Question

-6 A company issued 5-year, 7% bonds with a par value of $100,000. The company received $97,947 for the bonds. Using the straight-line method, the amount of mees expense for the first semiannual interest period is: A. $3,500.00 B. $3,294.70 C. $3,705.30 D. $7,410.60 E. $7,000.00 C . Adidas issued 10-year, 8% bonds with a par value of $200,000. Interest is paid semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in cash proceeds. Which of the following statements is true? A. Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each B. Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each C. Adidas must pay $200,000 at maturity plus 20 interest payments of $7.500 each D. Adidas must pay $206,948 at maturity and no interest payments E. Adidas must pay $200,000 at maturity and no interest payments 20 Stockholders' equity consists of: A. Contributed capital and retained earnings B. Long-term assets C. Retained earnings and cash D. Contributed capital and par value E. Premiums and discounts A dividend preference for preferred stock means that: A. Preferred shareholders are guaranteed dividends B. Dividends must be declared on preferred stock C. Dividends are paid quarterly D. Preferred stockholders are allocated their dividends before dividends are allocated to common shareholders E. Preferred stockholders prefer dividends more than common stockholders

Answer 1

Solution Question # 26 Par Value of Bonds $100,000 $97,947 Issue price of Bonds Stated rate of interest 7.00% 5 Years Bond life Interest payment frequency Semi-Annual = Par value x Stated Rate of Interest x 6/12 Semi-Annual interest payment $3,500 = $100,000 x 7.00% x 6/12 Computation of Semiannual interest expense using straight-line method Total semiannual interest payment during the entire bond life ($3,500 x 10) $35.000 Payment of par value on maturity $100,000 $135,000 Total cash payment during the entire bond life Less: Issue price of bonds Total interest expense to be recognized during the entire bonds life ($97,947) $37,053 Semi-annual interest expense to be recognized ($37,053 / (5 x 2)} $3,705.30 The company shall record the interest expense of $3,705.30 on each semiannual interest payment date. Hence, the interest expense for the first semiannual interest period is $3,705.30. The correct option is, C. $3,705.30 Question # 27 $200,000 Par Value of Bonds Issue price of Bonds $206,948 Stated rate of interest 8.00% Market rate of interest 7.50% Bond life 10 Years Total interest payments during the entire bonds life (10 Year x 2) Interest payment frequency Semi-Annual Semi-Annual interest payment = Par value x Stated Rate of Interest x 6/12 $8,000 = $200,000 x 8.00% x 6/12 Addidas shall pay $8,000 on each interest payment date for 20 semi-annual periods, and it shall repay the par value of $200,000 at maturity. The correct option is, A. Addidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each. Question # 28 Stockholders' equity consists of Contributed capital and retained earnings. Hence the correct option is, A. Contributed capital and retained earnings Question # 29 A dividend preference for preferred stock means that: D. preferred stockholders are allocated their dividends before dividends are allocated to common shareholders