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BUS 242 -- Test IV

TRUE/FALSE

____1. A corporation is obligated to make periodic interest payments on a bond and also to repay the bond's principal amount at the maturity date of the bond. ____2. If a corporation liquidates, stockholders have a prior claim over bondholders to corporate assets. ____3. Bonds are quoted in the bond market at a percentage of face value, while stocks are quoted in the stock market in terms of dollars and cents. ____4. A $1,000 face value bond selling at 104 would cost $1,000.40 in the bond market. ____5. The stated rate of interest is the rate prevailing in the bond market at the time the bonds are issued. ____6. If the stated rate of interest is 10% and the market rate of interest is 8%, the bonds will most likely sell at a premium. ____7. The journal entry to record the issuance of $100,000 face value bonds at 102 involves a debit to the Premium on Bonds Payable account for $2,000. ____8. The amortization of a bond premium reduces interest expense on the income statement. ____9. The amortization of $1,000 of bond premium would be recorded by debiting the Premium on Bonds Payable account and crediting the Interest Expense account for $1,000. ___10. The amortization of $1,500 of bond discount would be recorded by debiting the Discount on Bonds Payable account and crediting the Interest Expense account for $1,500. ___11. When bonds are sold between interest dates, the investors must pay the issuing corporation any interest accrued from the date interest was last paid to the date of purchase. ___12. When a corporation sells its investment in the stock of another corporation, the Gain on Sale of Investments account will be credited if the cash proceeds are greater than the cost of the shares of stock sold. ___13. A statement of cash