week 1 test

# week 1 test - 1) The total interest expense on a \$200,000,...

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1) The total interest expense on a \$200,000, 10 percent, 10-year bond issued at 95 would be A \$190,000 B \$195,000 C \$200,000 D \$210,000 2) On January 1, 2008, Felipe Hospital issued a \$250,000, 10 percent, 5-year bond for \$231,601. Interest is payable on June 30 and December 31. Felipe uses the effective- interest method to amortize all premiums and discounts. Assuming an effective interest rate of 12 percent, how much interest expense should be recorded on June 30, 2008? A \$11,935.14 B \$12,500.00 C \$13,896.06 D \$14,729.82 3) Madison Corporation had two issues of securities outstanding-- common stock and a 5 percent convertible bond issue in the face amount of \$10,000,000. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive 40 shares of \$20 par value common stock in exchange for each \$1,000 bond. On June 30, 2008, the holders of \$1,800,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was \$1,100 per bond and the market price of the common stock was \$35. The total unamortized bond discount at the date of conversion was \$500,000. What amount should Madison credit to the account "Paid-In Capital in Excess of Par" as a result of this conversion assuming Madison does not want to recognize any gain (or loss) on the conversion? A \$0 B \$270,000 C \$360,000 D \$920,000 4) Callable bonds A Can be redeemed by the issuer at some time at a pre-specified price B Can be converted to stock C Mature in a series of payments D None of the above 5) Debentures are A Unsecured bonds B Secured bonds C Ordinary bonds D Serial bonds

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6) Kiyabu County issued a \$500,000, 10 percent, 10-year bond on January 1, 2008, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Kiyabu uses the effective-interest method to amortize all premiums and discounts. How much premium or discount should be amortized on June 30, 2008? A \$2,790 B \$2,280 C \$2,000 D \$1,970 7) During the year, Hancock Corporation incurred the following costs in connection with the issuance of bonds: The amount recorded as a deferred charge to be amortized over the term of the bonds is A \$0 B \$30,000 C \$300,000 D \$510,000 8) When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption, if material, is SHOW ANSWERS >>
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## week 1 test - 1) The total interest expense on a \$200,000,...

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