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Bonds Payable(Quick Test)

Author:
Harold Averkamp, CPA, MBA

After you have answered all 40 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your answers.

Note: Some of the following test questions may not have been covered in the Explanation or Practice Quiz for this topic. For more insight regarding a specific question, use the search box at the top of the page.

    1. 1. Normal practice is for the buyer of a bond to pay the quoted price plus any accrued __________.

    2. 2. If a company issues a bond on an interest payment date and receives more than the face amount of the bond, the bond is said to have been issued at a __________.

    3. 3. If a company issues a bond and receives less than the face amount of the bond, the bond is said to have been issued at a __________.

    4. 4. Allocating the premium on bonds payable to each of the accounting periods in the life of a bond is referred to as the __________ of bond premium.

    5. 5. Discount on Bonds Payable is a __________-liability account.

    6. 6. When calculating the present value of the interest payments of a bond, the interest payments can be viewed as an ordinary __________.

    7. 7. The method of amortizing a premium or discount on bonds payable that results in the same amount each period is the __________–__________ method of amortization.

    8. 8. Under the __________ interest rate method of amortizing bond discount, the amount of bond interest expense will increase as the bond’s carrying value increases.

    9. 9. A significant incentive for a profitable corporation to issue bonds instead of stock is that the interest is __________ for income tax purposes whereas dividends are not.

    10. 10. Bonds that can be exchanged for a predetermined number of shares of common stock are known as __________ bonds.

    11. 11. Bonds that have a single maturity date are known as __________ bonds.

    12. 12. Bonds that do not mature on a single date, but rather come due in installments over many years are known as __________ bonds.

    13. 13. A bond that the issuer can retire at a predetermined price is a __________ bond.

    14. 14. Bonds that are secured by real estate are known as __________ bonds.

    15. 15. Bonds that are not secured by specific assets are known as __________.

    16. 16. The document that specifies the terms of a bond is the bond __________.

    17. 17. A fund that contains cash and/or investments that must be used to retire an issuer’s bonds is a bond __________ fund.

    18. 18. The preferred method of amortizing a significant amount of discount or premium on bonds is the __________ interest rate method.

    19. 19. A bond sold on an interest payment date will have no __________ interest.

    20. 20. Which of the following interest rates will not appear on a bond certificate?

    21. 21. A bond’s yield to maturity is similar to which interest rate?

    22. 22. A bond’s semiannual interest payments are based on which of the following interest rates?

    23. 23. When calculating the present value of a bond, which rate is used to discount the future cash flows?

    24. 24. When market interest rates increase, the market value of an already issued bond is likely to __________.

    25. 25. A bond issuer’s amortization of bond discount will cause each period’s interest expense to be __________ than the amount of interest paid.

    26. 26. A bond issued at a significant discount will have a carrying amount that is __________ than its face amount.

    27. 27. The total interest expense over the life of a bond that was issued at a premium will be __________ than the sum of the semiannual interest payments.

    28. 28. Which one of the following amounts is likely to be different from a bond’s face value after a significant change in interest rates?

    29. 29. A bond sinking fund that consists of only cash and short-term government securities will be reported under which balance sheet heading?

    30. 30. A new 9% bond having a face amount of $1,000,000 and dated January 1 is actually issued on March 1. The interest payment dates are each January 1 and July 1. Assuming the bond is sold at par, the total amount to be received by the issuer on March 1 is $__________.

    31. Use the following information for answering Questions 31 - 33:
      A 9% $1,000,000 bond was issued for 98 on an interest payment date.

    32. 31. The issuing corporation should credit Bonds Payable for $__________.

    33. 32. The Cash account should be debited for $__________.

    34. 33. The difference between the credit amount in question 31 and the debit amount in question 32 should be recorded in the account __________ on Bonds Payable.

    35. Use the following information for answering Questions 34 - 35:
      On January 1, a 10% bond with a maturity amount of $10,000,000 was issued for $9,904,000. The bonds mature in 10 years. The interest payment dates are each January 1 and July 1. The discount on the bonds is amortized by using the straight-line method.

    36. 34. The annual interest expense for this bond is $__________.

    37. 35. After one full year, the book or carrying value of the bonds will be $__________.

    38. 36. A company has Bonds Payable of $1,000,000 and there is no unamortized premium or discount on the bonds. The bonds have a call price of 108. The company’s gain or loss if it retires all of its bonds is a __________ (gain, loss) of $__________.

    39. Use the following information for answering Questions 37 - 40:
      On January 1, 2024 a company issued 9% bonds with a maturity value of $1,000,000. The company received $937,790 which resulted in an effective interest rate of 10%. The bonds pay interest each January 1 and July 1 until they mature in 10 years.

    40. 37. Assuming the company issues annual financial statements and it records interest expense for the first time on July 1, 2024, the amount of interest expense for the first six months of 2024 under the effective interest rate method will be $__________.

    41. 38. The amount included in the interest expense for the first six months of 2024 that is the amortization of discount is $__________.

    42. 39. The book value or carrying value of the bonds on July 2, 2024 will be $__________.

    43. 40. The interest expense for the second six-month period under the effective interest rate method will be $__________.

Any questions left unanswered will be marked incorrect.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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