Reference no: EM131753248

Q1. Bonds usually sell at their:

A. Maturity value.

B. Face value.

C. Present value.

D. Statistical expected value.

Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2009. LPC's accountant has projected the following amortization schedule from issuance until maturity:

Q2. LPC issued the bonds:

A. At par.

B. At a premium.

C. At a discount.

D. Cannot be determined from the given information.

Q3. What is the annual stated interest rate on the bonds?

A. 3.5%

B. 6%

C. 7%

D. None of these is correct.

Q4. What is the effective interest rate on the bonds?

A. 3%

B. 3.5%

C. 6%

D. 7%

Q5. LPC calls the bonds at 103 immediately after the interest payment on 12/31/10 and retires them. What gain or loss, if any, would LPC record on this date?

A. No gain or loss

B. $3,717 gain

C. $6,000 loss

D. $2,283 loss

Q6. A $500,000 bond issue sold for 98. Therefore, the bonds:

A. Sold at a discount because the stated rate of interest was lower than the effective rate. (490,000 (=500k*98%))

B. Sold for the $500,000 face amount less $10,000 of accrued interest.

C. Sold at a premium because the stated rate of interest was higher than the yield rate.

D. Sold at a discount because the effective interest rate was lower than the face rate.

Q7. How would the carrying value of bonds payable be affected by the amortization of each of the following?

Q8. On January 1, 2009, Legion Company sold $200,000 of 10% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $177,000, priced to yield 12%. Legion records interest at the effective rate. Legion should report bond interest expense for the six months ended June 30, 2009, in the amount of:

A. $ 8,850

B. $10,000

C. $10,620

D. $12,000

Q9. On January 1, 2009, an investor paid $291,000 for bonds with a face amount of $300,000. The stated rate of interest is 8% while the current market rate of interest is 10%. Using the effective interest method, how much interest income is recognized by the investor in 2009 (assume annual interest payments and amortization)?

A. $23,280.

B. $29,100.

C. $24,000.

D. $30,000.

Q10. On January 31, 2009, B Corp. issued $600,000 face value, 12% bonds for $600,000 cash. The bonds are dated December 31, 2008, and mature on December 31, 2018. Interest will be paid semiannually on June 30 and December 31. What amount of accrued interest payable should B report in its September 30, 2009, balance sheet?

A. $18,000.

B. $36,000.

C. $54,000.

D. $48,000.