51.Perfectly effective hedges using interest rate swaps will always
a.exactly match maturity dates with the underlying debt.
b.minimize interest expense.
c.maximize gains in bond values caused by interest rate fluctuations.
d.all of the above.
52.McCourt Investment Advisors purchased newly issued bonds on October 1, 2005, paying $108,983. The bonds had a face value of $100,000, maturing on September 30, 2010, and pay interest semiannually on March 31 and September 30. The stated interest rate is 6%. What is the effective interest rate?
a.4%.
b.5%.
c.6%.
d.7%.
53.The following information was extracted from the financial records of Lewis Company.
|
2010
|
2009
|
Balance Sheet
|
|
|
Notes payable
|
$400,000
|
$400,000
|
Less: Discount on notes payable
|
24,000
|
28,800
|
|
|
|
Income Statement
|
|
|
Interest expense
|
$32,800
|
$32,400
|
Based on this information, what is the effective interest rate on the notes payable?
a. 8.2%
b. 8.8%
c. 6.0%
d. 2.2%
54.The following information was extracted from the financial records of Lewis Company.
|
2010
|
2009
|
Balance Sheet
|
|
|
Notes payable
|
$400,000
|
$400,000
|
Less: Discount on notes payable
|
24,000
|
28,800
|
|
|
|
Income Statement
|
|
|
Interest expense
|
$32,800
|
$32,400
|
Based on this information, the journal entry Lewis Company should prepare to record interest expense during 2010 would include:
a. a credit to Interest Payable for $32,800.
b. a credit to Discount on Notes Payable for $24,000.
c. a credit to Cash for $28,000.
d. a credit to Notes Payable for $4,800.
55.On September 10, 2009, Humbert Company issued bonds with a face value of $600,000 for a price of 96. During 2012, Humbert exercised a call provision and redeemed the bonds for 101. At the time of the redemption, the bonds had a balance sheet value of $590,000. The journal entry to record the redemption includes:
a. a credit to Bonds Payable for $576,000.
b. a debit to Loss on Redemption for $16,000.
c. a credit to Discount on Bonds for $24,000.
d. a debit to Discount on Bonds Payable for $10,000.
56.On September 10, 2009, Humbert Company issued bonds with a face value of $600,000 for a price of 102. During 2012, Humbert exercised a call provision and redeemed the bonds for 101. At the time of the redemption, the bonds had a balance sheet value of $607,000. The journal entry to record the redemption includes:
a. a credit to Gain on Redemption for $1,000.
b. a debit to Premium on Bonds for $7,000.
c. a credit to Discount on Bonds for $7,000.
d. a credit to Bonds Payable for $600,000.
57.Brown Company is about to issue $300,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The effective interest rate for such securities is 10%. Below are available time value of money factors that Brownchooses from to calculate compounded interest.
|
8 periods, 10%
|
16 periods, 5%
|
8 periods, 12%
|
16 periods, 6%
|
Present Value of 1
|
0.46651
|
0.45811
|
0.40388
|
0.39365
|
Future Value of 1
|
2.14359
|
2.18287
|
2.47596
|
2.54035
|
Present Value of an Annuity of 1
|
5.33493
|
10.83777
|
4.96764
|
10.10590
|
Future Value of an Annuity of 1
|
11.43589
|
23.65749
|
12.29969
|
25.67253
|
To the closest dollar, how much can Brown expect to receive for the sale of these bonds?
a. $319,339
b. $229,371
c. $332,513
d. $540,000
58.Stevens Company is about to issue $400,000 of 10-year bonds paying an 8% interest rate with interest payable semiannually. The effective interest rate for such securities is 10%. Below are available time value of money factors that Stevenschooses from to calculate compounded interest.
|
10 periods, 8%
|
20 periods, 4%
|
10 periods, 10%
|
20 periods, 5%
|
Present Value of 1
|
0.46319
|
0.45639
|
0.38554
|
0.37689
|
Future Value of 1
|
2.15892
|
2.19112
|
2.59374
|
2.65330
|
Present Value of an Annuity of 1
|
6.71008
|
13.59033
|
6.14457
|
12.46221
|
Future Value of an Annuity of 1
|
14.48656
|
29.77808
|
15.93743
|
33.06595
|
To the closest dollar, how much can Stevens expect to receive for the sale of these bonds?
a. $350,151
b. $292,637
c. $800,000
d. $1,405,503
59.Torrey Corporation issued $1,000,000 of ten-year, 10 percent bonds payable dated January 1, 2009. The market rate of interest at that time was 11 percent. The journal entry to record this transaction will include a:
a. debit to Bond Discount.
b. credit to Bond Premium.
c. credit to Bond Discount.
d. credit to Cash.
60.Crosson Company uses the straight-line method of amortization and had a ten-year, 12 percent, $1,000,000 bond issue outstanding that had been sold at a $12,000 discount in 2008. The bonds pay interest on June 30 and December 31, and the company’s fiscal year end is December 31. The journal entry on June 30, 2011, will include:
a. a $6,000 credit to Cash.
b. a $1,200 credit to Bond Premium.
c. a $58,800 debit to Interest Expense
d. a $600 credit to Bond Discount.