Multiple Choice Question 152 If the market interest rate for a bond is higher th

Question

Multiple Choice Question 152

If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at

par.

either discount or premium.

a discount.

a premium.

Multiple Choice Question 161

adjusted to a higher rate of interest.

higher than the market rate of interest.

lower than the market rate of interest.

too low to attract investors.

Multiple Choice Question 169

increasing the amount of cash paid for interest each 6 months.

causing the total cost of borrowing to be higher than the bond interest paid.

causing the total cost of borrowing to be lower than the bond interest paid.

raising the effective interest rate above the state interest rate.

Multiple Choice Question 168

due to contractual loan restrictions.

to keep the legal capital associated with paid-in capital intact.

if preferred dividends are in arrears.

to set aside cash for dividends.

Multiple Choice Question 161

adjusted to a higher rate of interest.

higher than the market rate of interest.

lower than the market rate of interest.

too low to attract investors.

Multiple Choice Question 169

increasing the amount of cash paid for interest each 6 months.

causing the total cost of borrowing to be higher than the bond interest paid.

causing the total cost of borrowing to be lower than the bond interest paid.

raising the effective interest rate above the state interest rate.

Multiple Choice Question 177

the historical cost principle.

the expense recognition principle.

the revenue recognition principle.

conservatism.

Multiple Choice Question 77

unissued stock.

authorized stock.

issued stock.

outstanding stock.

Multiple Choice Question 177

Bond discount should be amortized to comply with

the historical cost principle.

the expense recognition principle.

the revenue recognition principle.

conservatism.

par.

Explanation / Answer

Solution -

Concept - Bond issue Prices

Part 152 - (c) - Discount since Market rate of interest is higher than stated rate of interest

Part 161 - (b) At premium, Stated interest rate is higher than Market rate of Interest

Part 168 - (a) Contractual loan restrictions. Occassionally retained earnings are restricted to contractual loan restrictions. Contractual loan restrictions are like paying dividend at a fixed rate which is below than specific percentage of retained earnings

Part 169 - (c) At selling premium, Total cost of borrowing is always less than Total bond interest paid

Part 177 - (b) - Expenses recognition priciple. Since as per this principle, Matching concept is followed and hence expenses are recognised in the same period in which revenue is recognised

Part 77 - (b) It is authorized stock. Since corporate charter is particularly a written document which is also known as articles of association, mention about the capital of company which is known as authorized stock

Particulars Analytic Bond Stated interest rate equal Market rate of interest At par Bond Stated Interest rate More than Market Rate of Interest At Premium Bond Stated Interest rate Less than Market rate of Interest At Discount

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