Cox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%.
Cox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%.
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| 1. |
One step in calculating the issue price of the bonds is to multiply the principal by the table value for |
|
A) |
10 periods and 10% from the present value of 1 table. |
|
B) |
20 periods and 5% from the present value of 1 table. |
|
C) |
10 periods and 8% from the present value of 1 table. |
|
D) |
20 periods and 4% from the present value of 1 table. |
| 2. |
Another step in calculating the issue price of the bonds is to |
|
A) |
multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table. |
|
B) |
multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table. |
|
C) |
multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table. |
|
D) |
none of these. |
| 3. |
Stone Inc. issued bonds with a maturity amount of $200000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that |
|
A) |
the effective yield or market rate of interest exceeded the stated (nominal) rate. |
|
B) |
the nominal rate of interest exceeded the market rate. |
|
C) |
the market and nominal rates coincided. |
|
D) |
no necessary relationship exists between the two rates. |
Use the following to answer questions 4-6:
On January 1, 2007, Bleeker Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
| Present value of 1 for 8 periods at 6% |
|
.627 |
| Present value of 1 for 8 periods at 8% |
|
.540 |
| Present value of 1 for 16 periods at 3% |
|
.623 |
| Present value of 1 for 16 periods at 4% |
|
.534 |
| Present value of annuity for 8 periods at 6% |
|
6.210 |
| Present value of annuity for 8 periods at 8% |
|
5.747 |
| Present value of annuity for 16 periods at 3% |
|
12.561 |
| Present value of annuity for 16 periods at 4% |
|
|
11.652 |
|
|
|
|
|
| 4. |
The present value of the principal is |
|
A) |
$534,000. |
|
B) |
$540,000. |
|
C) |
$623,000. |
|
D) |
$627,000. |
| 5. |
The present value of the interest is |
|
A) |
$344,820. |
|
B) |
$349,560. |
|
C) |
$372,600. |
|
D) |
$376,830. |
| 6. |
The issue price of the bonds is |
|
A) |
$883,560. |
|
B) |
$884,820. |
|
C) |
$889,560. |
|
D) |
$999,600. |
| 7. |
Amstop Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2007 at 97 plus accrued interest. The bonds are dated January 1, 2007, and pay interest on June 30 and December 31. What is the total cash received on the issue date? |
|
A) |
$19,400,000 |
|
B) |
$20,450,000 |
|
C) |
$19,700,000 |
|
D) |
$19,100,000 |
| 8. |
A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. Using effective-interest amortization, how much interest expense will be recognized in 2007? |
|
A) |
$780,000 |
|
B) |
$1,560,000 |
|
C) |
$1,568,498 |
|
D) |
$1,568,332 |
| 9. |
The December 31, 2006, balance sheet of Eddy Corporation includes the following items:
| 9% bonds payable due December 31, 2015 |
$1,000,000 |
| Unamortized premium on bonds payable |
27,000 |
The bonds were issued on December 31, 2005, at 103, with interest payable on July 1 and December 31 of each year. Eddy uses straight-line amortization. On March 1, 2007, Eddy retired $400,000 of these bonds at 98 plus accrued interest. What should Eddy record as a gain on retirement of these bonds? Ignore taxes. |
|
A) |
$18,800. |
|
B) |
$10,800. |
|
C) |
$18,600. |
|
D) |
$20,000. |
| 10. |
On January 1, 2001, Gonzalez Corporation issued $4,500,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Gonzalez at 105. Gonzalez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).
On December 31, 2007, when the fair market value of the bonds was 96, Gonzalez repurchased $1,000,000 of the bonds in the open market at 96. Gonzalez has recorded interest and amortization for 2007. Ignoring income taxes and assuming that the gain is material, Gonzalez should report this reacquisition as |
|
A) |
a loss of $49,000. |
|
B) |
a gain of $49,000. |
|
C) |
a loss of $61,000. |
|
D) |
a gain of $61,000. |
Use the following to answer questions 11-12:
Presented below is information related to Edis Corporation:
| Common Stock, $1 par |
$4,300,000 |
| Paid-in Capital in Excess of Par—Common Stock |
550,000 |
| Preferred 8 1/2% Stock, $50 par |
2,000,000 |
| Paid-in Capital in Excess of Par—Preferred Stock |
400,000 |
| Retained Earnings |
1,500,000 |
| Treasury Common Stock (at cost) |
150,000 |
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