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Bonds Payable (Quiz)

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For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions press or click on the blank space provided.

If you have difficulty answering the following questions, learn more about this topic by reading our Bonds Payable (Explanation).


  1. 1.

    The expected balance in the account Bonds Payable.

    Debit
    Wrong.
    Credit
    Right!
  2. 2.

    The expected balance in the account containing the amount of the unamortized bond discount.

    Debit
    Right!
    Credit
    Wrong.
  3. 3.

    The expected balance in the account containing the amount of the unamortized bond premium.

    Debit
    Wrong.
    Credit
    Right!
  4. 4.

    The amortization of the bond __________ will result in the issuer's interest expense being greater than the interest payments.

    Discount
    Right!
    Premium
    Wrong.
  5. 5.

    The amortization of the bond __________ will result in less interest expense than the amount of the interest payments.

    Discount
    Wrong.
    Premium
    Right!
  6. 6.

    The book value or carrying value of a bond issued at a discount will __________ as the discount is amortized.

    Decrease
    Wrong.
    Increase
    Right!
  7. 7.

    If a 9% bond is selling at 104 plus accrued interest, the bond's effective interest rate will be __________ than 9%.

    Less
    Right!
    More
    Wrong.
  8. 8.

    When the bond market's interest rates increase, the market value of an existing bond will __________.

    Decrease
    Right!
    Increase
    Wrong.
  9. 9.

    When a bond is issued between interest payment dates, the issuer of the bond will receive an interest payment from the buyer at the time that the bonds are issued.

    True
    Right!
    False
    Wrong.
  10. 10.

    It is common for a bond to pay a fixed amount of interest in each of the years of the bond's life.

    True
    Right!
    False
    Wrong.
  11. 11.

    A bond's yield-to-maturity is likely to be similar to the bond's __________ interest rate.

    Market
    Right!
    Nominal
    Wrong.
    Stated
    Wrong.
  12. 12.

    Which of the following interest rates is different?

    Effective
    Right!
    Face
    Wrong.
    Nominal
    Wrong.
    Stated
    Wrong.
  13. 13.

    Which amortization method will result in each year's bond interest expense increasing as a bond's carrying value is increasing.

    Effective Interest Rate
    Right!
    Straight-line
    Wrong.
  14. 14.

    Under the effective interest rate method of amortizing bond discount or premium, the interest expense for the period is the result of multiplying the__________ interest rate at the time the bond was issued times the bond's carrying value at the beginning of the current period.

    Contractual
    Wrong.
    Coupon
    Wrong.
    Market
    Right!
  15. 15.

    A bond's maturity value is more likely to be its __________.

    Issue Price
    Wrong.
    Par Amount
    Right!
  16. 16. A 12% $100,000 bond is dated January 1, 2016 and pays interest each June 30 and December 31. The bond is issued at par on March 1, 2016. The issuer will debit Cash for $
    __________
    $102,000.
    $100,000 X 100% = $100,000 + $2,000 of accrued interest. Accrued interest is $100,000 X 12% X 2/12 = $2,000.
    on March 1, 2016. The account Bonds Payable will be credited for $
    __________
    $100,000.
    (Par, maturity, face amount)
    . The account Interest Payable will be credited for $
    __________
    $2,000.
    The accrued interest of $100,000 X 12% X 2/12 = $2,000.
    .
  17. 17. An 8% $100,000 bond is dated January 1, 2016 and is issued on January 1, 2016 for 104. The issuer will debit Cash for $
    __________
    $104,000.
    $100,000 X 104% = $104,000 + $0 accrued interest.
    . The accounts that will be credited are Bonds Payable for $
    __________
    $100,000.
    (Par, maturity, face amount)
    , and
    __________
    Premium on Bonds Payable or Bond Premium
    for $
    __________
    $4,000.
    $100,000 X 104% = $104,000 minus $100,000 of face = $4,000 of bond premium. Or, 4% premium X $100,000 = $4,000.
    .
  18. 18. A 10% $100,000 bond is dated January 1, 2016 and is issued on January 1, 2016 for 105. The bond pays interest each June 30 and December 31 until the bond matures on December 31, 2025. The amount of interest that will be paid to the bondholders in the year 2016 is $
    __________
    $10,000.
    $100,000 X 10% = $10,000.
    . If the issuer uses the straight-line method of amortizing any discount or premium, the interest expense to be reported on the issuer's income statement for the calendar year 2016 is $
    __________
    $9,500.
    $10,000 of interest payments minus $500 of amortization of premium (5% premium X $100,000 = $5,000 of total bond premium divided by the bond's life of 10 years = $500).
    .
  19. 19. A 7% $100,000 bond was dated January 1, 2016 and was issued on January 1, 2016 at a price of 96. The bond's market or effective interest rate is 8% per year. The bond pays interest on each June 30 and December 31. Under the effective interest rate method of amortizing the amount of interest expense for the six-month period of January 1 through June 30, 2016 the interest rate of
    __________
    4%.
    Market interest rate of 8% per year divided by 2 six-month periods per year = 4% per semiannual period.
    % will be multiplied by $
    __________
    $96,000
    $100,000 minus the unamortized discount of $4,000 = carrying or book value of $96,000.
    to arrive at the six-month interest expense of $
    __________
    $3,840.
    Market interest rate per semiannual period of 4% X bond's carrying value of $96,000 = $3,840.
    .
  20. 20. An 8% $100,000 bond dated January 1, 2016 and maturing on December 31, 2025 was issued at 92. The bond will pay interest each June 30 and December 31 over the 10-year life of the bond. The total of the semiannual interest payments over the 10-year period will be $
    __________
    $80,000.
    $100,000 X 8% = $8,000 per year X 10 years = $80,000. Also $4,000 semiannually for 20 semiannual periods = $8,000.
    . The total amount of interest expense reported over the 10-year period will be $
    __________
    $88,000.
    $100,000 X 8% = $8,000 of interest payments per year X 10 years = $80,000 + bond discount of $8,000 = $88,000.
    .

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