Chapter 9

true

T/F: Callable bonds may be retired by the issuer before their specified due date

b

The portion of long term debt due within a year should... a. be paid immediately b. be reclassified as a current liability c. be reclassified as a long-term liability d. not be separated from the long-term portion of debt

increase in assets increase in liabilities

When bonds are issued by a company, the accounting entry shows an

debit cash, credit notes payable

the journal entry to record the issuance of a note for the purpose of borrowing funds is

false

T/F: A significant disadvantage of financing with debt rather than stock is the fact that the interest expense on debt is not tax-deductible.

true

T/F: Convertible bonds normally allow bondholders to convert the bond into another security.

true

T/F: The market value of a bond is determined by calculating its present value, which is based on the face amount, the number of periods, and the market rate of interest.

a 1000 dollar bond sold for 1012.50

if bonds are issued at 101.25, this means that

b

A graphics design company issued bonds in the amount of $1,000,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what would be the total amount of interest paid over the life of the bonds? a) $1,000,000 b) $800,000 c) $400,000 d) $80,000

a

Long-term debt generally includes a) obligations that extend beyond one year. b) obligations that will be satisfied within one year c) accounts payable, because they are interest-bearing d) accrued expenses

true

T/F: Long-term debt generally refers to obligations that extend beyond one year.

true

T/F: The contract rate is also called the coupon or stated rate.

c

Which of the following would describe a callable bond? a) Borrower has the right to call off the interest payments on the bonds. b) Investor has the right to call off the interest payments on the bonds. c) Borrower has the right to pay off the bonds prior to due date. d) Borrower has the right to issue more bonds prior to due date of existing bonds.

contra liability

the discount on bonds payable account is a