ch. 9 smartbook

the two types of financing are

-equity financing -debt financing

true or false when pricing a bond the present value of the interest payments is added to the present value of the maturity value of the bond

true

which of the following statements is correct

bonds may be retired at maturity or retired early

munster inc. issues 20million in bonds and pledges its land holdings as collateral. Munsters bonds are

secured - backed by collateral

convertible bonds allow the lender to convert each bond into

common stock

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

lease

the _______ rate of interest is used to compute the cash interest paid to bondholders

stated interest rate

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

term bond

the price of a bond includes

the present value of the face amount + the present value of the periodic interest payments

the debt to equity ratio is calculated as

total liabilities / total stockholders equity

periodic payments on installment notes typically include

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

which of the following are correct regarding bonds

-they obligate the issuing company to pay a specific amount -they obligate the issuing company to repay the bonds at a specific date

Dorothea inc. is selling all if its bonds to a large pension fund this is an example of a

private placement

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

secure bonds

when a corporation repurchases its bonds from the bondholders the corporation _____ the bonds

retired

most corporate bonds pay interest

semiannually

two ratios commonly used to assess a companies financial risk

times interest earned ratio -debt to equity ratio

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

a single large investor

________ bonds are retired when the bondholder exchanges them for the issuing company stock

convertible

loans requiring periodic payments of interest and principle are referred to as ________ notes

installment notes

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

-market interest rates decreased

corporate bonds most often pay interest __________

-semiannually

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 100,000$ and a credit to bonds payable of 100,000$

a formal debt instrument that obligates the borrower to repay a stated amount (referred to as the principle or face amount) at a specified maturity date can be a note or a

bond

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 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

the journal entry to record the issuing of 100 bonds at their 1,000 face value will include a debit to _______ and a credit tp ______

-cash, bonds payable

the discount on bonds payable account is classified as a

-contra liability

financing with _______ requires borrowing whereas financing with_____ requires issuing shares of stock

-debt -equity

totito inc. issues 100,000$ face amount bonds at 98,000$ the journal entry to record the issuance of the bonds should include debits to

-discount on bonds payable for 2,000 -cash for 98,000$

bonds will be issued a premium if the stated interest rate is

-greater then the market interest rate

Quattro lending company is considering lending a large sum to elegance inc. during its decision process, Quattro should especially consider elegances existing

-long term liabilities

the rate of interest printed on the face of a bond is referred to as the _______ interest rate

-stated

callable bonds can be redeemed at the choice of

-the bond issuer

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 affect will the two interest rates have on the bond issue price

-the issue price will be above the bonds face value

Werner issues bonds at a discount the related discount should be classified as a

contra liability

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

financial risk