Long Term Liabilities MC EXERCISE 1 
Long Term Liabilities – Bonds
MULTIPLE CHOICE QUESTIONS EXERCISE 1. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that
a. bond interest is deductible for tax purposes.
b. interest must be paid on a periodic basis regardless of earnings.
c. income to stockholders may increase as a result of trading on the equity.
d. the bondholders do not have voting rights.
2. If a corporation issued $3,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?
a. $3,000,000
b. $45,000
c. $150,000
d. $105,000
3. Secured bonds are bonds that
a. are in the possession of a bank.
b. are registered in the name of the owner.
c. have specific assets of the issuer pledged as collateral.
d. have detachable interest coupons.
4. Bonds that mature at a single specified future date are called
a. coupon bonds.
b. term bonds.
c. serial bonds.
d. debentures.
5. Bonds that may be exchanged for common stock at the option of the bondholders are called
a. options.
b. stock bonds.
c. convertible bonds.
d. callable bonds.
6. A major disadvantage resulting from the use of bonds is that
a. earnings per share may be lowered.
b. interest must be paid on a periodic basis.
c. bondholders have voting rights.
d. taxes may increase.
7. The contractual interest rate is always stated as a(n)
a. monthly rate.
b. daily rate.
c. semiannual rate.
d. annual rate.
8. A $1,000 face value bond with a quoted price of 98 is selling for
a. $1,000.
b. $980.
c. $908.
d. $98.
9. A bond with a face value of $200,000 and a quoted price of 102⅛ has a selling price of
a. $240,225.
b. $204,025.
c. $200,225.
d. $204,250.
10. Premium on Bonds Payable
a. has a debit balance.
b. is a contra account.
c. is considered to be a reduction in the cost of borrowing.
d. is deducted from bonds payable on the balance sheet.
11. On January 1, 2014, Meeks Corporation issued $5,000,000,
MULTIPLE CHOICE QUESTIONS EXERCISE 1. From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that
a. bond interest is deductible for tax purposes.
b. interest must be paid on a periodic basis regardless of earnings.
c. income to stockholders may increase as a result of trading on the equity.
d. the bondholders do not have voting rights.
2. If a corporation issued $3,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?
a. $3,000,000
b. $45,000
c. $150,000
d. $105,000
3. Secured bonds are bonds that
a. are in the possession of a bank.
b. are registered in the name of the owner.
c. have specific assets of the issuer pledged as collateral.
d. have detachable interest coupons.
4. Bonds that mature at a single specified future date are called
a. coupon bonds.
b. term bonds.
c. serial bonds.
d. debentures.
5. Bonds that may be exchanged for common stock at the option of the bondholders are called
a. options.
b. stock bonds.
c. convertible bonds.
d. callable bonds.
6. A major disadvantage resulting from the use of bonds is that
a. earnings per share may be lowered.
b. interest must be paid on a periodic basis.
c. bondholders have voting rights.
d. taxes may increase.
7. The contractual interest rate is always stated as a(n)
a. monthly rate.
b. daily rate.
c. semiannual rate.
d. annual rate.
8. A $1,000 face value bond with a quoted price of 98 is selling for
a. $1,000.
b. $980.
c. $908.
d. $98.
9. A bond with a face value of $200,000 and a quoted price of 102⅛ has a selling price of
a. $240,225.
b. $204,025.
c. $200,225.
d. $204,250.
10. Premium on Bonds Payable
a. has a debit balance.
b. is a contra account.
c. is considered to be a reduction in the cost of borrowing.
d. is deducted from bonds payable on the balance sheet.
11. On January 1, 2014, Meeks Corporation issued $5,000,000,