1) Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as: A) Sinking fund bonds. B) Serial bonds. C) Junk bonds. D) Convertible bonds. Callable bonds. 2) A disadvantage of bond financing is: A) Interest on bonds is tax deductible. B) Bonds do not affect owners' control. C) It allows firms to trade on the equity. Bonds pay periodic interest and the repayment of par value at maturity. E) Bonds can increase return on equity. 3) Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as: A) Registered bonds. B) Sinking fund bonds. C) Serial bonds. D) Callable bonds. E) Bearer bonds. 4) Which of the following statements is true? A) Dividends to stockholders are tax deductible. B) Interest on bonds is tax deductible. C) Bonds do not have to be repaid. D) Bonds always increase return on equity. E) Interest on bonds is not tax deductible. 5) An advantage of bonds is: A) Bonds can decrease return on equity. B) Bonds do not affect owner control. C) Bonds require payment of periodic interest. D) Bonds require payment of par value at maturity. 1) 3) E) Bond payments can be burdensome when income and cash flow are low. 6) On January 1, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as: A) Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000. B) Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000. 5)