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B. MULTIPLE CHOICE: Write the letter of the best answer in the space provided. 1. When the market rate of interest on bonds is higher
| B. MULTIPLE CHOICE: Write the letter of the best answer in the space provided. | |||||||||
| 1. When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at: | |||||||||
| a. A discount. | c. their face value. | ||||||||
| b. A premium. | d. their maturity value. | ||||||||
| 2. When the contract rate of interest on bonds is higher than the market rate, the bonds will sell at: | |||||||||
| a. A discount. | c. their face value. | ||||||||
| b. A premium. | d. their maturity value. | ||||||||
| 3. The interest rate specified in the bond indenture is called the | |||||||||
| a. Market rate. | c. discount rate. | ||||||||
| b. Contract rate. | d. effective rate. | ||||||||
| 4. The estimated worth in the future of an amount of cash on hand today invested at a fixed rate | |||||||||
| of interest is called the: | |||||||||
| a. Loan value. | c. present value. | ||||||||
| b. cash value. | d. future value. | ||||||||
| 5. The excess of the face amount of bonds over their issue price is called a: | |||||||||
| a. Premium. | c. discount. | ||||||||
| b. loan. | d. carrying amount | ||||||||
| 6. The excess of the issue price of bonds over their face amount is called a: | |||||||||
| a. Premium. | c. discount. | ||||||||
| b. loan. | d. carrying amount | ||||||||
| 7. If the bonds payable account has a balance of $500,000 and the discount on bonds payable | |||||||||
| account has a balance of $40,000, what is the carrying amount of the bonds. | |||||||||
| a. $460,000 | c. $540,000 | ||||||||
| b. $500,000 | d. $580,000 | ||||||||
| 8. If a corporation plans to issue $1,000,000 of 12% bonds at a time when the market rate for | |||||||||
| similar bonds is 10%, the bonds can be expected to sell at: | |||||||||
| a. Their face amount. | c. A discount. | ||||||||
| b. A premium. | d. A price below their face amount. | ||||||||
| 9. If a firm purchases $100,000 of bonds of X Company at 101 plus accrued interest of $2,000 and | |||||||||
| pays broker's commissions of $50, the amount debited to Investment in X Company Bonds would | |||||||||
| be: | |||||||||
| a. $100,000 | c. $103,000 | ||||||||
| b. $101,050 | d. $103,050 | ||||||||
| 10. The amortization of discount on bonds purchased as a long-term investment: | |||||||||
| a. decreases the amount of interest expense | |||||||||
| b. increases the amount of the investment account | |||||||||
| c. decreases the amount of the investment account | |||||||||
| d. increases the amount of interest expense | |||||||||
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Internal Auditing Assurance And Advisory Services
Authors: Kurt R. Reding, Paul J. Sobel, Urton L. Anderson, Michael J. Head, Sridhar Ramamoorti, Mark Salamasick, Cris Riddle
3rd Edition
0894137409, 978-0894137402
