True or False

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

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

3.If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable willdecrease as the bonds approach maturity.

4.Bonds payable should be reported on the balance sheet at face value plus or minus any unamortized premium ordiscount.

5.Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400every 6 months.

6.When the corporation issuing the bonds has the right to redeem the bonds prior to the maturity, the bonds are

debenture bonds

callable bonds

unsecured bonds

convertible bonds

7.If $1,000,000 of 8% bonds are issued at 102 3/4, the amount of cash received from the sale is

$1,027,500

$972,500

$1,080,000

$1,000,000

8.If bonds are issued at a discount, it means that the

financial strength of the issuer is suspect

market interest rate is lower than the contractual interest rate

bondholder will receive effectively less interest than the contractual rate of interest

market interest rate is higher than the contractual interest rate

9.The journal entry a company records for the issuance of bonds when the contract rate and the market rate are thesame is to

debit Cash and Discount on Bonds Payable, credit Bonds Payable

debit Bonds Payable, credit Cash

debit Cash, credit Premium on Bonds Payable and Bonds Payable

debit Cash, credit Bonds Payable

10. The journal entry a company records for the payment of interest, interest expense, and amortization of bonddiscount is

debit Interest Expense and Discount on Bonds Payable, credit Cash

debit Interest Expense, credit Cash

debit Interest Expense, credit Cash and Discount on Bonds Payable

debit Interest Expense, credit Interest Payable and Discount on Bonds Payable