121.Balance sheet and income statement data indicate the following:
Bonds payable, 6% (due in 15 years)
Preferred 8% stock, $100 par(no change during the year)
|
$1,200,000
200,000
|
Common stock, $50 par
(no change during the year)
|
1,000,000
|
Income before income tax for year
|
320,000
|
Income tax for year
|
80,000
|
Common dividends paid
|
60,000
|
Preferred dividends paid
|
16,000
|
Based on the data presented above, what is the number of times bond interest charges were earned (round to twodecimal places)?
a. 5.00
b. 5.44
c. 4.00
d. 4.33
122.Debtors are interested in the number of times interest charges are earned because they want to
a.know what rate of interest the corporation is paying
b.have adequate protection against a potential drop in earnings jeopardizing their interest payments
c.be sure their debt is backed by collateral
d.know the tax effect of lending to a corporation
123.Numbers of times interest charges are earned is computed as
a.Income Before Income Taxes plus Interest Expense divided by Interest Expense
b.Income Before Income Taxes less Interest Expense divided by Interest Expense
c.Income Before Income Taxes divided by Interest Expense
d.Income Before Income Taxes plus Interest Expense divided by Interest Revenue
124.Balance sheet and income statement data indicate the following:
Bonds payable, 6% (this is year 4 of 20 years)
Preferred 8% stock, $100 par(no change during the year)
|
$1,200,000
200,000
|
Common stock, $50 par
(no change during the year)
|
1,000,000
|
Income before income tax for year
|
340,000
|
Income tax for year
|
80,000
|
Common dividends paid
|
60,000
|
Preferred dividends paid
|
16,000
|
Based on the data presented above, what is the number of times bond interest charges were earned (round to twodecimal places)?
a. 5.72
b. 6.83
c. 4.72
d. 4.83
125.The present value of $40,000 to be received in two years, at 12% compounded annually, is (rounded to nearestdollar)
a. $31,888
b. $48,112
c. $8,112
d. $40,000
126.A corporation issues for cash $9,000,000 of 8%, 30-year bonds, interest payable semiannually. The amountreceived for the bonds will be
a.present value of 60 semiannual interest payments of $300,000, plus present value of $9,000,000 to be repaidin 30 years
b.present value of 30 annual interest payments of $600,000
c.present value of 30 annual interest payments of $600,000, plus present value of $9,000,000 to be repaid in30years
d.present value of $9,000,000 to be repaid in 30 years, less present value of 60 semiannual interest payments of$300,000
127.The present value of $60,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar)
a. $56,604
b. $63,396
c. $60,000
d. $3,396
128.When the market rate of interest was 12%, Halprin Corporation issued $1,000,000, 11%, 10-year bonds that payinterest annually. The selling price of this bond issue was
a. $321,970
b. $1,000,000
c. $943,494
d. $621,524
129.The Designer Company issued 10-year bonds on January 1. The 6% bonds have a face value of $800,000 and payinterest every January 1 and July 1. The bonds were sold for $690,960 based on the market interest rate of8%. Designer uses the effective interest method to amortize bond discounts and premiums. On July 1, of the firstyear, Designer should record interest expense (round to the nearest dollar) of
a. $27,638
b. $24,000
c. $48,000
d. $55,277
130.The Merchant Company issued 10-year bonds on January 1. The 15% bonds have a face value of $100,000 andpay interest every January 1 and July 1. The bonds were sold for $117,205 based on the market interest rate of12%. Merchant uses the effective interest method to amortize bond discounts and premiums. On July 1 of the firstyear, Merchant should record interest expense (round to the nearest dollar) of
a. $7,032
b. $7,500
c. $8,790
d. $14,065
131.When the effective interest method is used, the amortization of the bond premium
a.increases interest expense each period
b.decreases interest expense each period
c.increases interest expense in some periods and decreases interest expense in other periods
d.has no effect on the interest expense in any period