ACCT 2301 CHAPTER 10 LONG TERM LIABILITIES

Sample Multiple Choice Questions

1) Which of the following is not an advantage of issuing bonds instead of common stock?
a) Tax savings result b) Income to common shareholders may increase c) Earnings per
share may be lower d) Stockholder control is not affected.
2) When the market rate of interest on bonds is higher than the contract rate, the bonds
will sell at a) a premium b) their face value c) their maturity value d) a discount.
3) On January 1,2007 the Horton Corporation issued 10% bonds with a face value of
$200000. The bonds are sold for $196000. The bonds pay interest semiannually on June
30 and December 31 and maturity date is December 31 2011.Horton records straight –
line amortization of the bond discount. The bond interest expense for the year ended
December 31, 2007 is: a) $19800 b) $19200 c) $20800 d) $24000.
4) When the market rate of interest was 12%, Halprin Corporation issued 1000000, 11%,
10 year bonds that pay interest annually. The selling price of this bond issue was
a) $ 321970 b) $1000000 c) $ 943494 d) $ 621524.
5) The journal a company records for the payment of interest, interest expense, and
amortization of bond premium is a) debit interest expense, credit cash and premium on
Bonds Payable b) debit interest expense, credit cash c) debit interest expense and
premium on bonds payable, credit cash d) debit interest expense, credit interest
payable and premium on bonds payable
6) Bonds with a face amount of $ 1000000, are sold at 106. The entry to record the
issuance is:
a) Cash 1000000
Premium on Bonds Payable 60000
Bonds payable 1060000
b) Cash 1060000
Premium on Bonds Payable 60000
Bonds Payable 1000000
c) Cash 1060000
Discount on Bonds Payable 60000
Bonds Payable 1000000
d) Cash 1060000
Bonds Payable 1060000
7) Bonds Payable has a balance of $ 900000 and premium on Bonds Payable has a balance
of $10000. If the issuing corporation redeems the bonds at 103, what is the gain or loss
on redemption? a) $1200 loss b) $1200 gain c)$17000 loss d) $17000 gain
8) The Merchant company issued 10 year bonds on January 1 2009.The 15% bonds have
face value of $ 100000 and pay interest every January 1 and July 1. The bonds were sold
for $ 117205 based on the market rate of interest rate of 12%. Merchant company uses
effective interest method to amortize bond discount and premium. On July 1 2009,
Merchant should record interest expense (round to the nearest dollar) of: a) $ 7032
b)$ 7500 c)$8790 d)$14065.