ACCT 3044 Chapter 13 Preview Quiz A

If a bond sells at 97, the market interest rate is

• Greater than the stated interest rate

• Equal to the stated interest rate

• Less than the stated interest rate

• Equal to the coupon rate

The selling price of a bond is calculated by:

• Summing the present values of the principal and periodic interest payments using the market interest rate

• Summing the present values of the principal and periodic interest payments using the stated interest rate

• Summing the present values of the periodic interest payments using the market interest rate

• Summing the present values of the periodic interest payments using the stated interest rate

A $100,000, 9% interest bond was issued for $104,000.  The journal entry to record the issuance of the bond will include:

• A credit Bonds Payable, $104,000

• A debit to Premium on Bonds Payable, $4,000

• A debit to Discount on Bonds Payable, $4,000

• A credit to Premium on Bonds Payable, $4,000

The effective interest rate method calculates bond interest by

• multiplying the carrying value of the bonds at the beginning of the period by the stated rate of interest

• multiplying the carrying value of the bonds at the beginning of the period by the market rate of interest

• dividing the carrying value of the bonds by the number of interest periods

• by dividing the carrying value of the bonds by the number of interest periods

When a bond sells at a discount, interest expense will be

• Equal to the bond interest payment

• Greater than the bond interest payment

• Less than the bond interest payment

• It depends

During the life of the bond, Premium on Bonds Payable will be decreased/amortized with a

• debit, thus, increasing the carrying value of the bond

• credit, thus, decreasing the carrying value of the bond

• debit, thus, increasing the carrying value of the bond

• credit, thus, decreasing the carrying value of the bond