1. The market price of a bond issued at a discount is the present value of its principle amount at the market (effective) rate of interest.
a. plus the present value of all future interest payments at the market (effective) rate of interest
b. plus the present value of all future interest payments at the rate of interest stated on the bond
c. minus the present value of all future interest payaments at the market (effective) rate of interest
d. minus the present value of all future interest payaments at the rate of interest stated on the bond
2. When the interest payment dates of a bond are May 1 and november 1, and the bond is issued on June 1, the amount of interest expense at Dec 31 of the year of issuance would be for
a. 2 months
b. 6 months
c. 7 months
d. 8 months
3.The effective interest rate on bonds is higher than the stated rate when bonds sell
a. at face value
b. above face value
c. below face value
d. at maturity value
4. Swanson Inc. purchased $400,000 of Malone Corp. ten year bonds with a stated interest rate of 8 percent payable quarterly. At the time the bonds were purchased, the market interest rate was 12 percent. Determine the amount of premium or discount on the purchase of the bonds
a. 92,442 premium
b. 92,442 discount
c. 81,143 premium
d. 81,143 discount
5. On January 1, MAX issued ten year bonds with a face amount of $1,000,000 and a stated interest rate of 8 percent payable annually each January 1. The bonds were priced to yield 10 percent. The total issue price (rounded) of the bonds was
a. 1,000,000
b. 980,000
c. 920,000
d. 880,000
6. The exercise price and market price of stock under a fixed compensatory stock option plan are equal on the grant date. The fair value of the options is greater than the option price. Under the fair value method
a. Compensation expense will be recognized in connection with the option plan
b. No compensation expsen will be recognized in connection with the option plan
c. Deferred compensation will be recognized
d. No paid in captial from stock options will be recognized
7. A company issued rights to its existing shareholders to acquire, at $15 per share, 5,000 unissued shares of common stock with a par value of $10 per share. Common stock will be credited at
a. 15 per share when the rights are exercised
b. 15 per share when the rights are issued
c. 10 per share when the rights are exercised
d. 10 per share when the rights are issued
8. When an investory uses the equity method to account for investments in common stock, the investment account will be increased when the investor recognizes
a. a proportionate share of the net income of the investee
b. a cash dividend received from the investee
c. periodic amortization of an intangible arising from contractual rights acquired in the purchase
d. depreciation related to the excess of market value over book value of the investee's depreciable assets at the date of purchase by the investor
9. When an investor uses the equity method to account for investments in common stock, cash dividends received by the investor from the investee should be recorded as
a. an increase in the investment account
b. a deduction from the investment account
c. dividend revenue
d. a deduction from the investor's share of the investee's profits
10. A lease contains a bargain purchase option. In determining the lessee's capitalizable cost at the beginning of the lease term, the payment called for by the bargain purchase option would be
a. subtracted at its present value
b. added at its exercise value
c. added at its present value
d. subtracted at its exercise price