1.A key measurement that should be considered before deciding on the financing p
ID: 2344013 • Letter: 1
Question
1.A key measurement that should be considered before deciding on the financing plan isa. current ratio.
b. quick ratio.
c. profit margin.
d. earnings per share.
2. Corporations finance their operatins using the following
a. debt such as purchasing on account or issuing bonds or notes payable.
b. issuing common stock.
c. issuing preferred stock.
d. all of the answers are correct.
3. Which of the following is not a source of financing for a company.
a. Bonds
b. Common stock
c. Preferred stock
d. Treasury stock
4. The market interest rate related to a bond is also called the
a. stated interest rate.
b. face interest rate.
c. effective interest rate.
d. coupon rate.
5. When a corporation issues bonds, the price that buyers are willing to pay for the bonds does not depend on which of the following below
a. stated rate of the bonds.
b. market rate of interest.
c. periodic interest to be paid on the bonds.
d. denominations in which the bonds are sold
6. If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $300,000 will be
a. equal to $300,000.
b. less then $300,000.
c. greater than $300,000.
d. greater than or less than $300,000, depending on the maturity date of the bonds.
7. if $1,000,000 of 8% bonds are issued at 101 1/2, the amount of cash received from the sale is
a. $1,080,000.
b. $985,000.
c. $1,000,000.
d. $1,015,000.
8.A corporation issues for cash $1,000,000 of 8%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 10%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
a. The amount of the annual interest expense is computed at 8% of the bond carrying amount at the beginning of the year.
b. The amount of the annual interest expense gradually decreases over the life of the bonds.
c. The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity.
d. The amount of unamortized premium decreases from its balance at issuance date to a zero balance at maturity.
9. The journal entry a company records for the issuance of bonds when the contract rate is larger than the market rate of the bond are
a. debit Bonds Payable, credit Cash.
b. debit Cash and Discount on Bonds Payable, credit Bonds Payable.
c. debit Cash, credit premium on Bonds Payable and Bonds Payable.
d. debit Cash, credit Bonds Payable.
Explanation / Answer
1. A key measurement that should be considered before deciding on the financing plan is: d. Earning per share 2. Corporations finance their operatins using the following d. All of the above 3. Which of the following is not a source of financing for a company. d. Treasury stock 4. The market interest rate related to a bond is also called the c. Effective interest rate 5. When a corporation issues bonds, the price that buyers are willing to pay for the bonds does not depend on which of the following below d. denominations in which the bonds are sold 6. If the market rate of interest is 7%, the price of 6% bonds paying interest semiannually with a face value of $300,000 will be b. less than $300,000 7. If $1,000,000 of 8% bonds are issued at 101 1/2, the amount of cash received from the sale is d. $1,015,000. 8. A corporation issues for cash $1,000,000 of 8%, 20-year bonds, interest payable annually, at a time when the market rate of interest is 10%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true? c. The amount of unamortized discount decreases from its balance at issuance date to a zero balance at maturity. 9. The journal entry a company records for the issuance of bonds when the contract rate is larger than the market rate of the bond are c. debit Cash, credit premium on Bonds Payable and Bonds Payable.
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