MGMT 200 Chapter 9 Exam Questions
with Correct Answers
ABC Company is in the process of issuing bonds. The bonds have a stated interest rate
of 6%, which is 2% above the current market rate. What effect will the two interest rates
have on the bond issue price?
a. The issue price will be above the bond's face value.
b. The issue price will be below the bond's face value.
c. The issue price will equal the bond's face value. - Answer-a
Omar Inc. has 6%, $200,000 face amount bonds outstanding. The bonds were issued at
a discount. At the end of the current fiscal period, unamortized bond discount is $4,500.
The total bond-related liability reported on Omar's balance sheet should be:
a. $4,500
b. $195,500
c. $204,500
d. $200,000 - Answer-b
The Discount on Bonds Payable account is classified as a(n)
a. asset.
b. loss.
c. expense.
d. contra-liability. - Answer-d
When a corporation repurchases its bonds from the bondholders, the corporation
________ the bonds. - Answer-retired
On January 1, Year 1, Liang Corporation issues a $100,000 bond at a discount for
$95,083. The coupon rate is 10% and the market interest rate is 12%. The bonds pay
interest semiannually on June 30 and December 31. The journal entry to record the
interest payment on June 30, Year 1 will include which of the following entries?
a. Debit interest expense $5,705
b. Credit discount on bonds payable $705
c. Credit cash $6,000
d. Debit interest expense $6,000
e. Credit cash $5,000 - Answer-a, b, e
The carrying value at maturity is equal to the face amount of bonds issued at:
a. discount and premium only
b. face amount only
c. face amount and discount only
, d. face amount, discount, and premium
e. face amount and premium only - Answer-d
Bonds will be issued a premium if the stated interest rate is
a. greater than the market interest rate.
b. fluctuating on the day of issuance.
c. less than the market interest rate.
d. equal to the market interest rate. - Answer-a
Neumann Corporation is planning to issues bonds with a face amount of $2 million. If
Neumann's accountant, Betty, wants to calculate the expected issue she should
calculate the ____ of the related future cash payments using the ____ interest rate.
a. future value; stated
b. present value; stated
c. present value; market
d. future value; market - Answer-c
On January 2, 2018, Meister Company issues $200,000 of 6% bonds. Interest of $6,000
is payable semiannually on June 30 and December 31. The bonds mature in 5 years.
The bonds were issued at face amount. On the date of issue, Meister should recognize
a liability of
a. $260,000.
b. $200,000.
c. $212,000. - Answer-b
Which of the following statements is correct?
a. Bonds can be retired only at maturity.
b. Bonds may be retired at maturity or retired early.
c. Bonds for which the effective interest rate rises must be retired early. - Answer-b
Identify the characteristics of an annuity.
a. A series of amounts that vary from period to period
b. Varying time periods between payment dates
c. Equal time periods between payment dates
d. A series of amounts that are equal - Answer-c, d
Regardless of whether bonds are issued at face amount, a discount, or a premium, their
carrying value is equal to face amount at the ________ date. - Answer-maturity
On January 1, year 1, Ziegler issued 5-year bonds with a stated rate of 8% and a face
amount of $100,000. The bonds pay interest semiannually. The market rate of interest
was 10%. Calculate the issue price of the bonds. Round your answer to the nearest
dollar.
a. $92,278
b. $92,418
c. $100,196
with Correct Answers
ABC Company is in the process of issuing bonds. The bonds have a stated interest rate
of 6%, which is 2% above the current market rate. What effect will the two interest rates
have on the bond issue price?
a. The issue price will be above the bond's face value.
b. The issue price will be below the bond's face value.
c. The issue price will equal the bond's face value. - Answer-a
Omar Inc. has 6%, $200,000 face amount bonds outstanding. The bonds were issued at
a discount. At the end of the current fiscal period, unamortized bond discount is $4,500.
The total bond-related liability reported on Omar's balance sheet should be:
a. $4,500
b. $195,500
c. $204,500
d. $200,000 - Answer-b
The Discount on Bonds Payable account is classified as a(n)
a. asset.
b. loss.
c. expense.
d. contra-liability. - Answer-d
When a corporation repurchases its bonds from the bondholders, the corporation
________ the bonds. - Answer-retired
On January 1, Year 1, Liang Corporation issues a $100,000 bond at a discount for
$95,083. The coupon rate is 10% and the market interest rate is 12%. The bonds pay
interest semiannually on June 30 and December 31. The journal entry to record the
interest payment on June 30, Year 1 will include which of the following entries?
a. Debit interest expense $5,705
b. Credit discount on bonds payable $705
c. Credit cash $6,000
d. Debit interest expense $6,000
e. Credit cash $5,000 - Answer-a, b, e
The carrying value at maturity is equal to the face amount of bonds issued at:
a. discount and premium only
b. face amount only
c. face amount and discount only
, d. face amount, discount, and premium
e. face amount and premium only - Answer-d
Bonds will be issued a premium if the stated interest rate is
a. greater than the market interest rate.
b. fluctuating on the day of issuance.
c. less than the market interest rate.
d. equal to the market interest rate. - Answer-a
Neumann Corporation is planning to issues bonds with a face amount of $2 million. If
Neumann's accountant, Betty, wants to calculate the expected issue she should
calculate the ____ of the related future cash payments using the ____ interest rate.
a. future value; stated
b. present value; stated
c. present value; market
d. future value; market - Answer-c
On January 2, 2018, Meister Company issues $200,000 of 6% bonds. Interest of $6,000
is payable semiannually on June 30 and December 31. The bonds mature in 5 years.
The bonds were issued at face amount. On the date of issue, Meister should recognize
a liability of
a. $260,000.
b. $200,000.
c. $212,000. - Answer-b
Which of the following statements is correct?
a. Bonds can be retired only at maturity.
b. Bonds may be retired at maturity or retired early.
c. Bonds for which the effective interest rate rises must be retired early. - Answer-b
Identify the characteristics of an annuity.
a. A series of amounts that vary from period to period
b. Varying time periods between payment dates
c. Equal time periods between payment dates
d. A series of amounts that are equal - Answer-c, d
Regardless of whether bonds are issued at face amount, a discount, or a premium, their
carrying value is equal to face amount at the ________ date. - Answer-maturity
On January 1, year 1, Ziegler issued 5-year bonds with a stated rate of 8% and a face
amount of $100,000. The bonds pay interest semiannually. The market rate of interest
was 10%. Calculate the issue price of the bonds. Round your answer to the nearest
dollar.
a. $92,278
b. $92,418
c. $100,196
