Financial Accounting

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

Convertible

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

Term

Callable bonds can be redeemed at the choice of

The bond issuer

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 ______.

Cash; Bonds Payable

Convertible bonds allow the lender to convert each bond into:

Common Stock

Corporate bonds most often pay interest

Semiannually

Most corporate bonds pay interest

Semiannually

Bonds that require payment of the full principle amount of the bond at the end of the loan term are referred to as

Term bonds

Callable bonds

The issuing company can pay off the bonds at any time

The rate of interest printed on the face of a bond is referred to as the interest rate. (Enter one word per blank)

Face

The ______ rate of interest is an implied rate based on the price investors pay to purchase a bond. (Enter one word per blank)

Market

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

Private

A(n) _____ bond is backed by a lien on specified real estate owned by the issuer.

Secured

A(n) _______ bond is backed by a lien on specified real estate owned by the issuer.

Secured

Munster Inc. issues $20 million in bonds and pledges its land holdings as collateral. Munster's bonds are:

Secured

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

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

Which of the following are common characteristics or provisions of bonds?

Term or serial Convertible Secured or unsecured Callable

Term

Bond issue that matures on a single date

Secured

Bonds are backed by collateral

Which of the following statements is correct?

Bonds may sell below, above, or at their face amount.

Convertible bonds

Bonds that can be exchanged for shares of stock in the issuing company

Serial bonds

Bonds that mature in installments

ABC Company issues a bond with a face value of $100,000 at face amount on January 1. The bond carries a stated annual interest rate of 6% payable in cash on December 31 of each year. If ABC issues monthly financial statements, it must make an adjusting entry on January 31 that includes ______.

a debit to Interest expense of $500 a credit to Interest payable of $500

The ______ rate of interest is used to compute the cash interest paid to bondholders. (Enter one word per blank)

Stated

Which of the following information is necessary to calculate the issue price of bonds?

interest payment each period face amount of bonds number of periods to maturity

Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance should include:

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

In a private placement of bonds, bonds may be sold to

A single large investor

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

Annuity

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

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

Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance of the bonds should include debit(s) to:

Discount on bonds payable for $2,000

Bonds that mature on one specific date are called _____ bonds, whereas bonds that mature in installments are referred to as ______ bonds.

Term Serial

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

The true interest rate used by investors to value a bond issue is referred to as the:

market interest rate

A common reason for redeeming a bond prior to its maturity date is that

market interest rates decreased.

The _____ rate of interest is an implied rate based on the price investors pay to purchase a bond. (Enter one word per blank)

market or effective

A corporation will issue bonds when

the interest on the bond plus the bond issue cost is less than the interest payments for a bank loan.