3

1. The effective rate of interest is the same as the market yield.

   a.	True
   b.	False

1 points

QUESTION 4

1. If the contract rate of interest is 10 percent and the market rate of interest is 11percent, the bonds will sell at a premium.

   a.	True
   b.	False

1 points

QUESTION 5

1. The maturity value of an issue of bonds payable must be the face value of the bonds.

   a.	True
   b.	False

1 points

QUESTION 6

1. If the contract rate is higher than the market rate, the bonds will sell at discount.

   a.	True
   b.	False

1 points

QUESTION 7

1. Both stock and bond investments have established maturity dates.

   a.	True
   b.	False

1 points

QUESTION 8

1. If bonds payable are issued at a discount, subsequent changes in the market interest yield will change the amount of the discount on bonds payable account.

   a.	True
   b.	False

1 points

QUESTION 9

1. Generally accepted accounting principles allow for the amortization of a bond discount using either the straight-line method or the effective interest rate method at the corporation's choice.

   a.	True
   b.	False

1 points

QUESTION 10

1. Amortization of a bond discount allocates a portion of the bond discount to increase the interest expense of each period.

   a.	True
   b.	False

1 points

QUESTION 11

1. If the effective interest rate in the market drops after an issue of bonds has been sold, the issuing company should not amortize the remaining premium on bonds payable

   a.	True
   b.	False

1 points

QUESTION 12

1. A bond premium must be amortized which will cause an increase in the carrying value of the bond payable.

   a.	True
   b.	False

1 points

QUESTION 13

1. A callable bond is more likely to be redeemed by the issuing corporation before it matures if the market interest yield has decreased.

   a.	True
   b.	False

1 points

QUESTION 14

1. Compound interest is a repeated calculation of interest on the same principal value over a certain number of periods of time.

   a.	True
   b.	False

1 points

QUESTION 15

1. If the bonds are redeemed at a price higher than the carrying amount, a loss must be recognized.

   a.	True
   b.	False

1 points

QUESTION 16

1. The Equity method of accounting for investments in stock is used if the investor owns 20% of the stock of the investee company and is able to exercise significant influence over the investee company

   a.	True
   b.	False

1 points

QUESTION 17

1. The present value is a value today of an amount to be paid or received at a specific date in the future.

   a.	True
   b.	False

1 points

QUESTION 18

1. Investments in stock may be classified as current assets or long term investments on the balance sheet depending on management intent with the investment.

   a.	True
   b.	False

1 points

QUESTION 19

1. If you plan to invest $10,000 and want to determine how much will be accumulated in six years during which you can earn 7%per year, you would calculate the amount as a future value of an annuity.

   a.	True
   b.	False

1 points

QUESTION 20

1. A subsidiary is a separate corporation that must be 100% owned by another company.

   a.	True
   b.	False

1 points

QUESTION 21

1. Accounting for the sale of investments in stock is the same for both trading securities and available-for-sale security investments.

   a.	True
   b.	False

1 points

QUESTION 22

1. The carrying amount of a bond investment should include the cost paid for broker fees.

   a.	True
   b.	False

1 points

QUESTION 23

1. Convertible bonds may be ____.

   a.	Retired early at the option of the issuer
   b.	Retired early at the option of the investor
   c.	Converted into common stock
   d.	Called in by either the issuer or investor if market rates decline
   e.	Converted into convertible preferred stock

1 points

QUESTION 24

1. If a bond is issued at 97, the market rate of interest was ____.

   a.	Lower than the contract rate
   b.	Higher than the contract rate
   c.	Equal to the market rate
   d.	Cannot be determined from the facts given

1 points

QUESTION 25

1. Using the future value table, a student found that the future value amount of $1 for 5 years at an annual interest rate of 10% is 1.611. The student also observed that the future value of $1 for 5 years at 10% compounded semi-annually is 1.629 This means that

   a.	compounding increases the amount of interest so the future value will be lower.
   b.	compounding will cause a higher future value for the investment.
   c.	when interest is compounded semi-annually, more money must be deposited at the start to have the desired ending value.
   d.	the student was looking in the wrong column, the second amount would correctly come up lower than the 1.611.

1 points

QUESTION 26

1. The interest rate used to calculate the interest payments to be made on bonds is the:

   a.	Discount rate
   b.	Contract rate
   c.	Effective rate
   d.	Yield rate

1 points

QUESTION 27

1. If a company purchased $500,000 of bonds at 98 plus accrued interest of $2,500 and pays broker's commissions of $200, the amount debited to Investment in Bonds would be ____.

   a.	$492,700
   b.	$500,200
   c.	$490,200
   d.	$490,000

1 points

QUESTION 28

1. If a company issues $500,000, 6% bonds for $490,000, the entry will include a ____.

   a.	Debit to cash for $490,000
   b.	Credit to bonds payable for $490,000
   c.	Debit to interest expense for $10,000
   d.	Credit to discount on bonds payable for $10,000

1 points

QUESTION 29

1. If a company fails to amortize a discount on bonds payable ____.

   a.	Interest expense will be overstated
   b.	Interest expense will be understated
   c.	Liabilities will be understated
   d.	Both b and c

1 points

QUESTION 30

1. If a company issues bonds payable with a face value of $2 million, face rate of 8%, for $2,056,000, the entry will include a ____.

   a.	Debit to cash for $2,000,000
   b.	Credit to bonds payable for $2,000,000
   c.	Credit to a discount on bonds payable for $56,000
   d.	Debit to a premium on bonds payable for $56,000

1 points

QUESTION 31

1. A company called a $1,000,000, 9% bond issue at 101. If the unamortized discount is $7,000, the entry will include a ____.

   a.	Credit to gain on bond redemption for $17,000
   b.	Debit to loss on bond redemption for $17,000
   c.	Credit to gain on bond redemption for $10,000
   d.	Debit to loss on bond redemption for $7,000

1 points

QUESTION 32

1. Discount on bonds payable is usually classified in the financial statements under ____.

   a.	Current liabilities
   b.	Interest expense
   c.	Long-term liabilities
   d.	Only in the notes to the financial statements

1 points

QUESTION 33

1. If the contract rate is lower than the market rate, the bonds will sell at ____.

   a.	A discount
   b.	A premium
   c.	Face amount
   d.	Cannot be determined from facts given

1 points

QUESTION 34

1. A company issues $500,000 10% bonds due in 10 years for $480,000. The entry to record semiannual interest will include a ____.

   a.	Debit to premium on bonds payable
   b.	Debit to discount on bonds payable
   c.	Debit to interest expense for more than $25,000
   d.	Debit to interest expense for less than $25,000

1 points

QUESTION 35

1. A company issues $800,000, 10% bonds due in 15 years for $809,000, the company uses the effective interest method of amortization of the premium. The entry to record the semi-annual interest will include a ____.

   a.	Debit to premium on bonds payable for $300
   b.	Debit to interest expense for $80,000
   c.	Debit to interest expense for $40,000
   d.	Credit to cash for $40,000

1 points

QUESTION 36

1. Amortizing a premium on bonds payable ____.

   a.	Has no effect on cash flows
   b.	Increases cash flows
   c.	Decreases cash flows
   d.	Can increase or decrease cash flows depending upon interest rates

1 points

QUESTION 37

1. If a company fails to amortize a premium on bonds payable ____.

   a.	Net income and liabilities will be understated
   b.	Net income and liabilities will be overstated
   c.	Net income will be understated and liabilities will be overstated
   d.	Net income will be overstated and liabilities will be understated

1 points

QUESTION 38

1. If the carrying amount of bonds is greater than the redemption price when bonds are called, the company would record a ____.

   a.	Gain
   b.	Loss
   c.	Gain or loss depending upon interest rates
   d.	Cannot be determined from the facts given

1 points

QUESTION 39

1. To determine whether a lottery winner would be better off receiving the money in a single lump-sum immediately or receiving an equal annual payment over 20 years, you would use which time value of money calculation?

   a.	The future value of a single amount.
   b.	The present value of a single amount.
   c.	The future value of an annuity.
   d.	The present value of an annuity.

1 points

QUESTION 40

1. A method used for long-term investments in stocks where the investor has significant influence over the operating activities of the investee is called ____.

   a.	Available-for sale
   b.	Equity method
   c.	Stockholders' equity
   d.	Common stock method

1 points

QUESTION 41

1. Assume that the carrying value of Drei, Inc. stock is $25,000 when it is sold. If the proceeds of the sale are $22,000, record the journal entry for this transaction.

   a.	Loss on sale of investment3,000 Cash 22,000 Investment in Drei stock25,000
   b.	Cash25,000 Investment in Drei stock25,000
   c.	Cash22,000 Investment in Drei stock22,000
   d.	Loss on sale of investment3,000 Investment in Drei stock3,000

1 points

QUESTION 42

1. A corporation owning a majority of the voting stock of another corporation is called the ____.

   a.	Affiliate
   b.	Parent
   c.	Equity
   d.	Top corporation