PROBLEMIV

TRUE OR FALSE

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

a$.$ True

b$.$ False

When a corporation issues bonds, it executes a contract with the bondholders,

known as a bond debenture.

a$.$ True

b$.$ False

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

Bonds are sold at face value when the contract rate is equal to the market rate of

interest

a$.$ True

b$.$ False

An equal stream of periodic payments is called an annuity.

a$.$ True

b$.$ False

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

a$.$ True

b$.$ False

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

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

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

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

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

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

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