f05_136b_mt2

# f05_136b_mt2 - November 7, 2005 Anderson ECON 136B Midterm...

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November 7, 2005 Anderson ECON 136B Midterm #2 Name _________________________ Complete the multiple choice questions (#1-25) on a green scantron, and the problems in your blue-book. 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 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 amortization been used. d. be less than the stated (nominal) rate of interest. ------------------------------ Cox Co. issued \$100,000 of ten-year, 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 eight-year 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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Midterm #2--Page 2 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 long-term 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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## f05_136b_mt2 - November 7, 2005 Anderson ECON 136B Midterm...

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