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1) Which of the following statements is not correct?

	The bond principal is the amount due at the maturity date of the bond.
	The bond principal is used to determine the cash interest payments.
	The market rate of interest is used to determine the cash interest payments.
	The stated interest rate is used to determine the cash interest payments.

2)Eaton Company issued bonds when the stated rate of interest was 10% and the market rate was 8%. Which of the following statements is incorrect?

	The annual interest expense will increase if the effective-interest method of amortization was used.
	The bonds were issued at a premium.
	The book value of the bonds will decrease as the bond matures.
	Annual interest expense will be less than the company's annual cash payments for interest 3) On March 31, 2014, Bundy Corporation retired $10,480,000 of bonds, which have an unamortized premium of $580,000, by paying bondholders $10,290,000. How much was the gain or loss on the retirement of the bonds? $190,000 loss. $390,000 loss. $190,000 gain. $770,000 gain. 4)On January 1, 2014, a corporation issued $400,000 of 10-year, 12% bonds. The interest is payable semi-annually on June 30 and December 31. The issue price was $413,153. Assuming the effective-interest method of amortization is used, which of the following statements is incorrect? The book value of the bond will decrease as the bond reaches maturity. The market rate of interest on the sale date was less than the stated rate of interest. The interest expense will decrease as the bond reaches maturity. The amortization of the premium on bonds payable will decrease as the bond matures. 5) On January 1, 2014, Tonika Corporation issued a four-year, $11,400, 7% bond. The interest is payable annually each December 31. The issue price was $10,468 based on an 8% effective interest rate. Assuming the effective-interest amortization is used, and rounding calculations to the nearest whole dollar, which of the following journal entries correctly records the 2014 interest expense? Interest expense 837 Discount on bonds payable 39 Cash 798 Interest expense 798 Cash 798 Interest expense 956 Discount on bonds payable 158 Cash 798 Interest expense 732 Discount on bonds payable 66 Cash 798 6) On January 1, 2014, Broker Corp. issued $3,900,000 par value 8%, 8 year bonds which pay interest each December 31. If the market rate of interest was 10%, what was the issue price of the bonds? (The present value factor for $1 in 8 periods at 8% is 0.5403 and at 10% is 0.4665. The present value of an annuity of $1 factor for 8 periods at 8% is 5.7466 and at 10% is 5.3349.) $4,348,238. $3,771,546. $3,900,000. $3,483,839. 7)Skylar Corporation issued $50,000,000 of its 10% bonds at par on January 1, 2014. On December 31, 2014 the bonds were trading on the bond exchange at 102.5. Since the issue date, what has happened to the market rate of interest? The market rate increased. The market rate stayed the same. The market rate decreased. The change in the market rate can not be determined. 8)When a company needs funds to finance the expansion of its operations, which of the following is not an advantage of issuing bonds rather than issuing stock? Stockholders remain in control as bondholders cannot vote or share in the company's earnings. The dates for the interest and maturity payments are fixed. Bonds can usually be issued at a low interest rate and the proceeds can be invested to earn a higher rate. Interest expense is tax deductible but dividends are not. 9) On January 1, 2014, a corporation issued $401,900 of 10-year, 12% bonds. The interest is payable semi-annually on June 30 and December 31. The issue price was $416,953 based on a 10% effective (market) interest rate. Assuming the effective-interest method of amortization is used, what is the book value of the bond liability as of June 30, 2014 (to the nearest dollar)? $420,219. $413,687. $405,166. $401,900. 10)The annual interest rate specified within a bond indenture is called which of the following? The actual rate of interest. The market rate of interest. The stated rate of interest. The effective rate of interest.

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