Bonds Payable Quiz and Test

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If you have difficulty answering the following questions, learn more about this topic by reading our Bonds Payable (Explanation).

The expected balance in the account Bonds Payable.

Debit

Credit

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

Debit

Credit

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

Debit

Credit

The amortization of the bond __________ will result in the issuer's interest expense being greater than the interest payments.

discount

premium

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

discount

premium

The book value or carrying value of a bond issued at a discount will __________ as the discount is amortized.

decrease

increase

If a 9% bond is selling at 104 plus accrued interest, the bond's effective interest rate will be __________ than 9%.

less

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

decrease

increase

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

False

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

False

11.

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

market

nominal

stated

12.

Which of the following interest rates is different?

Effective

Face

Nominal

Stated

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

Straight-line

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

coupon

market

15.

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

issue price

par amount

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 $

__________

, Bonds Payable will be credited for $

__________

, and Interest Payable will be credited for $

__________

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 $

__________

. The accounts that will be credited are Bonds Payable for $

__________

, and

__________

for $

__________

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 $

__________

. 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 $

__________

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

__________

% will be multiplied by $

__________

to arrive at the six-month interest expense of $

__________

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 $

__________

. The total amount of interest expense reported over the 10-year period will be $

__________

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