Chapter 10
On the maturity date, the balance in the Premium on Bonds Payable or Discount on Bonds Payable account will be __ and the carrying value of the bond will be _________
0, face value
What is the difference between a debenture bond and a secured bond?
A secured bond is backed by collateral while a debenture bond is not
The tax advantage for a company to issue bonds rather than stock to raise money is:
Bond interest is tax deductible but dividends are not
Bond interest is usually paid _______ or ___________ and the principle is paid on the ________ _______
annually, semi-annually, maturity date
When bonds are retired before their due date, the amount paid to retire the bonds will be the ___ ____ or _______ ______ indicated on the _____ __________
call price, redemption price, bond certificate
Bonds can be retired before the due date. If the issuer determines the bond can be retired early it is a ________ bond; if the purchaser determines the bond can be retired early it is called a _________ bond
callable, redeemable
To calculate a gain or loss on the early retirement of a bond, compare the _____ _____ to the ____ _____ of the bond
carrying value, call price
Discount on Bonds Payable is a ____________ account
contra-liability
When recording the gain on the early retirement of a bond, the account Gain on Bond Redemption will be _______ and will be reported on the ______ ________
credited, income statement
When recording the loss on the early retirement of a bond, the account Gain on Bond Redemption will be _______ and will be reported on the ______ ________
debited, income statement
Bonds are a form of ____ financing
debt
Over time, the balance in the Premium on Bonds Payable account will ______ and the carrying value of a bond sold at a premium will ______
decrease, decrease
Over time, the balance in the Discount on Bonds Payable account will _______ and the carrying value of a bond sold at a discount will _______
decrease, increase
If market rate > face rate, then bonds are issued at a:
discount
Interest expense is greater than the cash interest payments when a bond is sold at a ________
discount
If market rate = face rate, then bonds are issued at:
face value
Interest expense is equal to the cash interest payments when a bond is sold at ________
face value
When bonds are retired at their due date, the amount paid to retire the bonds will be their ____ ______
face value
If the redemption price of a bond is less than the carrying value, the company will have a ____ on the early retirement of the bonds
gain
Premium on Bonds Payable is a ________ account
liability
Bonds are usually classified as ________ ________ on the _______ _______
long-term liabilities, balance sheet
If the redemption price of a bond is greater than the carrying value, the company will have a ____ on the early retirement of the bonds
loss
Bonds are issued at a price that will ensure that the investor will make the ______ rate of return
market
The rate of interest investors could make by investing in other comparable bonds is the ________ rate. Two alternate terms for this rate are the _______ rate and the ____ ______
market, effective, bond yield
The carrying value of a bond is the balance in the Bonds Payable account ____ the balance in the discount account
minus
The carrying value of a bond is the balance in the Bonds Payable account _____ the balance in the Discount on Bonds Payable account.
minus
The rate of interest on the bond certificate is used to calculate the bond interest _________
payments
The issue price of a bond is expressed in bond markets as a/an ________ of face value
percentage
The carrying value of a bond is the balance in the Bonds Payable account _____ the balance in the premium account
plus
The carrying value of a bond is the balance in the Bonds Payable account ______ the balance in the Premium on Bonds Payable account.
plus
If market rate < face rate, then bonds are issued at a:
premium
Interest expense is less than the cash interest payments when a bond is sold at a ________
premium
The issue price of a bond is the sum of the_______ values of two cash flows. These two cash flows are the ____ _____ of the bond and the ________ payments.
present, face value, interest
The rate of inters on the bond certificate is the ______ rate. Four alternative terms for this rate are ____ rate, ____ rate, ____ rate, and ____ rate
stated, face, nominal, contract, coupon