# Intermediate Accounting

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1. What is the market price of a bond issued at a discount?

a. The present value of the principle amount at the market (effective) rate of interest plus the present value of all future interest payments at the market (effective) rate of interest

b. The present value of its principle amount at the market (effective) rate of interest minus the present value of all future interest payments at the rate of interested stated on the bond

c. The present value of its principle amount at the market (effective) rate of interest minus the present value of all future interest payments at the market (effective) rate of interest

d. The present value of the principal amount at the market (effective) rate of interest plus present value of all future interest payments at the rate of interest

2. When a bond issue sells for more than its par value, what is the market rate of interest?

a. It is equal to the rate stated on bond

b. It is dependent on the rate stated on the bond

c. It is less than the rate stated on the bond

d. It is higher than the rate sated on the bond

3. When a company issues bonds, how are unamortized bond discounts and premiums classified on the balance sheet?

a. Bond discount are classified as expenses, and bond premiums are classified as revenue

b. Bond premiums are classified as additions to the face value of bonds, and bonds discounts are classified as deductions from the face value of bonds

c. Bond discounts are classified as assets, and bond premiums are classified as contra - asset accounts

d. None of the above

4. For a bond issue that sells at par, which accounts are affected at issuance?

a. Cash is decreased, and bonds payable is increased

b. Cash, bonds, payable bond discount are increased

c. Cash, bonds payable, and bond premium are increased

d. Cash is increased as well as bonds payable

5. What will be the balance in a bond premium or bond discount account at the date the bond becomes payable?

a. A premium will have a positive balance, while a discount will have a negative balance

b. A premium will have a negative balance, while a discount will have a positive balance

c. The balance of both will be zero

d. Cannot be determined

6. How is the times-interest-earned ratio computed?

a. Net income divided by interest expense

b. Net income plus interest expense plus tax expense divided by interest expense

c. Net income plus expense divided by interest expense

d. Net income plus interest expense divided by interest expense

7. What happens after shares of common stock are issued to shareholders?

a. Common stock outstanding increases

b. There is no effect on common stock outstanding

c. Common stock authorized decreases

d. Common stock authorized increases

8. When common stock is issued, how is the statement of cash flows affected?

a. Cash inflow is recorded in the investing section

b. Cash outflow is recorded in the operating section

c. Cash inflow is recorded in the financing section

d. Cash outflow is recorded in the investing section

9. When stock is issued, what is the effect on the income statement?

a. There is no effect

b. Revenue is increased

c. Expense is increased

d. Expense is decreased

10. When stock is issued, what is the effect on the debt to equity ratio?

a. The ratio increases

b. The ratio decreases

c. The ratio is unaffected

d. Cannot be determined

#### Solution Preview

Answers are marked with arrows (>>>) and I have included a reason/explanation below each set of answers (before the next question).

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1. What is the market price of a bond issued at a discount?

>>> a. The present value of the principle amount at the market (effective) rate of interest plus the present value of all future interest payments at the market (effective) rate of interest

b. The present value of its principle amount at the market (effective) rate of interest minus the present value of all future interest payments at the rate of interested stated on the bond

c. The present value of its principle amount at the market (effective) rate of interest minus the present value of all future interest payments at the market (effective) rate of interest

d. The present value of the principal amount at the market (effective) rate of interest plus present value of all future interest payments at the rate of interest

The market price of the bond is the present value of interest and principal discounted at the market (effective) rate.

2. When a bond issue sells for more than its par value, what is the market rate of interest?

a. It is equal to the rate stated on bond

b. It is ...

#### Solution Summary

The solution explains some multiple choice questions relating to Intermediate Accounting