ACCT 2013H Chapter 9 Smartbook

annuity

A series of equal amounts paid or received over equal time periods is called a(n) _____________.

lease

A(n) ____________ is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time.

market interest rates decreased

A common reason for redeeming a bond prior to its maturity date is that a) market interest rates increased b) market interest rates decreased c) the market price of bonds decreased

lease

A contract in which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a(n) _____________.

bonds

A corporation that wishes to borrow from the general public rather than a bank will issue a) common stock b) notes payable c) bonds d) preferred stock

bond

A formal debt instrument that obligates the borrower to repay a stated amount (referred to as the principal or face amount) at a specified maturity date can be a note or a(n) a) bond b) common stock c) obligation payment d) maturable asset

The issue price will be above the bond's face value

ABC Company is in the process of issuing bonds. The bonds have a stated interest rate of 6%, which is 2% above the current market rate. What effect will the two interest rates have on the bond issue price? a) The issue price will equal the bond's face value. b) The issue price will be below the bond's face value c) The issue price will be above the bond's face value

a debit to Interest expense of $6,000, a credit to Cash of $6,000

ABC Company issues a bond with a face value of $100,000 at face amount on January 1. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes ______. a) a debit to Interest payable of $6,000 b) a credit to Interest expense of $6,000 c) a debit to Interest expense of $6,000 d) a credit to Cash of $6,000

term bonds

Bonds that require payment of the full principle amount of the bond at the end of the loan term are referred to as a) convertible bonds b) serial bonds c) term bonds

greater than the market interest rate

Bonds will be issued a premium if the stated interest rate is a) less than the market interest rate b) greater than the market interest rate c) fluctuating on the day of issuance d) equal to the market interest rate

the bond issuer

Callable bonds can be redeemed at the choice of a) the bond issuer b) the bondholder c) both the bond issuer and bondholder

common stock

Convertible bonds allow the lender to convert each bond into: a) common stock b) preferred stock c) secured bonds

semiannually

Corporate bonds most often pay interest _______________.

private

Dorothea Inc. is selling all of its bonds to a large pension fund. This an example of a(n) ______________ placement.

debt, equity

Financing with __________ requires borrowing, whereas financing with __________ requires issuing shares of stock.

A series of amounts that are equal, Equal time periods between payment dates

Identify the characteristics of an annuity. a) A series of amounts that are equal b) Equal time periods between payment dates c) A series of amounts that vary from period to period d) Varying time periods between payment dates

debt to equity ratio, times interest earned ratio

Identify two ratios commonly used to assess a company's financial risk. a) gross profit ratio b) current ratio c) debt to equity ratio d) times interest earned ratio e) equity yield ratio

debit to Cash of $100,000 and a credit to Bonds payable of $100,000

If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value, the transaction will be recorded with a a) debit to Cash of $100,000 and a credit to Bonds payable of $99,000 and to Premium on bonds payable of $1,000 b) debit to Cash of $100,000 and a credit to Bonds payable of $100,000 c) debit to Bonds payable of $100,000 and a credit to Cash of $100,000

a single large investor

In a private placement of bonds, bonds may be sold to a) the general public b) an underwriter who sells it to individual investors c) a single large investor

long-term debt

In order to assess a company's financial risk, investors and creditors frequently consider and analyze the company's: a) net income b) long-term debt c) current liabilities d) total assets

installment

Loans requiring periodic payments of interest and principle are referred to as ____________ notes.

installment

Loans requiring periodic payments of interest and principle are referred to as _______________ notes.

secured

Munster Inc. issues $20 million in bonds and pledges its land holdings as collateral. Munster's bonds are: a) unsecured b) secured c) convertible

present value, market

Neumann Corporation is planning to issues bonds with a face amount of $2 million. If Neumann's accountant, Betty, wants to calculate the expected issue she should calculate the _____________ __________ of the related future cash payments using the ___________ interest rate.

$92,278

On January 1, year 1, Ziegler issued 5-year bonds with a stated rate of 8% and a face amount of $100,000. The bonds pay interest semiannually. The market rate of interest was 10%. Calculate the issue price of the bonds. Round your answer to the nearest dollar. a) $92,418 b) $100,196 c) $92,278 d) $100,000

$200,000

On January 2, 2018, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. On the date of issue, Meister should recognize a liability of a) $200,000 b) $212,000 c) $260,000

a portion that reflects interest, a portion that reduces the outstanding loan balance

Periodic payments on installment notes typically include a) installment fees b) a portion that reflects interest c) a portion that reduces the outstanding loan balance d) an increase in stockholders' equity

long-term liabilities

Quattro Lending Company is considering lending a large sum to Eleance Inc. During its decision process, Quattro should especially consider Eleance's existing: a) current assets b) current liabilities c) long-term liabilities d) net income

contra-liability

The Discount on Bonds Payable account is classified as a(n) a) contra-liability b) asset c) loss d) expense

stated

The _____________ rate of interest is used to compute the cash interest paid to bondholders.

financial

The debt to equity and the times interest earned ratios provide investors and creditors with a measure of ____________ risk.

total liabilities divided by total stockholders' equity

The debt to equity ratio is calculated as a) current liabilities divided by total stockholders' equity b) long-term debt divided by total stockholders' equity c) total liabilities divided by total stockholders' equity d) noncurrent liabilities divided by current liabilities + stockholders' equity

Cash; Bonds Payable

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______. a) Cash; Bonds Receivable b) Notes Payable; Cash c) Bonds Payable; Cash d) Cash; Bonds Payable

stated

The rate of interest printed on the face of a bond is referred to as the _____________ interest rate.

interest expense

The times interest earned formula is calculated as net income plus interest expense plus tax expense divided by ____________ ____________.

equity financing, debt financing

The two types of financing are a) operating financing b) investing financing c) equity financing d) debt financing

A debit to discount on bonds payable for $2,000, A credit to bonds payable for $100,000

Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance should include: a) A debit to discount on bonds payable for $2,000 b) A debit to loss on bond issuance c) A credit to bonds payable for $100,000 d) A credit to discount on bonds payable for $2,000

false

True or False? The debt to equity ratio is calculated as total liabilities divided by common stock.

false

True or False? The times interest earned formula is net income divided by interest expense.

contra-liability

Werner issues bonds at a discount. The related Discount account should be classified as a(n) __________________.

retires

When a corporation repurchases its bonds from the bondholders, the corporation ___________ the bonds.

secured or unsecured, convertible, callable

Which of the following are common characteristics or provisions of bonds? a) secured or unsecured b) convertible c) free or redeemable d) perpetual or periodic e) callable

term or serial, secured or unsecured, convertible

Which of the following are common characteristics or provisions of bonds? a) term or serial b) secured or unsecured c) convertible d) perpetual or periodic e) indefinite or redeemable

They obligate the issuing company to pay a specific amount, They obligate the issuing company to repay the bonds at a specific date

Which of the following are correct regarding bonds? a) They obligate the issuing company to pay an estimated amount b) They obligate the issuing company to repay the bonds when interest rates increase c) They obligate the issuing company to pay a specific amount d) They obligate the issuing company to repay the bonds at a specific date e) They obligate the issuing company to repay the bonds when market interest rates decrease

Bonds may be retired at maturity or retired early

Which of the following statements is correct? a) Bonds can be retired only at maturity b) Bonds may be retired at maturity or retired early c) Bonds for which the effective interest rate rises must be retired early

term

____________ bonds require payment of the full principle amount of the bond at the end of the loan term.

secured

_____________ bonds are supported by a specific asset the issuer pledges as collateral.

convertible

_________________ bonds are retired when the bondholder exchanges them for the issuing company's stock.