Accounting Ch. 10
To reduce the risk that they won't get paid, lenders frequently require borrowers to pledge designated assets as . . . for loans.
collateral
Interest Expense
cost incurred by the borrower for the use of some other entities' assets
Bond premiums reduce the . . . interest rate
effective
Serial Bonds
mature at specified intervals throughout the life of the total issue
Term Bonds
mature on a specified date in the future
In practice, bonds normally pay interest . . .
semiannually
A line of credit . . .
- usually limits the amount that can be borrowed - normally has a fluctuating interest rate
Assume that a $1,000 face value bond sells at a $100 discount. If the bond has a 7% stated rate of interest and a 5 year term to maturity, the effective rate of interest is approximately . . .
10%
The letters in the acronym EBIT stand for . . .
Earnings Before Interest and Taxes
With respect to a bond liability, the lender is called the . . . , while the borrower is called the . . .
bondholder, issuer
Bond obligations normally . . .
have longer terms to maturity than bank notes
If a bond sells at a discount, the effective rate of interest will be . . . the stated rate of interest.
higher than
Loans that require payments of principle and interest at regular intervals are called . . .
installment notes
Which of the following is deductible for tax purposes?
interest expense only
Effective Rate of Interest
interest rate the exists on the day the bonds are issued
Stated Rate of Interest
interest rate written in the bond certificate
Bonds issued at a discount are sold for . . . face value.
less than
Bond Premium
the difference between the selling price and the face amount of a bond sold for more than the face amount