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November 7, 2005
Anderson
ECON 136B
Midterm #2
Name _________________________
Complete the multiple choice questions (#125) on a green scantron, and
the problems in your bluebook.
1. The term used for bonds that are unsecured as to principal is
a. junk bonds.
b. debenture bonds.
c. indebenture bonds.
d. callable bonds.
2. If bonds are initially sold at a discount and the straightline
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 amortization been used.
d. be less than the stated (nominal) rate of interest.

Cox Co. issued $100,000 of tenyear, 10% bonds that pay interest
semiannually.
The bonds are sold to yield 8%.
3. One step in calculating the issue price of the bonds is to multiply
the principal by the table value for
a. 10 periods and 10% from the present value of 1 table.
b. 20 periods and 5% from the present value of 1 table.
c. 10 periods and 8% from the present value of 1 table.
d. 20 periods and 4% from the present value of 1 table.

On January 1, 2004, Bleeker Co. issued eightyear bonds with a face
value of $2,000,000 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
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4. The present value of the principal is
a. $1,068,000.
b. $1,080,000.
c. $1,246,000.
d. $1,254,000.
5. Which of the following items should be presented as a longterm
liability on the balance sheet:
a.
A debt which was repaid with proceeds from a stock issuance
after the date of the balance sheet, but before the financial
statements were issued.
b.
A debt which management intends to refinance after the date of
the balance sheet.
c.
A debt which management intends to repay in the following year
using cash.
d.
A debt which matures 9 months from the date of the balance
sheet.
6. A company pays for goods by issuing a 5 year note payable in the
amount of $100,000 and bearing interest at 1%.
A bank would lend
them the money under the circumstances at a rate of 8%.
Which of
the following statements is most accurate?
a.
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 Spring '08
 anderson

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