Learnsmart 10

A company issues $500,000 of 9%, 10-year bonds dated January 1 and pay interest semiannually on June 30 and December 31 each year. The bonds are sold for $480,000, yielding a discount of $20,000. Using the straight-line amortization method, the company will amortize the discount by ________ on each semiannual interest payment. Multiple choice question. $23,500 $1,000 $2,000 $48,000

$1,000

Bonds are securities that can be readily bought and sold. A bond issue consists of a number of bonds, usually in denominations of ______ or _____ and is sold to many different lenders. Multiple choice question. $1,000; $5,000 $100; $1,000 $500; $5,000 $1,000; $10,000

$1,000; $5,000

Fill in the blank question. A $200,000 4 year bond was issued for $210,000. The semi-annual amortization of the bond premium using the straight-line method equals $

Blank 1: 1,250

A company issues $50,000 of 5%, 10-year bonds dated January 1 and pay interest semiannually on June 30 and December 31 each year. The bonds are sold for $48,000. Using the straight-line amortization method, the company will amortize the discount by $ on each semiannual interest payment.

Blank 1: 100

Since bond market values are expressed as a percentage of their bond value, a $1,000 bond that is being sold at 93 would be trading at $.

Blank 1: 930

A company issues $100,000 of 5%, 10-year bonds dated January 1. The bonds pay interest semiannually on June 30 and December 31 each year. If the bonds are sold at par value, the issuer records the sale with a debit to in the amount of $.

Blank 1: Cash Blank 2: 100000

A company issues $50,000 of 8%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the first semi-annual interest payment with a credit to

Blank 1: Cash Blank 2: 2000

A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a credit to in the amount of $.

Blank 1: Cash Blank 2: 75000

Fill in the blank question. A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a credit to in the amount of $.

Blank 1: Cash Blank 2: 75000

A(n) is the issuer's written promise to pay an amount equaling the par value. The par value is paid at a specified future date. Most often, the issuer is required to make semiannual interest payments.

Blank 1: bond

A bond is evidence of the company's debt.

Blank 1: certificate

When the market rate is 10%, a company issues $60,000 of 12%, 10-year bonds dated January 1, 2017, that mature on December 31, 2026, and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a (debit/credit) to Cash in the amount of $.

Blank 1: credit Blank 2: 60000

A company issues $80,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $84,000 for the bonds, the issuer will record the sale with a (debit/credit) to (Discount/Premium) on Bonds Payable in the amount of $4,000.

Blank 1: credit Blank 2: Premium

A company issues $50,000 of 9%, 10-year bonds dated January 1, 2020, that mature on December 31, 2029, and pay interest semiannually of $2,250. On December 31, 2024, when the bond premium is $2,500, the bonds are called for $55,000. The journal entry to record this transaction would record a (debit/credit) to Loss on Bond Retirement of $2,500.

Blank 1: debit

A company issues $60,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $59,000 for the bonds, the issuer will record the sale with a (debit/credit) to Discount on Bonds Payable in the amount of $.

Blank 1: debit Blank 2: 1000

Fill in the blank question. A company issues $90,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $85,000 for the bonds, the issuer will record the sale with a (debit/credit) to Discount on Bonds Payable in the amount of $.

Blank 1: debit Blank 2: 5000

When the market rate is 8%, a company issues $50,000 of 9%, 10-year bonds dated January 1, 2017, that mature on December 31, 2026, and pay interest semiannually for a selling price of $60,000. When the bonds mature, the issuer records its payment of principal with a (debit/creditto Bonds Payable in the amount of $

Blank 1: debit Blank 2: 50000

A company issues $60,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $62,000 for the bonds, the premium on bonds payable will (increase/decrease) total interest expense recognized over the life of the bond by $.

Blank 1: decrease Blank 2: 2000

Fill in the blank question. A company issues $60,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $62,000 for the bonds, the premium on bonds payable will (increase/decrease) total interest expense recognized over the life of the bond by $.

Blank 1: decrease Blank 2: 2000

Fill in the blank question. A(n) on bonds payable occurs when a company issues bonds with a contract rate less than the market rate.

Blank 1: discount

Fill in the blank question. When a bond contract rate is less than the current market rate on the date of issuance, the bond will be sold at a(n) .

Blank 1: discount

Fill in the blank question. Total bond interest is the sum of the interest payments plus the bond discount.

Blank 1: expense

The legal document that describes the rights and obligations of both the bondholders and the issuer is called the bond .

Blank 1: indenture

Fill in the blank question. A company borrows $60,000 from a bank to purchase equipment. It signs an 8% note requiring six annual payments of principal plus interest. This is an example of a(n) note.

Blank 1: installment

The straight-line bond amortization method allocates an equal portion of the total bond to each interest period.

Blank 1: interest Blank 2: expense

The rate that borrowers are willing to pay and lenders are willing to accept for a particular bond at its risk level is called the bond's rate.

Blank 1: market

The par value of a bond, also called the face amount or face value, is paid at a stated future date, known as the bond's date.

Blank 1: maturity

Fill in the blank question. Star Bank provided cash to a customer, J. Brown, to pay for a building. Star required that Brown also sign a(n) (mortgage/installment/bond) note payable, which allows the bank to be paid by the cash proceeds of the sale of the building if Brown fails to pay on the note.

Blank 1: mortgage

Fill in the blank question. Lyle Co. borrowed $20,000 from First Bank by signing a written promise to pay a definite sum of money on a specific future date. Lyle will record this in the general ledger as a(n) payable

Blank 1: note or notes

The bond carrying value can be determined by taking the bond value minus the discount on bonds payable.

Blank 1: par

Most bonds require (interest/par) value to be repaid at maturity and (interest/par) to be paid semiannually.

Blank 1: par Blank 2: interest

Fill in the blank question. When the market rate is less than the bond contract rate on the date of issuance, the bonds will be sold at a (discount/premium) .

Blank 1: premium

A company issues $50,000 of 8%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31, each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a debit to ______ in the amount of ______. Multiple choice question. Cash; $90,000 Bonds Payable; $90,000 Bonds Payable; $50,000 Interest Expense; $50,000 Cash; $50,000

Bonds Payable; $50,000

When the market rate is 12%, a company issues $50,000 of 9%, 10-year bonds dated January 1, 2017, that mature on December 31, 2026, and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a debit to _______ in the amount of _______. Multiple choice question. Bonds Payable; $50,000 Cash; $50,000 Bonds payable; $95,000 Cash; $95,000

Bonds Payable; $50,000

Which of the following statements is an advantage of bond financing? Multiple choice question. Interest on bonds is payable at maturity. Bonds can decrease return on equity. Bonds do not affect owner control.

Bonds do not affect owner control.

Which of the following statements is not an advantage of bond financing? Multiple choice question. Bonds can increase return on equity. Interest on bonds is tax deductible. Bonds do not affect owner control. Bonds require interest payments and payment of par value.

Bonds require interest payments and payment of par value.

Which of the following statements is not an advantage of bond financing? Multiple choice question. Interest on bonds is tax deductible. Bonds can increase return on equity. Bonds require interest payments and payment of par value. Bonds do not affect owner control.

Bonds require interest payments and payment of par value.

Which of the following statements are disadvantages of bond financing? (Check all that apply.) Multiple select question. Large bonds issuances can affect owner control. Bonds require payment of interest and par value. Unlike equity financing, bond interest is not tax deductible. Bonds can decrease return on equity.

Bonds require payment of interest and par value. Bonds can decrease return on equity.

Which of the following is a disadvantage of bond financing? Multiple choice question. Bonds require payment of periodic interest and the par value. Bonds can increase return on equity. Large bond issuances can decrease owner control.

Bonds require payment of periodic interest and the par value.

A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $69,000 for the bonds, the issuer will record the sale with a debit to which of the following accounts?

Cash and Discount on Bonds Payable

A company issues $100,000 of 6%, 10-year bonds dated January 1, that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the first semi-annual interest payment with which of the following entries? (Check all that apply.) Multiple select question. Credit to Cash for $3,000. Debit to Interest Expense for $6,000. Credit to Cash for $6,000. Debit to Interest Expense for $3,000.

Credit to Cash for $3,000. Debit to Interest Expense for $3,000.

A company issues $500,000 of 6%, 10-year bonds dated January 1, 2017 that mature on December 31, 2026. The bonds pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the sale with which of the following entries? Multiple choice question. Debit to Bond Payable $500,000; and credit to Cash $500,000. Debit to Cash $500,000; debit to Interest Expense $300,000; and credit to Bond Payable $800,000. Debit to Cash $500,000; and credit to Bond Payable $500,000.

Debit to Cash $500,000; and credit to Bond Payable $500,000.

A company issues $50,000 of 9%, 10-year bonds dated January 1, 2018, that mature on December 31, 2027, and pay interest semiannually for $2,250. On December 31, 2022, when the bond premium is $2,500, the bonds are called for $52,000. The journal entry to record this transaction would record a (Gain/Loss) ______ on bond retirement in the amount of ______. Multiple choice question.

Gain; $500

A company issues $100,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the first semi-annual interest payment with a debit to which of the following accounts and in what amount? Multiple choice question. Interest Payable, $2,500 Cash, $5,000 Interest Expense, $5,000 Interest Expense, $2,500 Cash, $2,500 Interest Payable, $5,000

Interest Expense, $2,500

A company issues $100,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the first semi-annual interest payment with a debit to which of the following accounts and in what amount? Multiple choice question. Interest Payable, $5,000 Cash, $2,500 Cash, $5,000 Interest Payable, $2,500 Interest Expense, $2,500 Interest Expense, $5,000

Interest Expense, $2,500

A company issues $50,000 of 9%, 10-year bonds dated January 1, 2019, that mature on December 31, 2029, and pay interest semiannually for $2,250. On December 31, 2023, when the bond premium is $2,500, the bonds are called for $54,000. The journal entry to record this transaction would record a (Gain/Loss) ______ on Bond Retirement in the amount of ______. Multiple choice question. Loss; $1,500 Loss; $4,000 Gain; $4,000 Gain; $1,500

Loss; $1,500

The bond carrying value can be determined by which of the following formulas? Multiple choice question. Market value + discount on bonds payable Par value - discount on bonds payable Par value + discount on bonds payable Market value - discount on bonds payable

Par value - discount on bonds payable

Forever, Inc. announces an offer to issue bonds with a $100,000 par value, an 8% annual contract rate (paid semiannually) and a two-year life. The market rate is 10%, so the bonds will be sold at: Multiple choice question. a premium present value term a discount

a discount

Most bonds require par value to be repaid _______ and interest to be paid _________. Multiple choice question. semiannually; semiannually at the maturity date; at the maturity date at the maturity date; semiannually

at the maturity date; semiannually

When a bond is sold at a discount, the ________ value will increase at each semi-annual interest payment by the amortization of bond discount. Multiple choice question. carrying market coupon par

carrying

A bond _________ may be issued as evidence of the company's debt. Multiple choice question. article agreement certificate

certificate

The ________ rate is the interest rate specified in the indenture—sometimes referred to as the coupon rate, stated rate, or nominal rate. Multiple choice question. contract market par

contract

A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $103,000 for the bonds, the issuer will record the sale with a (debit/credit) ______ to Bond Payable in the amount of _______. Multiple choice question. debit; $100,000 credit; $100,000 debit; $103,000 credit; $103,000

credit; $100,000

A company issues $90,000 of 9%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a (debit/credit) ________ to bond payable in the amount of _______. Multiple choice question. credit; $171,000 debit; $171,000 debit; $90,000 credit; $90,000

debit; $90,000

A company issues $90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $95,000 for the bonds, the $5,000 premium on bonds payable will ________ total interest expense recognized over the life of the bond. Multiple choice question. increase not affect decrease

decrease

When a bond is sold at a premium, the carrying value will _______ each period that the premium is amortized. Multiple choice question. decrease increase stay the same

decrease

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the bond ______. This document describes the number of bonds authorized, their par value, and the contract interest rate. Multiple choice question. indenture document article agreement

indenture

A(n) _____ note is an obligation requiring a series of payments to the lenders. Multiple choice question. secured registered term installment

installment

A bond discount increases __________ at each semi-annual interest payment. Multiple choice question. interest payable discount expense bonds payable interest expense

interest expense

The bond's _______ rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level. Multiple choice question. coupon market par contract

market

A(n) _______ is a legal agreement that helps to protect a lender if a borrower fails to make required payments on notes or bonds. This agreement gives the lender the right to be paid from the cash proceeds of the sale of the borrower's assets, as identified in the agreement. Multiple choice question. mortgage note payable collateral agreement

mortgage

A _____ _____ is similar to a bond payable but is normally transacted with a single lender such as a bank. Multiple choice question. account payable account receivable note payable note receivable

note payable

A bond is its issuer's written promise to pay an amount equaling the _____ value of the bond with interest. Multiple choice question. carrying par market selling

par

A bond is its issuer's written promise to pay an amount equaling the _____ value of the bond with interest. Multiple choice question. par selling market carrying

par

The ________ value of a bond, also called the face amount or face value, is paid at a stated future date, known as the bond's maturity date. Multiple choice question. par fair market value net realizable value selling price

par

The bond contract rate determines the annual interest paid by multiplying the bond ______ value by the contract rate. Multiple choice question. par premium market

par

When the contract rate of the bonds is higher than the market rate, the bond sells at a higher price than par value. The amount by which the bond price exceeds par value is the _______ on bonds. Multiple choice question. discount amortization premium market

premium

The ________ bond amortization method allocates an equal portion of the total bond interest expense to each interest period. Multiple choice question.

straight-line