1. The contractual rate of interest is usually stated as a(n)Answer
  2. monthly rate.
    daily rate.
    semiannual rate.
    annual rate.

4 points

Question 2

  1. A bond with a face value of $100,000 and a quoted price of 97 has a selling price of

    Answer

    $97,250.
    $97,025.
    $97,002.
    $97,500.

4 points

Question 3

  1. The contractual interest rate on a bond is often referred to as the:

    Answer

    Callable rate.
    the maturity rate.
    market rate.
    stated rate.

4 points

Question 4

  1. If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at:

    Answer

    A premium.
    A discount.
    Par.
    Both a and b correct.

4 points

Question 5

  1. If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount

    Answer

    less than face value.
    equal to face value.
    greater than face value.
    that cannot be determined.

4 points

Question 6

  1. If bonds are issued at a premium, the stated interest rate is

    Answer

    higher than the market rate of interest.
    lower than the market rate of interest.
    too low to attract investors.
    adjusted to a higher rate of interest.

4 points

Question 7

  1. Gomez Corporation issues $500,000 10-year, 8% bonds dated January 1, 2010, at 96. The journal entry to record the issuance will show a

    Answer

    debit to Cash of $500,000.
    credit to Discount on Bonds Payable for $20,000.
    debit to Bonds Payable for $480,000.
    debit to Cash for $480,000.

4 points

Question 8

  1. Molina Corporation issues 2,000, 10-year, 8%, $1,000 bonds dated January 1, 2010, at 103. The journal entry to record the issuance will show a

    Answer

    debit to Cash of $2,000,000.
    debit to Premium on Bonds Payable for $60,000.
    credit to Bonds Payable for $2,060,000.
    credit to Cash for $2,060,000.

    Short answer – fill in the blanks below.
    On December 31, 2005, Hanks Service Co. issued $300,000 face value, 9%, 5-year bonds for cash of $ 288,417, a price that yields 10%. Interest is to be paid annually.

    Compute the amount of interest Hanks Co. will pay to bondholders each year during the term of the bonds. ______________

    On January 2,1998, Lang Co. had issued $100,000 of 12% bonds to yield 10%. On January 2, 2000, the Premium on Bonds Payable account had a balance of $8,000. This account shows the unamortized amount of the premium.

    Determine the carrying value of the bonds 1/2/2000. ______________

    Determine the amount paid to bondholders at the maturity date of the bonds, January 2, 2008. ________________

    Please note – be sure to provide both amounts in your answer.