Question : 100.Suppose investors decided to sell their holdings of capital stock : 1259424

 

 

100.Suppose investors decided to sell their holdings of capital stock in order to purchase outstanding bonds payable and as a result, the prices of bonds payable increased. What would be the likely impact on market interest rates?   

A. Market interest rates will be unaffected.

 

B. Market interest rates will increase.

 

C. Market interest rates will fall.

 

D. Although interest rates will change, it is impossible to predict the direction of change.

 

 

 

 

101.Sinking funds usually appear on the balance sheet as:   

A. Current asset.

 

B. Long-term investment.

 

C. Current liability.

 

D. Appropriation of retained earnings.

 

 

 

 

102.A company issues $50 million of bonds at par on January 1, 2015. The bonds pay 10% interest semi-annually on 12/31 and 6/30 and mature in 20 years. The journal entry when the bonds are sold is:   

A. 

 

 

B. 

 

 

C. 

 

 

D. 

 

 

 

 

 

103.Bonds which may be exchanged for a specified number of shares of capital stock are called:   

A. Junk bonds.

 

B. Convertible bonds.

 

C. Debenture bonds.

 

D. Mortgage bonds.

 

 

 

 

104.Which of the following is not an accurate statement regarding the distinction between debt and equity?   

A. Only equity is considered a source of financing for operations of the business, since debt must be repaid at a specified maturity date.

 

B. If a business ceases operations and liquidates, claims of all creditors have legal priority over claims of the stockholders.

 

C. Most debt requires the borrower to pay interest; equity financing does not obligate the company to make a specified payment.

 

D. The providers of equity are owners of the business; the providers of borrowed funds are creditors.

 

 

 

 

105.When a corporation has a right to redeem bonds in advance of the maturity date, the bond is considered a:   

A. Convertible bond.

 

B. Callable bond.

 

C. Junk bond.

 

D. Debenture bond.

 

 

 

 

106.A bond that is not secured is also known as:   

A. A sinking fund.

 

B. A mortgage.

 

C. A debenture.

 

D. A junk bond.

 

 

 

 

107.In relation to a bond issue, the role of the underwriter is to:   

A. Guarantee payment to bondholders of both the periodic interest payments and the maturity value.

 

B. Purchase the entire bond issue from the issuing corporation and then sell the bonds to the public.

 

C. Represent the interests of the bondholders and, if necessary, to take legal action on their behalf.

 

D. Maintain a subsidiary ledger of individual bondholders and mail out the periodic interest checks.

 

 

 

 

108.Elm Corporation plans to invest $300 million to earn about 15% before income taxes. The company is considering whether it should raise the $300 million by issuing 10% bonds payable or capital stock. If the company issues the bonds, it will probably report:   

A. Lower net income and lower income taxes expense than if it issues capital stock.

 

B. Higher net income and higher income taxes expense than if it issues capital stock.

 

C. Lower net income and higher income taxes expense than if it issues capital stock.

 

D. Higher net income and lower income taxes expense than if it issues capital stock.

 

 

 

 

109.Which of the following does not affect the market price of an outstanding bond issue?   

A. Fluctuations in the current market rate of interest.

 

B. The credit rating of the issuing corporation.

 

C. The price at which the bonds were originally issued.

 

D. The length of time remaining until the bonds’ maturity date.