Question

17) Ordinarily, the proceeds from the sale of a bond issue will be

A) The face amount of the bond. B) The total of the face amount plus all interest payments C) The present value of the face amount plus the present value payments D) The face amount of the bond plus the equal to: present value of the stream of interest payments.

 

18) A S500,000 bond issue sold at 98. Therefore, the bonds:

A) Sold at a discount because the B) Sold for the $500,000 face amount less $10,000 of accrued interest C) Sold at a premium because the stated rate of interest D) Sold at a discount because the effective stated rate of interest was lower than the effective rate. was higher than the yield rate. interest rate was lower than the face rate

 

19) When bonds are sold at a premium and the effective interest method is used, at each interest payment date, the interest expense:

A) Remains constant B) Is equal to the change in book value. C) Increases. D) Decreases.

 

20) On January 1, 2018, Legion Company sold $200,000 of 10% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $177,000, priced to yield 12%. Legion records interest at the effective rate. Legion should pay cash interest for the six months ended June 30, 2018, in the amount of

A) $8,850 B) $10,000. C) $10,620. D) $12,000.

 

21 ) A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is 1 1%. These bonds will sell at a price that is:

A) Equal to $500,000 B) More than $500,000. C) Less than $500,000. D) The answer cannot be determined from the information provided.

 

22) A bond is issued with a face amount of $500,000 anda stated interest rate of 10%. The current market rate of interest is 8%. These bonds will sell at a price that is

A) Equal to $500,000. B) More than $500,000. C) Less than $500,000. D) The answer cannot be determined from the information provided.

Answer 1