PRINCIPLES OF ACCOUNTING:
COMPREHENSIVE TEST BANK
◉ The term used for bonds that are unsecured as to principal is
a. junk bonds.
b. debenture bonds.
c. indebenture bonds.
d. callable bonds. Answer: B
◉ If bonds are issued initially at a premium and the effective-interest
method of amortization is used, interest expense in the earlier years will
be
a. greater than if the straight-line method were used.
b. greater than the amount of the interest payments.
c the same as if the straight-line method were used. d. less than if the
straight-line method were used. Answer: A
◉ The rate of interest actually earned by bondholders is called the
a. stated rate.
b. yield rate.
c. effective rate.
d. effective, yield, or market rate. Answer: D
, ◉ Reich, Inc. issued bonds with a maturity amount of $200,000 and a
maturity ten years from date of issue. If the bonds were issued at a
premium, this indicates that
a. the effective yield or market rate of interest exceeded the stated
(nominal) rate.
b. the nominal rate of interest exceeded the market rate.
c. the market and nominal rates coincided.
d. no necessary relationship exists between the two rates. Answer: B
◉ If bonds are initially sold at a discount and the straight-line method of
amortization is used, interest expense in the earlier years will
a. exceed what it would have been had the effective-interest method of
amortization
been used.
b. be less than what it would have been had the effective-interest method
of amortization
been used.
c. be the same as what it would have been had the effective-interest
method of amortiza-
tion been used.
d. be less than the stated (nominal) rate of interest. Answer: A
◉ When the effective-interest method is used to amortize bond premium
or discount, the periodic amortization will
a. increase if the bonds were issued at a discount.
COMPREHENSIVE TEST BANK
◉ The term used for bonds that are unsecured as to principal is
a. junk bonds.
b. debenture bonds.
c. indebenture bonds.
d. callable bonds. Answer: B
◉ If bonds are issued initially at a premium and the effective-interest
method of amortization is used, interest expense in the earlier years will
be
a. greater than if the straight-line method were used.
b. greater than the amount of the interest payments.
c the same as if the straight-line method were used. d. less than if the
straight-line method were used. Answer: A
◉ The rate of interest actually earned by bondholders is called the
a. stated rate.
b. yield rate.
c. effective rate.
d. effective, yield, or market rate. Answer: D
, ◉ Reich, Inc. issued bonds with a maturity amount of $200,000 and a
maturity ten years from date of issue. If the bonds were issued at a
premium, this indicates that
a. the effective yield or market rate of interest exceeded the stated
(nominal) rate.
b. the nominal rate of interest exceeded the market rate.
c. the market and nominal rates coincided.
d. no necessary relationship exists between the two rates. Answer: B
◉ If bonds are initially sold at a discount and the straight-line method of
amortization is used, interest expense in the earlier years will
a. exceed what it would have been had the effective-interest method of
amortization
been used.
b. be less than what it would have been had the effective-interest method
of amortization
been used.
c. be the same as what it would have been had the effective-interest
method of amortiza-
tion been used.
d. be less than the stated (nominal) rate of interest. Answer: A
◉ When the effective-interest method is used to amortize bond premium
or discount, the periodic amortization will
a. increase if the bonds were issued at a discount.
