20. A bond sinking fund is a A) Specific type of bond B) Special fund set aside
ID: 2444307 • Letter: 2
Question
20.
A bond sinking fund is a
A)
Specific type of bond
B)
Special fund set aside for scholarships of bond holders
C)
Special fund where the company that issued the bonds must makeperiodic payments.
D)
Special fund to hold money from bondholders that don’tcollect their interest payments
21.
A bond with a face value of $100,000 and a quoted price of 98¼ has a selling price of (page 579)
A)
$98,250.
B)
$98,025.
C)
$98,002.
D)
$98,500.
22.
A corporation issues $100,000, 8%, 5-year bonds on January 1,2009, for $104,200. Interest is paid semiannually on January 1 andJuly 1. If the corporation uses the straight-line method ofamortization of bond discount, the amount of bond interest expenseto be recognized on July 1, 2009, is
A)
$3,580.
B)
$4,000.
C)
$4,420.
D)
$8,420.
20.
A bond sinking fund is a
A)
Specific type of bond
B)
Special fund set aside for scholarships of bond holders
C)
Special fund where the company that issued the bonds must makeperiodic payments.
D)
Special fund to hold money from bondholders that don’tcollect their interest payments
Explanation / Answer
22. IS A )3580
REASON :
Par value of Bonds100,000
Issue price of Bonds104,200
Premium on issue4,200
No. of years = 5
No. of periods= 5x2 = 10periods
Amortization of Bond premium per period =4,200/10 = 420 per period
Interest payable = 100,000 x 8% x½ = 4,000
Interest expense = 4,000 - 420 =3,580
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