Reference no: EM132555875

Problem 1: If the market interest rate is greater than the contractual interest rate, bonds will sell at a discount.

A. True

B. False

Problem 2: Farris Company borrowed $800,000 from BankTwo on January 1, 2017, in order to expand its mining capabilities. The five-year note required annual payments of $208,349 and carried an annual interest rate of 8.5%. What is the amount of expense Farris must recognize on its 2018 income statement?

A. $43,127

B. $68,000

C. $50,290

D. $56,070

Problem 3: If bonds are issued at a discount, it means that the

A. market interest rate is lower than the contractual interest rate

B. market interest rate is higher than the contractual interest rate

C. bondholder will receive effectively less interest than the contractual interest rate

D. financial strength of the issuer is suspect

Problem 4: The discount on bonds payable or premium on bonds payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriate addition or subtraction to bonds payable:

Group of answer choices

A. Premium on Bonds Payable: Add

Discount on Bonds Payable: Add

B. Premium on Bonds Payable: Deduct

Discount on Bonds Payable: Add

C. Premium on Bonds Payable: Deduct

Discount on Bonds Payable: Deduct

D. Premium on Bonds Payable: Add

Discount on Bonds Payable: Deduct

Problem 5: If the market interest rate is greater than the contractual interest rate, bonds will sell

A. at a discount

B. at a premium

C. only after the stated interest rate is increased

D. at face value

Problem 6: Pickett Company typically sells subscriptions on an annual basis, and publishes six times a year. The magazine sells 90,000 subscriptions in January at $15 each. What entry is made in January to record the sale of the subscriptions?

Group of answer choices

A. Prepaid Subscriptions 1,350,000

Cash 1,350,000

B. Subscriptions Receivable 1,350,000

Subscription Revenue 1,350,000

C. Subscriptions Receivable 225,000

Unearned Subscription Revenue 225,000

D. Cash 1,350,000

Unearned Subscription Revenue 1,350,000