Accounting Chapter 9 - Long-Term Liabilities

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

-A debit to interest expense of $500 -A credit to cash of $500

Periodic payments on installment notes typically include

-A portion that reduces the outstanding loan balance -A portion that reflects interest

Bonds may be retired __

At maturity or retired early

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to __ and credit to __

Cash Bonds payable

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

Convertible

Loans requiring periodic payments of interest and principle are referred to as __ notes:

Installment

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

Secured

Corporate bonds most often 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 can be redeemed at the choice of

the bond issuer

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

Lease

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

Term bonds

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

stated or nominal

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)

bond

A corporation that wishes to borrow from the general public rather than a bank will issue __

bonds

The two types of financing are

debt financing and equity financing

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

face or stated

When a corporation repurchases its bonds from the bondholders, the corporation __ the bonds

retired

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

secured

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 debit to interest expense of $6,000 -A credit to Cash of $6,000

If AMC 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 cash $100,000 Credit to bonds payable $100,000

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

Debt Equity

True or false: At the date of issue, the stated rate of interest on the bond is always equal to the market rate of interest on the bond

False