Name: _______________________________
1. An example of an item which is not a liability is
a. dividends payable in stock.
b. advances from customers on contracts.
c. accrued estimated warranty costs.
d. the portion of long-term debt due within one year.
2. The covenants and other terms of the agreement between the issuer of bonds and the lender are set
forth in the
a. bond indenture.
b. bond debenture.
c. registered bond.
d. bond coupon.
3. The term used for bonds that are unsecured as to principal is
a. junk bonds.
b. debenture bonds.
c. indebenture bonds.
d. callable bonds.
4. Bonds for which the owners' names are not registered with the issuing corporation are called
a. bearer bonds.
b. term bonds.
c. debenture bonds.
d. secured bonds.
5. If bonds are issued initially at a premium and the effective-interest method of amortization is used,
interest expense in the earlier years will be
a. greater than if the straight-line method were used.
b. greater than the amount of the interest payments.
c the same as if the straight-line method were used.
d. less than if the straight-line method were used.
6. The interest rate written in the terms of the bond indenture is known as the
a. coupon rate.
b. nominal rate.
c. stated rate.
d. coupon rate, nominal rate, or stated rate.
7. The rate of interest actually earned by bondholders is called the
a. stated rate.
b. yield rate.
c. effective rate.
d. effective, yield, or market rate.
8. Under the effective-interest method of bond discount or premium amortization, the periodic interest
expense is equal to
a. the stated (nominal) rate of interest multiplied by the face value of the bonds.
b. the market rate of interest multiplied by the face value of the bonds.
c. the stated rate multiplied by the beginning-of-period carrying amount of the bonds.
d. the market rate multiplied by the beginning-of-period carrying amount of the bonds.
9. On July 1, 2011, Noble, Inc. issued 9% bonds in the face amount of $10,000,000, which
mature on July 1, 2017. The bonds were issued for $9,390,000 to yield 10%, resulting in a bond
discount of $610,000. Noble uses the effective-interest method of amortizing bond discount.
Interest is payable annually on June 30. At June 30, 2013, Noble's unamortized bond discount
should be
a.
b.
c.
d.
$528,100.
$510,000.
$488,000.
$430,000.
10.
On January 1, 2012, Huff Co. sold $3,000,000 of its 10% bonds for $2,655,888 to yield
12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report
as interest expense for the six months ended June 30, 2012?
a. $132,798
b. $150,000
c. $159,353
d. $180,000