Multiple choice questions
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1. Amstop Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2007 at 97 plus accrued interest. The bonds are dated January 1, 2007, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
1. $19,400,000
2. $20,450,000
3. $19,700,000
4. $19,100,000
2. On January 1, 2007, Bleeker Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6%.. .... .627
Present value of 1 for 8 periods at 8%.. .... .540
Present value of 1 for 16 periods at 3%.. .... .623
Present value of 1 for 16 periods at 4%.. .... .534
Present value of annuity for 8 periods at 6%.. .. 6.210
Present value of annuity for 8 periods at 8%.. .. 5.747
Present value of annuity for 16 periods at 3%.. 12.561
Present value of annuity for 16 periods at 4%......11.652
The issue price of the bonds is
1.$883,560.
2.$884,820.
3.$889,560.
4.$999,600.
3. In a troubled debt restructuring in which the debt is settled by a transfer of assets with a fair market value less than the carrying amount of the debt, the debtor would recognize
1.no gain or loss on the settlement.
2.a gain on the settlement.
3.a loss on the settlement.
4.none of these.
4. Claney, Inc. enters into what is referred to as off-balance-sheet financing, the company
1.is in violation of generally accepted accounting principles.
2.can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.
3.is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet.
4.wishes to confine all information related to the debt to the income statement and the statement of cash flow.
5. When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless
1. no interest rate is stated.
2. the stated interest rate is unreasonable.
3. the stated face amount of the note is materially different from the current cash sales price for similar items or from current market value of the note.
4.any of these.
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Solution Summary
The solution explains various multiple choice questions relating to bonds, yield, issue price, restructuring and off-balance-sheet items
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1. There would be 2 months of interest = 20,000,000X9%X2/12 = 300,000
The bonds are issued at 97, so the issue price is 20,000,000X97% = 19,400,000
Total cash received is 19,400,000+300,000=19,700,000
2. The issue price is the present value of interest and principal. The semiannual interest is ...
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