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Bonds Payable (Practice Quiz)

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Author:
Harold Averkamp, CPA, MBA

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.
The expected balance in the account Bonds Payable.

Debit

Wrong.

Credit

Right!
2.
The expected balance in the account containing the amount of the unamortized bond discount.

Debit

Right!

Credit

Wrong.
3.
The expected balance in the account containing the amount of the unamortized bond premium.

Debit

Wrong.

Credit

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

Discount

Wrong.

Premium

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

Decrease

Right!

Increase

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

Market

Right!

Nominal

Wrong.

Stated

Wrong.
12.
Which of the following interest rates is different?

Effective

Right!

Face

Wrong.

Nominal

Wrong.

Stated

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

Issue Price

Wrong.

Par Amount

Right!
16.
A 12% $100,000 bond is dated January 1, 2024 and pays interest each June 30 and December 31. The bond is issued at par on March 1, 2024. On March 1, 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.
, Bonds Payable will be credited for $
__________
$100,000.
(Par, maturity, face amount)
, and Interest Payable will be credited for $
__________
$2,000.
The accrued interest of $100,000 X 12% X 2/12 = $2,000.
.
17.
An 8% $100,000 bond is dated January 1, 2024 and is issued on January 1, 2024 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.
A 10% $100,000 bond is dated January 1, 2024 and is issued on January 1, 2024 for 105. The bond pays interest each June 30 and December 31 until the bond matures on December 31, 2033. The amount of interest that will be paid to the bondholders in the year 2024 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 2024 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.
A 7% $100,000 bond was dated January 1, 2024 and was issued on January 1, 2024 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, 2024 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.
An 8% $100,000 bond dated January 1, 2024 and maturing on December 31, 2033 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; or, $4,000 semiannually for 20 semiannual periods = $80,000.
. 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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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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