5/11/2021 Ce gageNOW 2 O li e eachi g a d lea i g e ce f m Ce gage Lea i g

1. E 11-11
T e fB d

Which one of the following statements is fal e?

a. Debentures are bonds that have no underl ing assets pledged as collateral to guarantee their pa ment.

b. Companies keep a record of the names and addresses of all registered bondholders and pa interest onl to tho
file.
c. Callable bonds can be redeemed b the issuer at an time at a specified price.

d. Serial bonds mature in one single sum on a specified future date.

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Serial bonds mature in a series of installments, whereas term bonds mature in one single sum on a specified future date.

2. MC.11.46
Bonds that have a pledge of compan assets are called

a. secured bonds.

b. registered bonds.

c. debenture bonds.

d. convertible bonds.

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3. MC.11.48
High-risk bonds issued b companies in weak financial condition are called

a. Zero coupon bonds.

b. Junk bonds.

c. Coupon bonds.

d. Debenture bonds.

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4. MC.11.61
If the market rate of interest is 12 percent and a compan is issuing long-term bonds pa ing 10 percent, at what percent would those liabilities
have to be discounted, assuming semiannual compounding?

a. 12 percent

b. 5 percent

c. 6 percent

d. 10 percent

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5. MC.11.67
When bonds are first issued, the liabilit is entered in the Bonds Pa able account at the bond's

a. issuance price when that amount is greater or less than face value.

b. face value plus accrued interest.

c. face value plus an discount.

d. face value.

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6. MC.11.88
On Januar 1, 2017, $50,000 of 20- ear, 6 percent debentures were issued for $56,275.20. Interest pa ment dates on the bonds are Januar
1 and Jul 1. When using the straight-line method, the amount of premium to be amorti ed on Jul 1, 2017 is

a. $776.50.

b. $156.88.

c. $313.76.

d. $93.11.

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Total amount of premium: $56,275.20 $50,000 = $6,275.20
Semi-annual amorti ation amount: $6,275.20 40 = $156.88

7. MC.11.95
On Januar 1, 2017, Santos Hospital issued a $250,000, 10 percent, 5- ear bond for $231,601. Interest is pa able on June 30 and December
31. Santos uses the effective-interest method to amorti e all premiums and discounts. Assuming an effective interest rate of 12 percent, how
much interest expense should be recorded on June 30, 2017?

a. $13,896.06

b. $11,935.14

c. $14,729.82

d. $12,500.00

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Interest expense: $231,601 12% 0.5 = $13,896.06

8. MC.11.99
A $200,000 bond with a carr ing amount of $208,000 was called at 103 and retired. In recording the retirement, the issuing compan should

a. record a $8,000 gain.

b. record a $2,000 gain.

c. record no gain or loss.

d. record a $6,000 loss.

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Gain on bond: $208,000 ($200,000 1.03) = $2,000

9. MC.11.100
A $100,000 bond with a carr ing amount of $104,000 was called at 107 and retired. In recording the retirement, the issuing compan should

a. record a $3,000 loss.

b. record a $1,000 gain.

c. record no gain or loss.

d. record a $4,000 gain.

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Loss on bond: $104,000 ($100,000 1.07) = (3,000)

10. E 11-13
B d I ed a a Di c

Forkman Compan issued five- ear, $25,000 bonds with a stated rate of interest of 8%, compounded semiannuall . The effective interest rate
demanded b investors for bonds of this level of risk is 12%.

Use the Present value of a single sum ($1) and Present value of an annuit ($1).

Calculate the issuance price of the bond (e.g., the total present value). R d he ea e d a .
$
21320

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Semiannual interest pa ments $1,000
Present value of an annuit of 10
x 7.3601
pa ments of $1 at 6% (Table II, Appendix D)
Present value of interest pa ments $7,360
Maturit value of bonds $25,000
Present value of $1 received 10 periods
x 0.5584
in the future discounted at 6% (Table I, Appendix D)
Present value of principal amount 13,960
Issuance price of bonds (total present value) $21,320

S i

B d I ed a a Di c

Forkman Compan issued five- ear, $25,000 bonds with a stated rate of interest of 8%, compounded semiannuall . The effective
interest rate demanded b investors for bonds of this level of risk is 12%.

Use the Present value of a single sum ($1) and Present value of an annuit ($1).

Calculate the issuance price of the bond (e.g., the total present value). R d he ea e d a .

$ 21320

11. 11-8
I a ce P ice fB d

Patterson Compan issued 30- ear bonds on June 30. The face value of the bonds was $750,000. The stated interest rate on the bonds was
6%. The market rate of interest at the time of issuance was 4%. Patterson also issued another set of bonds on August 31. These bonds were
20- ear bonds and had a face value of $556,000. The stated rate of interest on these bonds was 5%. The market rate of interest at the time
these bonds were issued was 8%. Both sets of bonds pa interest semiannuall .

Use the Present value of a single sum ($1) and Present value of an annuit ($1).

Re i ed:

Calculate the issuance price of these bonds. R d fi a a e he ea e d a .

$
June 30 Bonds
1010720
$
August 31 Bonds
390935

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J ne 30 Bond :

Maturit value of the bonds $750,000

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PV discounted @ 2% for 60 periods (Table I) x 0.3048
$228,600
Interest pa ments ($750,000 x 0.03) $22,500
PV discounted @ 2% for 60 pa ments (Table II) x 34.7609
782,120
Issuance price of bonds $1,010,720

A g 31 Bond :

Maturit value of the bonds $556,000

PV discounted @ 4% for 40 periods (Table I) x 0.2083
$115,815
Interest pa ments ($556,000 x 0.025) $13,900
PV discounted @ 4% for 40 pa ments (Table II) x 19.7928
275,120
Issuance price of bonds $390,935

S i

I a ce P ice fB d

Patterson Compan issued 30- ear bonds on June 30. The face value of the bonds was $750,000. The stated interest rate on the
bonds was 6%. The market rate of interest at the time of issuance was 4%. Patterson also issued another set of bonds on August 31.
These bonds were 20- ear bonds and had a face value of $556,000. The stated rate of interest on these bonds was 5%. The market
rate of interest at the time these bonds were issued was 8%. Both sets of bonds pa interest semiannuall .

Use the Present value of a single sum ($1) and Present value of an annuit ($1).

Re i ed:

Calculate the issuance price of these bonds. R d fi a a e he ea e d a .

June 30 Bonds $ 1010720

August 31 Bonds $ 390935

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