* Question 1
2 out of 2 points | | | Which one of the following is not correct? | | | | | Selected Answer: | C. For debt issued at a discount: interest expense reported on the income statement equals cash interest payment less amortization of the discount. | Answers: | A. For debt issued at par: interest expense reported on the income statement equals the cash paid for interest. | | B. For bond repurchases, the gain or loss is the difference between the book value and the repurchase amount. | | C. For debt issued at a discount: interest expense reported on the income statement equals cash interest payment less amortization of the discount. | | D. For debt issued at a premium, interest expense reported on the income statement equals cash interest payment less amortization of the premium. | | E. None of the above | Response Feedback: | Rationale: For debt issued at a discount, interest expense reported on the income statement is cash interest paid plus amortization of the discount. | | | | | * Question 2
2 out of 2 points | | | Morse Corp. sells $200,000 of bonds to private investors. The bonds have a 9% coupon rate and interest is paid semiannually. The bonds were sold to yield 8%.

What periodic interest payment does Morse make? | | | | | Selected Answer: | D. $ 9,000 | Answers: | A. $16,000 | | B. $ 8,000 | | C. $18,000 | | D. $ 9,000 | | E. None of the above | Response Feedback: | Rationale: Coupon rates are used to compute the dollar amount in interest payments paid to the bondholder semiannually. Morse pays $200,000 × 9% × 1/2 year = $9,000. | | | | | * Question 3
2 out of 2 points | | | Market prices of bonds fluctuate because the company's obligation (in the form of principal and interest payments) remains fixed while market interest rates may change. | | | |