PROBLEM IV

TRUE OR FALSE

$1.$ A bond is simply a form of an interest$-$bearing note.

a$.$ True

b$.$ False

$2.$ When a corporation issues bonds, it executes a contract with the bondholders, known as a bond debenture.

a$.$ True

b$.$ False

$3.$ When the market rate of interest rate is less than the contract rate for a bond, the bond will sell for a premium.

a$.$ True

b$.$ False

$4.$ Bonds are sold at face value when the contract rate is equal to the market rate of interest

a$.$ True

b$.$ False

$5.$ An equal stream of periodic payments is called an annuity.

a$.$ True

b$.$ False

$6.$ The present value of an annuity is the sum of the present values of each cash flow.

a$.$ True

b$.$ False

$7.$ The present value of $$5,000$ to be received in $4$ years at a market rate of interest of $6\%$ compounded annually is $$3,636\mathrm{.}30.$

a$.$ True

b$.$ False

$8.$ If the market rate of interest is $8\%$ and a corporation$$s bonds bear interest at $7\%,$ the bonds will sell at a premium.

a$.$ True

b$.$ False

$9.$ Interest payments on $10\%$ bonds with a face value of $$10,000$ and interest paid semiannually would be $$1,000$ every $6$ months.

a$.$ True

b$.$ False

$10.$ Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue.

a$.$ True

b$.$ False

$11.$ The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total discount or minus the total premium related to the bond.

a$.$ True

b$.$ False

$12.$ Premium on bonds payable may be amortized by the straight$-$line method if the results obtained by its use do not materially differ from the results obtained by use of the interest method.

a$.$ True

b$.$ False

$13.$ If the straight$-$line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

a$.$ True

b$.$ False

$14.$ If the straight$-$line method of amortization of discount on bonds payable is used, the amount of yearly interest expense will increase as the bonds approach maturity.

a$.$ True

b$.$ False

$15.$ There are two methods of amortizing a bond discount or premium: the straight$-$line method and the double$-$declining$-$balance method.

a$.$ True

b$.$ False

$16.$ The effective$-$interest method of amortizing a bond discount or premium is the preferred method.

a$.$ True

b$.$ False

$17.$ The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount.

a$.$ True

b$.$ False

$18.$ The amortization of a premium on bonds payable decreases bond interest expense.

a$.$ True

b$.$ False

$19.$ If the amount of a bond premium on an issued $11\%,4-$year, $$100,000$ bond is $$12,928,$ the semiannual straight$-$line amortization of the premium is $$1,416.$

a$.$ True

b$.$ False

$20.$ If the amount of a bond premium on an issued $11\%,4-$year, $$100,000$ bond is $$12,928,$ the annual interest expense is $$5,500.$

a$.$ True

b$.$ False