LESSON 10
Question 1 (10 points) Save
The interest rate that is printed on the bond certificate always is the same as each of the following except one, which is:
1) Stated rate.
2) Contract rate.
3) Nominal rate.
4) Effective rate.
Question 2 (10 points) Save
Nickel Inc. owns $100,000 of 10-year, 6% bonds as an investment on December 31, 2005. The bonds have 3 years remaining to maturity. The unamortized premium remaining on these bonds was $6,000. Nickel uses straight-line amortization. On May 1, 2006, $10,000 of the bonds were redeemed at 110. How much, and what type of gain or loss, results from this redemption?
1) $467 ordinary gain.
2) $467 extraordinary gain.
3) $467 extraordinary loss.
4) $467 ordinary loss.
Question 3 (10 points) Save
Which of the following indicates the margin of safety provided to creditors?
1) Rate of return on shareholders' equity.
2) Times interest earned ratio.
3) Gross margin.
4) Debt to equity ratio.
When an equipment dealer receives a long-term note in exchange for equipment, the present value of the future cash flows received on the notes:
1) Is treated as a current liability at the exchange date.
2) Is recorded as interest revenue at the exchange date.
3) Is recorded as interest receivable at the exchange date.
4) Is credited to sales revenue at the exchange date.
Question 5 (10 points) Save
On January 1, 2006, Zebra Corporation issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2016. Zebra paid $50,000 in bond issue costs. Zebra uses the straight-line amortization method. What is the bond carrying value reported on the December 31, 2006, balance sheet?
1) $1,045,000.
2) $1,040,000.
3) $987,000.
4) $982,000.
Question 6 (10 points) Save
To evaluate the risk and quality of an individual bond issue, savvy investors rely heavily on:
1) Bond ratings provided by financial investment services such as Moody's.
2) Newspaper articles.
3) Bond interest payments.
4) The company's audit report.
Question 7 (10 points) Save
Bonds payable should be reported as a long-term liability on the balance sheet of the issuing corporation at:
1) Face value price less any unamortized discount or plus any unamortized premium.
2) Current bond market price.
3) Face value less any unamortized premium or plus any unamortized discount.
4) Face value less accrued interest since the last interest payment date.
Question 8 (10 points) Save
For a bond issue that sells for more than the bond face amount, the effective interest rate is:
1) The rate printed on the face of the bond.
2) The Wall Street Journal prime rate.
3) More than the rate stated on the face of the bond.
4) Less than the rate stated on the face of the bond.
Question 9 (10 points) Save
An amortization schedule for a bond issued at a premium:
1) Summarizes the amortization of the premium, a contra-asset account with a credit balance.
2) Is contained in the balance sheet.
3) Is a schedule that reflects the changes in the debt over its term to maturity.
4) All of the above are correct.
Question 10 (10 points) Save
The unamortized balance of discount on bonds payable is reported on the balance sheet as:
1) A prepaid expense.
2) An expense account.
3) A current liability.
4) A contra-liability.
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