Question

11. -82
Eddie Industries issues $1,500,000 of 8% bonds at 105. The amount of cash received from the sale is
$1,575,000
$1,000,000
$1,425,000
$1,080,000

12. -83
If the market rate of interest is greater than the contractual rate of interest, bonds will sell
only after the stated rate of interest is increased
at a premium
at face value
at a discount

13. -90
The Glenn Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 96. The journal entry to record
the issuance will show a
debit to Cash of $2,000,000
credit to Bonds Payable for $1,920,000
debit to Discount on Bonds Payable for $80,000
credit to Cash for $1,920,000

14. -92
Bonds with a face amount of $1,000,000 are sold at 106. The journal entry to record the issuance is

15. -58
The market interest rate related to a bond is also called the
effective interest rate
contract interest rate
straight-line rate

stated interest rate

16. TF.12-03
The financial loss that each stockholder in a corporation can incur is usually limited to the amount invested by the
stockholder.
True
False

17. TF.12-05
Double taxation is a disadvantage of a corporation because the corporation has to pay income taxes at twice the
rate applied to partnerships.
True
False

18. TF.12-09
The two main sources of stockholders' equity are investments contributed by stockholders and net income retained
in the business.
True
False

19. TF.12-11
The net increase or decrease in Retained Earnings for a period is recorded by closing entries.
True
False

20. TF.12-38
Before a stock dividend can be declared or paid, there must be sufficient cash.
True
False

Answer 1

Answer 11:-

Amount of Cash received =$1,575,000

(WN1:- Amount received=$1,500,000× 105/100=$1,575,000)

Answer 12:-

At discount because when market rate of interest is greater than the contractual rate of interest It mean we are getting less return on bond and to compensate that loss, bonds will sale on discount.

Answer 13:-

Cash A/c Dr. $1,920,000

Discount on Bonds Payable A/c Dr. $80,000

To 8% Bonds Payable A/c $2,000,000

( 8% bonds issued on discount)

(WN:- cash= 1000×2000×96/100= $1,920,000)

Answer 14:-

Cash. A/c Dr. $1,060,000

To. Bonds Payable A/c $1,000,000

To. Premium on Bonds A/c $60,000

( For Bonds issued on premium )

(WN:- cash= 1,000,000×106/100=1,060,000)

Answer 15:-

Market interest rate related to a bond is also called as Effective interest rate because the effective interest rate is the interest rate that is set by the market.

Answer 16:-

True,

Because the liability of stockholder is generally limited to the face value of stock or amount invested .

Answer 17:-