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1. The interest rate investors demand for loaning funds to a corporation is the (Points : 1) contractual interest rate.

face value rate. market interest rate. stated interest rate. 2. Premium on Bonds Payable (Points : 1) has a debit balance. is a contra account. is considered to be a reduction in the cost of borrowing. is deducted from bonds payable on the balance sheet. 3. A $500,000 bond was retired at 98 when the carrying value of the bond was $494,000. The entry to record the retirement would include a(Points : 1) gain on bond redemption of $6,000. loss on bond redemption of $4,000. loss on redemption of $6,000. gain on bond redemption of $4,000. 4. Comly Communications issues a $600,000, 10%, 20-year mortgage note on January 1. The terms provide for semiannual installment payments of $34,966, exclusive of real estate taxes and insurance. After the first installment payment, the principal balance is (Points : 1) $600,000. $582,517. $595,034. $565,034. 5. The lessee must record a lease as an asset if the lease (Points : 1) transfers ownership of the property to the lessor.

does not contain a purchase option. term is 75% or more of the economic life of the leased property. payments equal or exceed 90% of the fair market value of the leased property. 6. The debt to total assets ratio is computed by dividing (Points : 1) long-term liabilities by total assets. total debt by total assets. total assets by total debt. total assets by long-term liabilities. 7. The market price of a bond is dependent on (Points : 1) the payments amounts. the length of time until the amounts are paid. the interest rate. all of these. 8. On January 1, Cleopatra Corporation issued $2,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $2,144,192. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Interest Expense is for (Points : 1) $240,000. $251,162. $257,303. $280,000. 9. If bonds have been issued at a discount, over the life of the bonds, the (Points : 1) carrying value of the bonds will decrease. carrying value of the bonds will increase. interest expense will increase if the discount is being amortized on a

straight-line basis. unamortized discount will increase. 10. All of the following are advantages of bond financing over common stock except (Points : 1) stockholder control is not affected. tax savings. possibly higher earnings per share. higher net income. 11. Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that (Points : 1) the contractual interest rate exceeds the market interest rate. the market interest rate exceeds the contractual interest rate. the contractual interest rate and the market interest rate are the same. no relationship exists between the two rates. 12. When a company retires bonds before maturity, the gain or loss on redemption is the difference between the cash paid and the (Points : 1) carrying value of the bonds. face value of the bonds. original selling price of the bonds. maturity value of the bonds. 13. All of the following are long-term liabilities except (Points : 1) Bonds Payable. Mortgage Payable. Lease Liabilities. All of these options are long-term liabilities.

14. The renting of an apartment is an example of a(n) (Points : 1) capital lease. lease liability. operating lease. lessor lease. 15. Corn Flake Corporation reported net income of $300,000. Interest expense was $40,000 and income taxes were $100,000. The times interest earned ratio was (Points : 1) 3 times. 4.4 times. 7.5 times. 11 times. 16. The present value of a bond is also known as its (Points : 1) face value. market price. future value. deferred value. 17. The amortization of the bond premium decreases (Points : 1) interest expense only. bond carrying value only. interest paid. both interest expense and bond carrying value. 18. On January 1, Hurley Corporation issues $500,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. The entry on July 1 to record payment of bond interest and the amortization of bond discount using the straight-line method will include a (Points : 1) debit to Interest Expense $30,000.

debit to Interest Expense $60,000. credit to Discount on Bonds Payable $4,000. credit to Discount on Bonds Payable $2,000. 19. (App D) The amount of interest involved in any financing transaction is based on each of the following except the (Points : 1) interest rate. present value of 1 factor. principal. time. 20. (App D) The process of determining the present value (Points : 1) is used to estimate interest rates. is based on simple interest computations. includes estimating the probability of receiving the future amount. is referred to as discounting the future amount. 21. (App D) If the compounding period is 3 months, the annual interest rate is 12% and investment time frame is 2 years, (Points : 1) n = 6, i = 3%. n = 6, i = 4%. n = 8, i = 3%. n = 8, i = 4%. 22. (App D) A $100,000 5-year bond has a contractual rate of 10%. It pays interest semiannually. If the discount rate is 12%, the bond(Points : 1) will sell at an amount less than its face value (discount). will sell at an amount greater than face value (premium). will sell at its face value. value cannot be determined due insufficient information.

23. (App D) When the computation of interest includes both principal and any interest earned that has not been paid or withdrawn, the calculation involves (Points : 1) simple interest. discounting. compound interest. either simple or compound interest. 24. (App D) The variables needed to compute a present value include (Points : 1) the future amount, the number of periods and the discount rate. the present amount, the number of periods and the interest rate. the market price, the number of years and the risk factor. the market price, the number of years and the interest rate. 25. (App D) In computing the amount you need to invest in order to receive $2,000 at the end of two years, the present value computation assumes your investment will be made (Points : 1) at the beginning of the first year. at the end of the first year. at the end of both years one and two. some time during the first year. 26. (App D) A $50,000, 5-year note payable that pays 8% interest quarterly would be discounted back to its present value by using tables that would indicate which one of the following period and interest combinations? (Points : 1) 5 interest periods and 8% interest. 20 interest periods and 8% interest. 20 interest periods and 2% interest. 5 interest periods and 2% interest 27. (App D) If the investors required rate of return is greater than the

contractual rate for bonds which pay interest semiannually, (Points : 1) the bonds will sell at face value. the present value of the bonds will be greater than the face value of the bonds. the bonds will sell at a discount. the bonds will sell at a premium.