Long Term Liabilities

TRUE $/$ FALSE

$1.$ A corporation is obligated to make periodic interest payments on a bond and also to repay the bond's principal amount at the maturity date of the bond. True or False

$2.$ The interest expense paid on bonds lowers corporate net income, while dividends paid on stocks have no effect on net income. True or False

$3.$ A $$1,000$ face value bond selling at $104$ would cost $$1,000\mathrm{.}40$ in the bond market. True or False

$4.$ A bond that sells above its face value is said to sell at a discount. True or False

$5.$ If the stated rate of interest is $10\%$ and the market rate of interest is $8\%,$ the bonds will most likely sell at a premium. True or False

MULTIPLE CHOICE

$6.$ Bonds that mature periodically over a number of years are referred to as

a$.$ secured bonds.

b$.$ term bonds.

c$.$ serial bonds

d$.$ mortgage trust bonds.

$7.$ A corporation issues $$150,000$ of $10\%,10-$year bonds at $101.$ The initial journal entry would require a

a$.$ debit to the Cash account for $$150,000.$

b$.$ debit to the Discount on Bonds Payable account for $$1,500.$

c$.$ credit to the Premium on Bonds Payable account for $$1,500.$

d$.$ credit to the Bonds Payable account for $$151,500.$

$8.$ A corporation issues $$500,000$ of $5\%,20-$year bonds at $103.$ The initial journal entry would require a

a$.$ credit to the Cash account for $$485,000.$

b$.$ credit to the Cash account for $$515,000.$

c$.$ debit to the Cash account for $$515,000.$

d$.$ debit to the Cash account for $$485,000.$

$9.$ A corporation issues $$100,000$ of $10\%,20-$year bonds at $103$ on January $1,20$X$1,$ with interest payable each December $31.$ The entry to record payment of interest on December $31,20$X$1,$ requires a

a$.$ credit to the Cash account for $$9,700.$

b$.$ credit to the Cash account for $$10,300.$

c$.$ credit to the Cash account for $$10,000$

d$..$ debit to the Cash account for $$9,700.$

$10.$ On a corporate balance sheet, the balance in the Premium on Bonds Payable account is

a$.$ deducted from the Bonds Payable account to determine the carrying value of the bonds.

b$.$ shown as part of stockholders$$ equity.

c$.$ shown as a current asset.

d$.$ added to the Bonds Payable account to determine the carrying value of the bonds