Both callable and noncallable bonds can be purchased by the issuing corporation in the open market.

True

False

When a bond is purchased for an investment, the purchase price, minus the brokerage commission, plus any accrued interest is recorded.

True

False

When the effective interest rate method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

True

False

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

a. debit Cash, credit Bonds Payable

b. debit Cash, credit Premium on Bonds Payable and Bonds Payable

c. debit Cash and Discount on Bonds Payable, credit Bonds Payable

d. debit Bonds Payable, credit Cash

Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-terminvestment.Subsequently,Worton Corporation reported net income and declared and paid cash dividends.What journal entry would Blanton Corporation use to record the dividends it receives from Worton Corporation?

a. debit Cash; credit Investment in Worton Corporation Stock

b. debit Investment in Worton Corporation Stock; credit Cash

c. debit Cash; credit Dividend Revenue

d. debit Investment in Worton Corporation Stock; credit Income of Worton Corporation

Changes in the value of available-for-sale securities

a. are not recognized

b. are recognized on the income statement

c. are recognized on the income statement and as part of stockholders' equity

d. are reported as part of stockholders' equity

The adjusting entry to record the amortization of a discount on bonds payable is

a. debit Discount on Bonds Payable, credit Interest Expense

b. debit Interest Expense, credit Cash

c. debit Interest Expense, credit Discount on Bonds Payable

d. debit Bonds Payable, credit Interest Expense

The effective interest rate method produces a constant dollar amount of interest expense to be reported each interest period.

True

False

Alan Company purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500.Alan later sold $250,000 of bonds at 97.The journal entry forthe purchase would include a

a. debit to Interest Receivable for $4,500

b. credit to Interest Receivable for $4,500

c. credit to Interest Revenue for $4,500

d. debit to Interest Revenue for $4,500

Franklin Corporation issues $50,000, 10%, 5-year bonds on January 1, for $52,100. Interest is paid semiannually on January 1 and July 1. If Franklin uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is

a. $10,290

b. $2,710

c. $2,500

d. $2,290

The journal entry a company records for the issuance of bonds when the contract rate is greater than the market rate would be

a. debit Cash, credit Premium on Bonds Payable and Bonds Payable

b. debit Bonds Payable, credit Cash

c. debit Cash and Discount on Bonds Payable, credit Bonds Payable

d. debit Cash, credit Bonds Payable

The market rate of interest is affected by a variety of factors, including investors' assessment of current economic conditions.

True

False

An equal stream of periodic payments is called an annuity.

True

False

The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.

True

False

Which of the following stock investments should be accounted for using the cost method?

a. investments of less than 20%

b. investments between 20% and 50%

c. all stock investments should be accounted for using the cost method

d. investments of less than 20% and investments between 20% and 50%