398,000

 

6. When the issuing corporation has the right to require the owners to surrender the bonds for payment before the maturity date of the bonds, the bonds are referred to as_______bonds.

a) serial

b) convertible

c) registered

d) callable

 

7. Retained earnings are often appropriated while the bonds are outstanding. Which of the following is a reason for the appropriation.

a) Corporation management wants to protect the bondholders

b) The bond contract or the board of directors requires it.

c) Either a or b could be a reason

d) Neither a nor b could be a reason

 

8. Retained Earnings Appropriated for Bond Retirement appears as a separate line item on the:

a) Income Statement

b) Balance sheet

c) Bond Interest Reconciliation Schedule

d) Statement of Cash Flows

 

9. The amortization of the bond discount___________the carrying value of the bond, while the amortization of the bond premium________the carrying value of the bond.

a) decrease;increase

b) increase;decreases

c) increases;increases

d) decreases;decreases

 

10. When bonds mature, a corporation will pay the bondholders the:

a) current market value of the bonds

b) face amount plus the original premium or minus the original discount

c) face amount plus the interest accrued since the date the bonds were issued

d) face amount of the bonds

 

11. If bonds are issued for a price below their face value, the bond discount should be:

a) charged to expense on the date the bonds are issued

b) amortized over the life of the bond issue

c) shown as an addition to Bonds Payable in the Long-Term Liabilities section of the balance sheet

d) shown as a current liability on the balance sheet.

 

12. A corporation paid $104,000 to retire bonds with a face value of $100,000 and an unamortized premium balance of $3,000. The entry to record the early retirement of the bonds will include the recognition of a loss of:

a) $7,000

b) $4,000

c) $1,000

d) $3,000

13. Which of the following is NOT a disadvantage of raising capital through the issue of bonds payable?

a) the bonds are classified as a long-term liability

b) Interest must be paid even if the firm suffers a loss

c) the face amount must be repaid at maturity

d) interest is deductible for income tax purposes

 

14.When bonds are issued at a premium, the bond premium:

a) reduces the amount of interest expense over the life of the bonds.

b) increases the amount of interest expense over the life of the bonds

c) does not change the amount of interest expense over the life of the bonds

d) is charged to interest expense when the bond is issued

 

15. A bond sinking fund investment is started on January 5, 2010, by transferring $10,000 in cash to the fund. This $10,000 is invested and earns $1,100 during 2010. The entry to record the earnings made on the sinking fund investment includes a debit to______and a credit to__________.

a) Cash for $1,100; Income from Sinking Fund Investment for $1,100

b) Cash for $1,100; Bond Sinking Fund Investment for $1,100

c) Bond Sinking Fund Investment for $1,100;Income from Sinking Fund Investment for $1,100

d) Cash for $1,100; Interest Income for $1,100

 

16. The corporation must maintain a subsidiary ledger showing who owns the bonds and is entitled to receive interest payments if the bonds are _____bonds.

a) coupons

b) registered

c) bearer

d) unregistered

 

17. Using borrowed funds to earn a profit higher than the interest charged for borrowing is called:

a) leveraging

b) amortizing

c) investing

d) secured borrowing

 

18. Bonds issued at a premium are:

a) traded for stock

b) sold at less than face value

c) sold at less than face value

d) sold for more than face value

 

 

19. If market interest rates are higher than the rate offered on the bonds being sold, they will be sold at:

a) a premium

b) a discount

c) face value

d) a loss

 

20. Bonds that are payable over a period of years are called______

a.  callable

b.  coupon

c.  bearer

d.  Serial Bonds

 

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