Question

Q1)

If a company issued bonds at a premium, the interest expense recorded over the life of the bonds in the company’s books would:

Select one:

a. Be equal to the amount of cash paid for interest

b. Be lower than the amount of cash paid for interest

c. Be higher than the amount of cash paid for interest

d. Depend on the fluctuations in market interest rate

Q2)

On January 1, 2019, Mohind Corp. issued a $120,000 six-year, 4% note payable. According to the terms of the note, the note is repayable annually, plus interest on the outstanding principle, due on the first day of each year. The payments will consist of an equal annual reduction of the principal. Mohind’s year-end is on December 31. On Mohind’s balance sheet dated December 31, 2019, how much of this note would be reported under the long-term liabilities section?

Select one:

a. $120,000

b. $100,000

c. $20,000

d. $24,800

Q3)

Consider the following statements:

Statement 1. Strong controls surrounding the negotiation of long-term liabilities should result in obtaining the best possible interest rates.

Statement 2. Robust cash controls ensure that interest and principal payments are made on time.

Which is correct?

Select one:

a. Neither statement is correct

b. Both statements are correct

c. Only statement 1 is correct

d. Only statement 2 is correct

Q4)

Bob bought a $1,000, five-year bond with the coupon rate of 6%. On the purchase date, the market interest rate was 4%. The bond pays interest semi-annually. How much interest would Bob receive semi-annually?

Select one:

a. $20

b. $60

c. $40

d. $30

Answer 1

Answer is given below