Question 1

Cole Manufacturing Corporation issued bonds with a maturity amount of $200,000 and a maturity 10 years from date of issue. If the bonds were issued at a premium, this indicates that

		The yield (effective or market) rate of interest exceeded the stated (coupon) rate
		The stated rate of interest exceeded the yield rate
		The yield and stated rates coincided
		No necessary relationship exists between the two rates

Question 2

An estimated loss from a loss contingency should be accrued when

		It is probable at the date of the financial statements that a loss has been incurred and the amount of the loss can be reasonably estimated
		The loss has been incurred by the date of the financial statements and the amount of the loss may be material
		It is probable at the date of the financial statements that a loss has been incurred and the amount of the loss may be material
		It is probable that a loss will be incurred in a future period and the amount of the loss can be reasonably estimated

Question 3

The interest rate used to calculate the cash interest payments by the issuer of bonds is

		The market rate of interest
		The effective interest rate
		The stated interest rate
		Equal to the actual interest expense rate

Question 4

Financial leverage is likely to be a good financial strategy for stockholders of companies having

		Cyclical high and low amounts of reported earnings
		Steady amounts of reported earnings
		Volatile fluctuation in reported earnings over short periods of time
		Steadily declining amounts of reported earnings

Question 5

When bonds are issued at a discount, interest expense over the term of debt equals the cash interest paid

		Minus the discount
		Minus the discount minus the par value
		Plus the discount
		Plus the discount plus the par value