1. Which of the following is used to determine the amount of interest a company issuing a bond must pay the investor?
a. Stated Interest Rate
b. Face Value
c. Market Interest Rate
d. Both a and b
2. On January 1, Doroh Enterprises issues $200,000, 10-year, 6% bonds at par value with interest payable on July 1 and January 1. The entry on July 1 to record payment of bond interest will include a:
a. debit to Interest Expense, $6,000.
b. debit to Interest Expense, $12,000.
c. credit to Cash, $12,000.
d. credit to Interest Payable, $6,000.
3. Camp Corporation issues bonds with a stated interest rate of 8%. The current market rate of interest is 10%. These bonds likely sold at:
a. par value.
b. a discount.
c. a premium.
d. none of the above.
4. If bonds with a face value of $400,000 are issued at 102, how much cash is received by the borrowing company?
5. If bonds with a face value of $100,000 are sold for $96,000, how must this $4,000 difference be accounted for?
a. It must be depreciated
b. It must be amortized over the life of the bond
c. It must be recorded as a loss on issuance
d. It must be ignored
6. What does it mean when bonds are issued at a premium?
a. The market interest rate exceeds the stated interest rate
b. The market interest rate and the stated rate are the same
c. The stated interest rate exceeds the market interest rate
d. None of the above
7. Freeman Incorporated issues 5-year bonds with a face value of $300,000 for $288,000. Using the straight-line method of amortization, how much of this discount will be amortized each payment if interest is paid semiannually?
8. If bonds with a face value of $200,000 are issued at 102, what amount is recorded in the Bonds Payable account?
9. The carrying value of a bond issued at a discount is equal to:
a. the face value less the unamortized discount.
b. the face value plus the unamortized discount.
c. the face value.
d. None of the above.