Accounting Midterm Exam ACG-2011: Question 83

A bond sells at a discount when the:

	Contract rate is below the market rate.
	Bond has a short-term life.
	Bond pays interest only once a year.
	Contract rate is above the market rate.
	Contract rate is equal to the market rate.

Accounting Midterm Exam ACG-2011: Question 82

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

	Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.
	Debit Notes Payable $11,250; credit Cash $11,250.
	Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.
	Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.
	Debit Notes Payable $32,136; credit Cash $32,136.

Interest expense = $125,000 x 9% = $11,250
Principal reduction = $32,136 - $11,250 = $20,886

Accounting Midterm Exam ACG-2011: Question 81

Bonds can be issued:

	At par.
	At a premium.
	At a discount.
	Between interest payment dates.
	All of these.

Accounting Midterm Exam ACG-2011: Question 77

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137.13. The present value of the note is (closest to):

	$94,013.13.
	$197,810.00.
	$75,137.13.
	$375,137.13.
	$300,000.00.

$75,137.13 x 3.9927 = $300,000

Accounting Midterm Exam ACG-2011: Question 76

Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called:

	Callable bonds.
	Coupon bonds.
	Serial bonds.
	Convertible bonds.
	Registered bonds.

Accounting Midterm Exam ACG-2011: Question 74

Secured bonds:

	Have specific assets of the issuing company pledged as collateral.
	Are backed by the issuer's bank.
	Are subordinated to those of other unsecured liabilities.
	Are called debentures.
	Are the same as sinking fund bonds.

Accounting Midterm Exam ACG-2011: Question 73

All of the following statements regarding leases are True except:

	Capital leases do not transfer ownership of the asset under the lease, but operating leases often do.
	Capital leases create a long-term liability on the balance sheet, but operating leases do not.
	For a capital lease the lessee depreciates the asset acquired under the lease, but for an operating lease the lessee does not.
	For a capital lease the lessee records the leased item as its own asset.
	For an operating lease the lessee reports the lease payments as rental expense.