MGMT 200 PURDUE 2026 TEST PAPER QUESTIONS AND
SOLUTIONS GRADED A+
✔✔When bonds are issued at a discount, the interest
expense for the period is the amount of cash interest
payment for the period
A. less the premium amortization for the period.
B. plus the premium amortization for the period.
C. plus the discount amortization for the period.
D. less the discount amortization for the period. - ✔✔C. Plus the discount amortization
for the period
(ask me about this if you want a better explanation cuz it's kind of hard to type out -- or
refer to lecture slides)
✔✔Issuing bonds at a discount has the effect of
decreasing interest expense below the face or
stated amount of interest.
A. True
B. False - ✔✔B. 假
(ask me about this if you want a better explanation cuz it's kind of hard to type out -- or
refer to lecture slides)
(basically know that if the bond is issued at a discount, the interest expense needs to be
greater than the cash paid so that the carrying value INCREASES to the $$$ amount of
the bonds issued)
✔✔The carrying value will increase each year:
A. If the bonds were sold at either a discount or a
premium
B. If the bonds were sold at a premium
C. If the bonds were sold at a discount
D. The carrying value of bonds will never increase - ✔✔C. If the bonds were sold at a
discount
(This makes sense; the bonds were offered at a DISCOUNT so they were offered at a
price below the $$$ amount of the bonds, so in order to reach that $$$ amount the
carrying value of the bond needs to increase with every payment in order to reach said
$$$ amount)
(Note: this is the exact OPPOSITE for premiums. They are sold at a higher amount than
the $$$ value of the bonds, so the carrying value DECREASES with every period to
return the bond to the face amount / maturity value)
,✔✔When bonds are redeemed by the issuer prior to their maturity
date, any gain or loss on the redemption, if material, is
A. amortized over the period remaining to maturity and
reported as an extraordinary item in the income
statement.
B. amortized over the period remaining to maturity and
reported as part of income from continuing operations in
the income statement.
C. reported in the income statement as non‐operating
income (loss) in the period of redemption.
D. reported in the income statement as part of operating
income in the period of redemption. - ✔✔C. Reported in the income statement as non-
operating income (loss) in the period of redemption.
✔✔Unamortized Bond Premium is subtracted from
Bonds Payable on the balance sheet.
A. True
B. False - ✔✔B. ¯\_(ツ)_/¯
Unamortized bond premium is ADDED to bonds payable on the balance sheet. This is
why the premium greater than the face value
(for example, the face value of a bond is $100,000 but the bond is issued at $105,000.
The amount of premium on the bond is $5000. This premium is ADDED to the bonds
payable (originally $100,000) in the balance sheet)
✔✔The interest expense each period is calculated
as the carrying value times the market interest
rate
A. True
B. False - ✔✔A. Yessir
Interest expense is calculated by multiplying the market interest rate with the carrying
value. Then in order to calculate the current oustanding loan balance (carrying value)
you ADD the previous carrying value to (interest expense less payment)
✔✔Bonds payable should be reported as a long‐term
liability in the balance sheet at:
A. Current bond market price
B. Carrying value
C. Face value
D. Face value less accrued interest since the last
interest payment date - ✔✔B. Carrying value
✔✔Bonds payable should be reported as a long‐term
, liability in the balance sheet at:
A. Current bond market price
B. Carrying value
C. Face value
D. Face value less accrued interest since the last
interest payment date - ✔✔C. analyst conference presentation information
✔✔Common‐size financial statement enable a financial analyst to
do?
A. Analyze and evaluate financial statements of companies
within a given industry that are the same size.
B. Determine which companies in the same industry are at
approximately the same stage of development.
C. Evaluate companies of similar size in different industries.
D. Compare the mix of assets, liabilities, capital, revenue,
and expenses within a company over time or between
companies within a given industry without respect to
relative size. - ✔✔D. Compare the mix of assets, liabilities, capital, revenue,
and expenses within a company over time or between
companies within a given industry without respect to
relative size.
(This allows for both vertical and horizontal analysis)
✔✔In a common‐size financial statement, a designation of
25 percent could not be given to
A. net revenues.
B. total current assets.
C. total long‐term debt.
D. net earnings. - ✔✔A. net revenues
Net revenues are the base percentage for everything else so this will always be 100%.
In other words, every other item is a percentage of net revenues.
✔✔When using vertical analysis, we express balance sheet
accounts as a percentage of
A. stockholders' equity.
B. cash.
C. total assets.
D. current assets. - ✔✔C. total assets
For common size FINANCIAL statements, the base amount is *net revenues*. For
common size BALANCE SHEET'S (vertical analysis) the base amount is *total assets*.
SOLUTIONS GRADED A+
✔✔When bonds are issued at a discount, the interest
expense for the period is the amount of cash interest
payment for the period
A. less the premium amortization for the period.
B. plus the premium amortization for the period.
C. plus the discount amortization for the period.
D. less the discount amortization for the period. - ✔✔C. Plus the discount amortization
for the period
(ask me about this if you want a better explanation cuz it's kind of hard to type out -- or
refer to lecture slides)
✔✔Issuing bonds at a discount has the effect of
decreasing interest expense below the face or
stated amount of interest.
A. True
B. False - ✔✔B. 假
(ask me about this if you want a better explanation cuz it's kind of hard to type out -- or
refer to lecture slides)
(basically know that if the bond is issued at a discount, the interest expense needs to be
greater than the cash paid so that the carrying value INCREASES to the $$$ amount of
the bonds issued)
✔✔The carrying value will increase each year:
A. If the bonds were sold at either a discount or a
premium
B. If the bonds were sold at a premium
C. If the bonds were sold at a discount
D. The carrying value of bonds will never increase - ✔✔C. If the bonds were sold at a
discount
(This makes sense; the bonds were offered at a DISCOUNT so they were offered at a
price below the $$$ amount of the bonds, so in order to reach that $$$ amount the
carrying value of the bond needs to increase with every payment in order to reach said
$$$ amount)
(Note: this is the exact OPPOSITE for premiums. They are sold at a higher amount than
the $$$ value of the bonds, so the carrying value DECREASES with every period to
return the bond to the face amount / maturity value)
,✔✔When bonds are redeemed by the issuer prior to their maturity
date, any gain or loss on the redemption, if material, is
A. amortized over the period remaining to maturity and
reported as an extraordinary item in the income
statement.
B. amortized over the period remaining to maturity and
reported as part of income from continuing operations in
the income statement.
C. reported in the income statement as non‐operating
income (loss) in the period of redemption.
D. reported in the income statement as part of operating
income in the period of redemption. - ✔✔C. Reported in the income statement as non-
operating income (loss) in the period of redemption.
✔✔Unamortized Bond Premium is subtracted from
Bonds Payable on the balance sheet.
A. True
B. False - ✔✔B. ¯\_(ツ)_/¯
Unamortized bond premium is ADDED to bonds payable on the balance sheet. This is
why the premium greater than the face value
(for example, the face value of a bond is $100,000 but the bond is issued at $105,000.
The amount of premium on the bond is $5000. This premium is ADDED to the bonds
payable (originally $100,000) in the balance sheet)
✔✔The interest expense each period is calculated
as the carrying value times the market interest
rate
A. True
B. False - ✔✔A. Yessir
Interest expense is calculated by multiplying the market interest rate with the carrying
value. Then in order to calculate the current oustanding loan balance (carrying value)
you ADD the previous carrying value to (interest expense less payment)
✔✔Bonds payable should be reported as a long‐term
liability in the balance sheet at:
A. Current bond market price
B. Carrying value
C. Face value
D. Face value less accrued interest since the last
interest payment date - ✔✔B. Carrying value
✔✔Bonds payable should be reported as a long‐term
, liability in the balance sheet at:
A. Current bond market price
B. Carrying value
C. Face value
D. Face value less accrued interest since the last
interest payment date - ✔✔C. analyst conference presentation information
✔✔Common‐size financial statement enable a financial analyst to
do?
A. Analyze and evaluate financial statements of companies
within a given industry that are the same size.
B. Determine which companies in the same industry are at
approximately the same stage of development.
C. Evaluate companies of similar size in different industries.
D. Compare the mix of assets, liabilities, capital, revenue,
and expenses within a company over time or between
companies within a given industry without respect to
relative size. - ✔✔D. Compare the mix of assets, liabilities, capital, revenue,
and expenses within a company over time or between
companies within a given industry without respect to
relative size.
(This allows for both vertical and horizontal analysis)
✔✔In a common‐size financial statement, a designation of
25 percent could not be given to
A. net revenues.
B. total current assets.
C. total long‐term debt.
D. net earnings. - ✔✔A. net revenues
Net revenues are the base percentage for everything else so this will always be 100%.
In other words, every other item is a percentage of net revenues.
✔✔When using vertical analysis, we express balance sheet
accounts as a percentage of
A. stockholders' equity.
B. cash.
C. total assets.
D. current assets. - ✔✔C. total assets
For common size FINANCIAL statements, the base amount is *net revenues*. For
common size BALANCE SHEET'S (vertical analysis) the base amount is *total assets*.
