BSA 13

1. Accrued interest on bonds that are purchased between interest dates

a. Is ignored by both the seller and the buyer.
b. Increase the amount a buyer must pay to acquire the bonds.
c. Is recorded as a loss on the sale of the bonds.
d. Decrease the amount the buyer must pay to acquire the bonds.

2. To compute the price to pay for a bond, what present value concept is used?
a. Only the present value of 1 concept
b. Only the present value of an annuity of 1 concept
c. Both the present value of 1 concept and present value of an annuity of 1
concept
d. Neither the present value of 1 concept nor the present value of annuity of 1
concept

3. If a 5-year bond matures on October 1, 2011 and interest is payable semi-

annually, the interest dates are
a. April 1 and October 1
b. January 1 and July 1
c. May 1 and November 1
d. Not determinable
4. Bonds usually sell at a discount when
a. Investors are willing to invest in the bonds at the stated interest rate.
b. Investors are willing to invest in the bonds at rates that are lower than the
stated interest rate.
c. Investors are willing to invest in the bonds only at rates that are higher than
the stated interest rate.
d. A capital gain is expected.

5. A bond purchased on June 1 of the current year has interest payment dates of
April 1 and October 1. Bond interest income for the current year ended
December 31 is for
a. 3 months
b. 4 months
c. 6 months
d. 7 months
6. An entity did not amortize the discount on its “trading” bond investment. What
effect would this have on the carrying amount of the investment and on net
income respectively?
a. Overstated, overstated
b. Understated, overstated
c. Understated, understated
d. No effect, no effect

7. In the prior year, an entity acquired at a premium 10-year bond as a long-term

investment. At the end of the current year, the bond is quoted at a small discount.
Which of the following situations is the most likely cause of the decline in the
bond’s market value?
a. The bond issuer issued a stock dividend.
b. The bond issuer is expected to call the bond at a premium, which is less than
the investor’s carrying amount.
c. Interest rates have declined since the investor purchased the bond.
d. Interest rates have increased since the investor purchased the bond.

8. An investor purchased a bond as a long-term investment between interest dates

at a premium. At the purchase date the cash paid to the seller is
a. The same as the face amount of the bond
b. The same as the face amount of the bond plus accrued interest
c. More than the face amount of the bond
d. Less the face amount of the bond

9. When the interest payment dates of a bond are May 1 and November 1, and a
bond is purchased on June 1, the amount of cash paid by the investor would be
a. Decreased by accrued interest from June 1 to November 1.
b. Decreased by accrued interest from May 1 to June 1.
c. Increased by accrued interest from June 1 to November 1.
d. Increased by accrued interest from May 1 to June 1.

10. An investor purchased a bond classified as a long-term investment between

interest dates at a premium. At the purchase date, the carrying amount of the
bond is more than the
I. Cash paid to seller
II. Face Value of bond
a. Both I and II
b. I only
c. II only
d. Neither I and II