When bonds are issued at a premium and the effective interest method is used for amortization, at each interest payment date, the interest expense:

A) Increases.

B) Decreases.

C) Remains the same.

D) Is equal to the change in book value.

Answer: B

How would the carrying value of bonds payable change over time for bonds issued at a discount and for bonds issued at a premium?

A) Decrease for bonds issued at a discount and decrease for bonds issued at a premium.

B) Decrease for bonds issued at a discount and increase for bonds issued at a premium.

C) Increase for bonds issued at a discount and decrease for bonds issued at a premium.

D) Increase for bonds issued at a discount and increase for bonds issued at a premium.

Answer: C

An amortization schedule for a bond issued at a discount:

A) Has a carrying value that decreases over time.

B) Is contained in the balance sheet.

C) Is a schedule that reflects the changes in carrying value of the bond over its term to maturity.

D) All of the other answer choices are correct.

Answer: C

How would the carrying value of bonds payable change over time for bonds issued at a discount and for bonds issued at a premium?

A) Decrease for bonds issued at a discount and decrease for bonds issued at a premium.

B) Decrease for bonds issued at a discount and increase for bonds issued at a premium.

C) Increase for bonds issued at a discount and decrease for bonds issued at a premium.

D) Increase for bonds issued at a discount and increase for bonds issued at a premium.

Answer: C

The carrying value, using the effective interest method, would increase each year:

A) If the bonds were sold at a discount.

B) If the bonds were sold at a premium.

C) If the bonds were sold at either a discount or a premium.

D) The carrying value of bonds will never increase.

Answer: A

The carrying value, using the effective interest method, would decrease each year:

A) If the bonds were sold at a discount.

B) If the bonds were sold at a premium.

C) If the bonds were sold at either a discount or a premium.

D) The carrying value of bonds will never decrease.

Answer: B

When bonds are issued at a discount and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

A) Less than the interest expense.

B) Equal to the interest expense.

C) Greater than the interest expense.

D) More than if the bonds had been sold at a premium.

Answer: A

When bonds are issued at a premium, what happens to the carrying value and interest expense over the life of the bonds?

A) Carrying value and interest expense increase.

B) Carrying value and interest expense decrease.

C) Carrying value decreases and interest expense increases.

D) Carrying value increases and interest expense decreases.

Answer: B

Megginson, Inc. issued a five-year corporate bond of $300,000 with a 5% interest rate for $290,000. What effect would the bond issuance have on Megginson, Inc.'s accounting equation?

A) Increase assets and liabilities.

B) Increase and decrease assets.

C) Increase assets and stockholders' equity.

D) Increase and decrease stockholders' equity.

Answer: A

Bonds payable should be reported as a long-term liability in the balance sheet at the:

A) Face value.

B) Current bond market price.

C) Carrying value.

D) Face value less accrued interest since the last interest payment date.

Answer: C

The cash interest payment each period is calculated as the:

A) Face amount times the stated interest rate.

B) Face amount times the market interest rate.

C) Carrying value times the market interest rate.

D) Carrying value times the stated interest rate.

Answer: A

When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds?

A) Carrying value and interest expense increase.

B) Carrying value and interest expense decrease.

C) Carrying value decreases and interest expense increases.

D) Carrying value increases and interest expense decreases.

Answer: A

Which of the following is true for bonds issued at a premium?

A) The stated interest rate is less than the market interest rate.

B) The market interest rate is less than the stated interest rate.

C) The stated interest rate and the market interest rate are equal.

D) The stated interest rate and the market interest rate are unrelated.

Answer: B

Interest expense on bonds payable is calculated as the:

A) Face amount times the stated interest rate.

B) Face amount times the market interest rate.

C) Carrying value times the market interest rate.

D) Carrying value times the stated interest rate.

Answer: C

Samson Enterprises issued a ten-year, $20 million bond with a 10% interest rate for $19,500,000. The entry to record the bond issuance would have what effect on the financial statements?

A) Increase assets.

B) Increase liabilities.

C) Increase stockholders' equity.

D) Increase assets and liabilities.

Answer: D

A bond issued at a premium indicates that at the date of issue:

A) Its stated rate was lower than the prevailing market rate of interest on similar bonds.

B) Its stated rate was higher than the prevailing market rate of interest on similar bonds.

C) The bonds were issued at a price less than their face value.

D) The bonds must be non-interest bearing.

Answer: B

A bond issued at a discount indicates that at the date of issue:

A) Its stated rate was lower than the prevailing market rate of interest on similar bonds.

B) Its stated rate was higher than the prevailing market rate of interest on similar bonds.

C) The bonds were issued at a price greater than their face value.

D) The bonds must be non-interest bearing.

Answer: A

The rate quoted in the bond contract used to calculate the cash payments for interest is called the:

A) Face rate.

B) Yield rate.

C) Market rate.

D) Stated rate.

Answer: D

Which of the following is true for bonds issued at a discount?

A) The stated interest rate is greater than the market interest rate.

B) The market interest rate is greater than the stated interest rate.

C) The stated interest rate and the market interest rate are equal.

D) The stated interest rate and the market interest rate are unrelated.

Answer: B

The true interest rate used by investors to value a bond is called the:

A) Face interest rate.

B) Cash payment rate.

C) Market interest rate.

D) Stated interest rate.

Answer: C