Name: Date: 1. Debenture bonds are secured by a pledge of specific property A) T

Question

Name: Date: 1. Debenture bonds are secured by a pledge of specific property A) True B) False 2. Bonds differ from stock in that bonds are debt (vs. ownership) and have maturity dates (vs. indefinite lives). A) True B) False 3. Both interest payments and dividend payments must be paid at specified intervals by a corporation that has bonds and stock outstanding. A) True B) False 4. Bonds are usually sold to finance noncurrent assets. A) True B) False 5. On October i 2012, Morton Cor p any issued S250 000 face value of 9%, 15-year bonds for cash of$295,981, a price that yields 7%. The bonds mature on October 1 , 2027, and call for semiannual interest payments. Using the effective interest rate method, interest expense recorded on December 31, 2012, the end of the accounting period is: A) 5,179.67 B) $6,659.57 C) $2,589.94 D) S10,359.34 6. On June 30, 2012, Grant Co. issued si 00,000 face value of 8%, 20-year bonds for cash of $82,409, a price that yields 10%, The bonds mature on June 30, 2032, and call for semiannual interest payments. Using the effective interest rate method, interest expense for the first six months ending on December 31, 2012, is (round to the nearest dollar): A) $4,120 B) $4,000 C) $4,440 D) $4,560 Page 1

Explanation / Answer

1) The correct choice is false

Explanation : - It is a general obligation of the firm.

2) The correct choice is True

Explanation : - Bonds are borrowing from investors whereas stocks are ownership in the firm.

3) The correct choice is False

Explanation : - Interest are paid to bond holders before dividends are paid to stock holders.

4) The correct choice is True

Explanation : - Bonds are the preferred form of financing for large capital investment projects which require long term financing.

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