Chapter 10
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.
$1,000; $5,000
Sheldon has a $15,000 liability for a machine that has an interest rate of 10%. The interest expense for one year is?
$1,500
Winn Co. signs a 60 day note payable for a $15,000 copy machine with an interest rate of 8%. Winn will record total interest expense of
$200 Reason: $15,000 x .08 x (60/360) = $200.
Bond market values are expressed as a percentage of their par (face) value. For example, a company's bonds might be trading at 103, meaning that they can be bought or sold for ____ of their par value.
103%
A company issues $100,000 of 5%, 10 year bonds dated Jan 1. The bonds pay interest semiannually on June 30 and December 31 each year. If the bonds are sold at par value, the issue records the sale. With a debit to _____ in the amount of $____
Cash ; $100,000
The _____ rate is the interest rate specified, sometimes referred to as the coupon rate, state rate, nominal rate
Contract rate
A company issues $100,000 of 6%, 10 year bonds dated Jan 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 ____ to bond Payable in the amount of _____
Credit ; 100,000
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 $50,000 for the bonds, the issuer will record the sale with a ____ to Discount on Bands Payable in the amount ______
Debit ; 1,000
A company issues $500,000 of a 6%, 10 year bonds dated Jan. 1 2017 that mature in Dec 31, 2026. The bonds pay interest semiannually of 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?
Debit to cash $500,00 ; credit to Bond Payable $500,000
The legal contract between the bond holders and the issuer is called the bond
Indenture
The legal contract between the bond holders and the issuer is called the bond ____
Indenture
The par value of a bond, also called the face value, is paid at a stated future date, known as the bond's _____ date
Maturity
The ___ value of a bond, also called the face amount or face value, is paid is a stated future date, known as the bonds maturity date.
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.
Par
The bond contract rate determines the annual interest paid by multiplying the bond ____ value by the contract rate
Par
The bond carrying value can be determined by which of the following formulas
Par value - discount on bonds payable
The bond carrying value can be determined by which of the following formulas?
Par value - discount on bonds payable
A _____ on bonds payable occurs when a company issues bonds with a contract rate less than the market rate
discount
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:
discount
Total bond interest ___________ is the sum of the interest payments plus the bond discount.
expense
A bond discount increases __________ at each semi-annual interest payment.
interest expense
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.
premium
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)
premium
