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101 if the market rate of interest is greater than the contractual rate of interest 4295226

 

 

101. If the market rate of interest is greater than the contractual rate of interest, bonds will sell 
A. at a premium.
B. at face value.
C. at a discount.
D. only after the stated rate of interest is increased.

 

102. The interest expense recorded on an interest payment date is increased 
A. only if the market rate of interest is less than the stated rate of interest on that date.
B. by the amortization of premium on bonds payable.
C. by the amortization of discount on bonds payable.
D. only if the bonds were sold at face value.

 

103. On January 1, 2014, $1,000,000, 5-year, 10% bonds, were issued for $980,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the semiannual amortization amount is 
A. $8,000.
B. $4,000.
C. $2,000
D. $5,000

 

104. If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount 
A. less than face value.
B. equal to the face value.
C. greater than face value.
D. that cannot be determined.

 

105. A corporation issues $100,000, 10%, 5-year bonds on January 1, 2011, for $104,200. Interest is paid semiannually on January 1 and July 1. If the corporation uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1, 2011, is 
A. $10,420.
B. $5,420.
C. $5,000.
D. $4,580.

 

106. If bonds are issued at a premium, the stated interest rate is 
A. higher than the market rate of interest.
B. lower than the market rate of interest.
C. too low to attract investors.
D. adjusted to a higher rate of interest.

 

107. The Victor Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a 
A. debit to Cash of $1,000,000.
B. credit to Discount on Bonds Payable for $40,000.
C. credit to Bonds Payable for $960,000.
D. debit to Cash for $960,000.

 

108. The Miracle Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2011, at 96. The journal entry to record the issuance will show a 
A. debit to Discount on Bonds Payable for $40,000.
B. debit to Cash of $1,000,000.
C. credit to Bonds Payable for $960,000.
D. credit to Cash for $960,000.

 

109. The Reagan Corporation issues 1,000, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 92. The journal entry to record the issuance will show a 
A. credit to Discount on Bonds Payable for $80,000.
B. debit to Cash of $1,000,000.
C. credit to Bonds Payable for $1,000,000.
D. credit to Cash for $920,000.

 

110. If bonds are issued at a discount, it means that the 
A. bondholder will receive effectively less interest than the contractual rate of interest.
B. market interest rate is lower than the contractual interest rate.
C. market interest rate is higher than the contractual interest rate.
D. financial strength of the issuer is suspect.

 

 

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