Chapter 10 Quizlet

When the market interest rate is the same as the stated interest rate, then the bond will sell at ______.

Par

The market interest rate on a bond is the interest rate ______.

investors demand on the day a bond is issued and is used to calculate interest expense

Which interest rate should be used in computing the present value of a bond at the date of issuance and the interest expense incurred on the bond?

Market

The amount of interest that a bond pays is based on the bond's ______ rate

Coupon

If the market interest rates increase during the life of a bond, the issuer will ______ on this bond.

Not change the amount of period interest

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

Cash; Bonds payable

Discounts on bonds payable are recorded with a debit and are ______.

Contra-liabilities, Bonds payable are liabilities and the related discounts on the bonds payable are contra-liabilities, not contra-assets.

Gilmore issued $100,000 face value 6% bonds for $95,000. The journal entry to record the issuance of the bonds would include which of the following entries? (Check all that apply.)

Debit Cash for $95,000 Debit Discount on bonds payable for $5,000 Credit Bonds payable for $100,000

ABC Corporation issued bonds that pay interest each March 1 and September 1. The corporation's December 31 adjusting entry will include a ______.

Debit interest expense

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, The stated rate is not always equal to the market rate of interest.

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-The stated rate is not always equal to the market rate of interest.

Bonds are issued at a discount when the bond's stated interest rate is ______ the market interest rate.

Lower than, When the stated rate is lower than market, the bonds issue at a discount because the market will not be satisfied with the lower than expected interest payments.

XYZ Company is in the process of issuing bonds. The bonds have a stated interest rate of 4%, which is 2% below the current market rate. What effect will the two interest rates have on the bond issue price?

The issue price will be below the bond's face value: The lower 4% stated rate makes the bond unattractive and investors will not be willing to pay face value.

Barry Rich purchased a $1,000, 10% bond which was originally issued at par value by X Company. Barry sold the bond to Ida Bott for $1,010 years later. As a result of this exchange, X Company will ______.

Use the same interest rate that existed when the bond was first issued by X Company

ABC Company issues a bond with a face value of $100,000 on January 1 for $100,000. 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 ______ of $6,000. (Check all that apply.)

debit to Interest expense credit to Cash

The method of amortizing a bond's discount or premium that reflects the true cost of borrowing by calculating interest expense using the market rate of interest is the ______ amortization. Multiple choice question.

effective-interest

The book value of bonds payable ______. (Check all that apply.)

increases as the bond discount is amortized decreases as the bond premium is amortized equals the principal at the maturity date

An advantage to financing with debt is that ______.

interest is tax deductible

Default Risk

the probability that a bond issuer will not meet the indenture's requirements less for investment graded bonds with ratings above BBB than for junk bonds