ACC 302 Chapters 14 & 18

Premium

A bond that sells for more than its face amount

an investment

Adams Corporation's balance sheet reports $100 million in bonds payable. Felix Company who purchased some of Adams' bonds will report the bonds as a prepaid asset. a receivable. equity. an investment.

tax exempt/deferred

Because investors in zero-coupon bonds must declare interest revenue without receiving periodic cash receipts, most investors in zero-coupon bonds have ________-________ status

subordinate

Bond holders who are not entitled to receive any liquidation payments until claims of other specified debt issues are satisfied must have purchased indentures that are referred to as subordinate secondary liquidating unsecured

convertible

Bonds that permit bond holders to exchange their bonds for common stock are referred to as ______ bonds. stock treasury exchangeable redeemable convertible

serial

Bonds that retire in installments during all or part of the life of the bond issue are called _________ bonds.

"Exotic" financial instruments continue to be developed and offered to investors.

Choose the statement that best describes the type of financial instruments that are commonly issued in today's markets. "Exotic" financial instruments currently are prohibited by the SEC. "Exotic" financial instruments continue to be developed and offered to investors. Capital markets have abandoned "exotic" financial instruments.

stock

Convertible bonds are retired when bondholders choose to convert them into shares of ________

$400

During the current period, Roberts recognized interest expense of $9,400 and paid interest of $9,000 related to its discounted bonds. The amortization recognized during the current period was: $400 $9,400 $0 $9,000

30 periods.

Emil Company purchases $400,000 face amount, 8% semi-annual 15-year bonds when the market rate is 7%. The number of interest periods utilized to determine interest revenue earned on the investment is 30 periods. 15 periods. 1 period.

repay a certain amount at a specific date.

Neumann Company issues 20-year bonds. Related to these bonds, Neumann is obligated to repay a certain amount at a specific date. reacquire the bonds when interest rates rise. reacquire the bonds when interest rates fall. repay a certain amount at a date to be determined in the future. pay interest if the company is profitable.

effective interest rate

Periodic interest expense on liabilities is calculated by multiplying the amount of debt outstanding during the period by the stated interest rate effective interest rate coupon rate current rate of return

outstanding during the interest period.

Periodic interest expense on liabilities is calculated by multiplying the effective interest rate by the amount of debt that has to be repaid at maturity. referred to as the face amount. referred to as the par value. outstanding during the interest period.

pay no interest

Zero-coupon bonds typically issue at a deep discount because they offer a high interest rate are high risk bonds offer a low interest rate pay no interest

registered bonds

which type of commonly issued bonds are most popular currently?

present

The issue price of bonds is calculated as the ________ value of all the cash flows required of the bonds

Semiannually

Although the interest on a bond is often stated as an annual rate, interest is frequently payable ____________

$5 million

Glueck Inc. issues $5 million face amount bonds at $5.2 million; interest of $100,000 is paid semi-annually for five years. At the maturity date, Glueck will pay bond investors: $5.2 million $6 million $5 million

stated interest rate; market interest rate

Jennifer, an Intermediate Accounting student, wants to determine whether a particular bond issue will sell at face amount, a premium, or discount without calculating the actual issue price. Jennifer should compare the _______ and the ______. stated interest rate; market interest rate face amount; estimated sales price expected return; estimated return

$3,354 (95,842*.07/2)

On January 1, Schneider Company issues $100,000 of 6% bonds. Interest of $3,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The bonds issued for $95,842 with an effective interest rate of 7%. Effective interest recognized on June 30th of year 1, will be equal to (round to the nearest full dollar) $3,000. $3,354. $2,875. $6,709

on a pre-specified year-to-year basis

Sinking fund debentures typically require that the company redeem bonds after a sinking fund has been established at the end of the bond period on a pre-specified year-to-year basis

indenture

The specific promises made to bondholders are described in a document referred to as a bond indenture. option contract. debenture. warrant.

The difference represents the time value of money

What is the primary reason why the issue price of a bond differs from the cash flows associated with the bond subsequent to its issuance? The difference represents the time value of money. The difference represents a premium. The difference represents a discount.

Bearer bond (coupon bond)

Which type of commonly issued bonds were most popular years ago?

recording interest expense periodically at the effective rate.

The effective interest method applies the accrual concept by recording interest expense periodically at the effective rate. recording interest expense for the amount of cash interest paid. recording interest expense at the stated rate.

$298,904

Orange Company issues zero-coupon, 5-year bonds with a face amount of $400,000 to yield 6%. At what price did the bonds sell? $298,904 $400,000 $535,290 $223,358

market rate

A bond issue will be priced so that an investor purchasing the bonds will earn an effective rate of return on the investment equal to the _____ ______

debenture bonds

A bond that is secured only by the faith and credit of the issuing corporation is referred to as a(n) indenture bond secured bond debenture bond serial bond

discount

A bond that sells for less than its face amount

mortgage or secured

A(n) ________ bond is backed by a lien on specified real estate owned by the issuer

periodic interest payments the face amount at maturity

Which of the following are cash flows typically associated with already issued bonds? (Select all that apply.) periodic interest payments the face amount at maturity amortization of gains and losses

$200,000.

On January 1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. On the date of issue, Meister should recognize a liability of $212,000. $200,000. $260,000.

$3,200

On January 1, Merchant Company purchases $100,000 bonds at 98. The bonds mature in five years and pay 6% interest semi-annually on June 30 and December 31. Merchant decides to utilize the straight-line method of amortization. On December 31, year 1, Merchant should credit interest revenue for: $3,000 $2,800 $3,200

bond issuer.

Callable bonds can be redeemed at the choice of the both the bondholder and the bond issuer. bondholder. bond issuer.

complex

A challenge with debt instruments is that the financial community continually develops increasingly ______ ways to write financial instruments to satisfy the evolving tastes of both debtors and creditors. plain simplistic transparent complex

serial bonds

Bonds that systematically mature over a succession of years are referred to as step bonds graded bonds serial bonds callable bonds

a credit to discount on bonds payable

For the current interest period, Jones Corporation's accountant correctly recognized interest expense of $7,350 relating to Jones' bonds and paid $7,000 in interest to bond holders. The journal entry recording the interest also must have included a: credit to discount on bonds payable debit to premium on bonds payable debit to discount on bonds payable credit to premium on bonds payable

future, expected, or remaining

As a result of applying the effective interest method, the carrying value of bonds is equal to the present value of the _______ cash flows.

Nonowner

Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from what type of sources? Owner Investor Nonowner

debit to premium on bonds payable

For the current interest period, Kuhn Corporation's accountant correctly recognized interest expense of $5,350 relating to Kuhn's bonds and paid $6,000 in interest to bond holders. The journal entry recording the interest also must have included a: credit to discount on bonds payable debit to discount on bonds payable credit to premium on bonds payable debit to premium on bonds payable

present value.

Generally, liabilities are valued at their fair market value. nominal amount. present value. net realizable value.

Hatter Company's stated interest rate must be lower than that of competing companies in the bond market.

Hatter Company's new bond issue with face amount of $7 million sells for $6.8 million. Which of the following facts may explain why the bonds sell at a discount? Hatter Company must have issued its bonds after the first interest payment was due. Hatter Company's stated interest rate must be lower than that of competing companies in the bond market. Hatter Company's reputation must have been recently impaired.

a premium.

If a bond issues for 102, this means that the company issued the bond at a premium. a discount. face amount.

$675,560

Mauser Company issues $1 million face amount, zero-coupon 10-year bonds to yield 4% interest. At the date of issue, what issue price will Mauser receive for its bonds? $1,400,000 $1,000,000 $675,560

accrue interest revenue of $2,000.

On October 1, 20X1, Duner Company purchases $100,000, 8% interest newly issued bonds at face amount. Interest is payable on March 30 and Sept. 30. On 12/31/X1, the company's balance sheet date, Duner should Multiple choice question. accrue interest revenue of $2,000. accrue interest revenue of $8,000. accrue interest revenue of $4,000. not accrue any interest revenue.

accrue interest expense of $80,000.

On October 1, 20X1, Snorkel Company issues $4 million, 8% interest bonds at face amount. Interest is payable on March 30 and Sept. 30. On 12/31/X1, the company's balance sheet date, Snorkel should accrue interest expense of $320,000. accrue interest expense of $160,000. accrue interest expense of $80,000. not accrue any interest expense.

debit interest expense $80,000 debit interest payable $80,000 credit cash $160,000

On October 1, 20X1, Snorkel Company issues $4 million, 8% interest bonds at face amount. Interest is payable on March 30 and Sept. 30. On March 30, 20X2, Snorkel should (Select all that apply.) debit interest payable $80,000 credit interest payable $160,000 credit cash $160,000 debit interest expense $80,000. not record any interest expense.

broken into small portions.

One of the advantages associated with bonds is that a relatively large amount of debt can be financed over a short-term horizon. broken into small portions. obtained from a single source.

$1 million.

Slater Company issues $1 million face amount bonds for $1.1 million. On the date of maturity, the carrying value of the bonds (assuming that interest has already been accrued) will be equal to $1.1 million. $1 million. $.9 million.

bonds payable

The mirror image of a liability is an asset. The mirror image of investments in bonds is ______ ________

Bonds

The most common type of corporate debt is common stock bonds. notes payable.

stated rate

The periodic interest paid by the issuer of a bond is referred to as the market rate. effective rate. yield rate. stated rate.

Periodic interest is incurred

The requirements of a future payment of a specific or estimated amount of cash, at a specific or projected date are characteristics of debt. Identify another common characteristic. Periodic interest must be paid Periodic interest is incurred Periodic principal payments must be made

present value of the future cash flows using original rates.

Three years ago, Harper Company issued 10-year bonds at a discount. The company utilizes the effective interest method to recognize periodic interest. After 3 years, the carrying value of the bonds is equal to the maturity value plus accrued interest payable. present value of the future cash flows using current rates. present value of the future cash flows using original rates.

registered bonds

Today, most bonds issued are coupon bonds bearer bonds registered bonds

registered bonds

Today, most bonds issued are registered bonds coupon bonds bearer bonds

False

True or false: The carrying value of bonds at any date after issuance should always be equal to the fair value of the bonds.

underwriter

When issuing bonds, corporations usually sell an entire issue to an _________ rather than selling bonds directly to the public.

Zero-coupon bonds represent only a small portion of the bond market. The typical investors enjoy a tax-exempt or tax-deferred status.

Which of the following represents a correct statement regarding zero-coupon bonds? (Select all that apply.) Zero-coupon bonds represent only a small portion of the bond market. Zero-coupon bonds are very popular and make up a large proportion of corporate debt. The typical investors enjoy a tax-exempt or tax-deferred status. Zero-coupon bonds have monthly interest payments similar to traditional bonds.

Comprehensive Income

______ include(s) all changes in equity during a period EXCEPT those resulting from investments by owners and distributions to owners. Investments from owners Distributions to owners Comprehensive income Net income

market interest rates decreased.

A common reason for redeeming a bond prior to its maturity date is that the market price of bonds decreased. market interest rates decreased.

The requirement of future cash payments. Future cash payments are certain or estimable. Interest accrues as time passes on long-term liabilities.

Which of the following represent the typical characteristics of liabilities? (Select all that apply.) The requirement of future cash payments. Future cash payments cannot be measured. Future cash payments are certain or estimable. Interest accrues as time passes on long-term liabilities.

The method can only be used if it produces results that are not materially different from those produced by the effective interest method.

Which of the following statements is correct regarding using the straight-line method of amortizing bond discounts or premiums? The method can only be used if it produces results that are not materially different from those produced by the effective interest method. The method can be used if a company irrevocably elects the method on the bond issue date. The method is not permitted under current U.S. GAAP.

Bonds may sell below, above, or at their face amount.

Which of the following statements is correct? Bonds may sell below, above, or at their face amount. Bonds always sell for their face amount. Bonds sell for their face amount if they are issued near the original interest date.

present value of the associated future cash flows.

Amortization of bond discounts results in the bond being valued on the balance sheet at the maturity value of the bonds. present value of the associated future cash flows. maturity value of the bonds plus the remaining interest payments.

both privately placed and publicly sold bonds

Bond issue costs typically are incurred related to: both privately placed and publicly sold bonds privately placed bonds only publicly sold bonds only

$1,470

Milky Company's 5%, $100,000 face amount bonds have a carrying value of $98,000. When the bonds were issued two years ago, the effective interest rate was 6%. The bonds pay interest semi-annually on April 1 and October 1. In the December 31 adjusting entry, Milky Company should recognize interest expense of $1,470 $5,000 $2,940 $0 $2,500

The underwriter bears the risk associated with being able to sell the bonds to individual investors.

Norton Company is planning to sell $5 million face bonds and engages the services of an underwriter. Which of the following statements is correct regarding the underwriter? Norton Company bears the risk associated with being able to sell the bonds to individual investors. The underwriter bears the risk associated with being able to sell the bonds to individual investors.

debit interest payable debit interest expense credit cash credit discount on bonds payable

On December 31, 20X1, Werner Inc. has $1 million face amount, 6% bonds outstanding. The bonds were issued at a discount and pay interest semi-annually on March 31 and September 30. On 3/31/X2, Werner Inc. should (Select all that apply.) debit interest payable credit cash credit interest payable not make any entry related to the bonds. credit discount on bonds payable debit discount on bonds payable debit interest expense

$200 (100,000-100,000*.98)/(5*2)

On January 1, Merchant Company purchases $100,000 bonds at 98. The bonds mature in five years and pay 6% interest semi-annually on June 30 and December 31. Merchant decides to utilize the straight-line method of amortization. On December 31, year 1, Merchant should debit the "discount on bond investment" account for: $400 $3,100 $200

$1,000.

On January 1, Yves Company issues $500,000 bonds at 98. The bonds mature in 5 years and pay 6% interest semi-annually on June 30 and December 31. Yves decides to utilize the straight-line method of amortization. On December 31, year 1, Yves should credit the "discount on bonds payable" account for $500. $1,000. $10,000.

$1,000 (500,000-500,000*.98)/(5*2)

On January 1, Yves Company issues $500,000 bonds at 98. The bonds mature in 5 years and pay 6% interest semi-annually on June 30 and December 31. Yves decides to utilize the straight-line method of amortization. On December 31, year 1, Yves should credit the "discount on bonds payable" account for $500. $10,000. $1,000.

SEC Registration

Private placements of bonds typically incur lower bond issue costs because they are not subject to SEC registration. financial reporting. any regulation.

mislead investors.

The decision of whether the straight-line method of allocating bond discount or premium is acceptable should be guided by whether or not the straight-line method would tend to reduce reporting costs. mislead investors. improve net income. be easier to apply.

accrued since the last interest date

When an accounting period ends between interest dates, interest should be ignored until the next interest payment date accrued since the last interest date prepaid

They are less costly to issue than publicly offered bonds. (no underwriter fees)

Which of the following statements is correct regarding the cost associated with issuing privately placed corporate bonds? They are more costly to issue than publicly offered bonds. They are less costly to issue than publicly offered bonds.

face amount of the bonds

At the time of maturity, the repayment amount for bonds is equal to the: face amount of the bonds face amount less unamortized discount face amount plus unamortized premium

sinking fund

Bonds requiring pre-specified, year-by-year redemptions are called ______ ________ debentures.

mortgage

Bonds that are backed by a lien on specific real estate owned by the issuer are referred to as ______ bonds. mortgage indenture real estate debenture

zero

Bonds that pay no interest and instead issue at a deep discount are commonly referred to as _________ coupon bonds.

The $1.2 million represents the time value of money.

Burns Company issues bonds for their face amount of $2 million. Over the life of the bonds, the company pays a total of $3.2 million to bondholders. What can you deduce from these facts regarding the difference between the face amount and the bonds' cash flows? The $1.2 million represents a discount. The $1.2 million represents the time value of money. The $1.2 million represents a premium.

discount

If a bond issues for 99, this means that the company issued the bond at a discount. face amount. a premium.

Semiannually

Interest on bonds typically is paid annually semiannually quarterly monthly

The company's stated interest rate must be higher than that of other competing companies.

Jackie Company's new bond issue with face amount of $6 million sells for $6.4 million. Which of the following facts may explain why the bonds sell at a premium? The company's stated interest rate must be higher than that of other competing companies. The company's reputation must have been recently enhanced by positive publicity. The company must have issued its bonds earlier than other companies competing in the same market.

Debit cash for $749,000; debit discount on bonds payable for $51,000; credit bonds payable for $800,000

Mergenthal Company issues bonds with a face amount of $800,000 for $749,000. Which of the following journal entries would be correct? Debit cash for $749,000; debit loss on bonds payable for $51,000; credit bonds payable for $800,000. Debit cash for $800,000; credit bonds payable for $800,000. Debit cash for $749,000; debit discount on bonds payable for $51,000; credit bonds payable for $800,000.

decrease

Munchen Company sold bonds at a premium. Over the life of the bonds, the carrying value of the bonds will increase. remain the same. decrease.

$203,000

On April 1, year 1, Norman Company issues $200,000 of 6% bonds. The market rate of interest is 6%. Interest of $6,000 is payable semi-annually on June 30 and December 31. The indenture is dated January 1, year 1, and the bonds mature 5 years from that date. On the date of issue, the price of the bonds will be equal to $200,000. $206,000. $203,000.

effective interest

Recording interest each period as the effective rate of interest multiplied by the outstanding balance of the debt during the interest period is referred to as the ________ _________ method

credit interest payable credit discount on bonds payable debit interest expense

On December 31, 20X1, Werner Inc. has $1 million face amount, 6% bonds outstanding. The bonds were issued at a discount and pay interest semi-annually on March 31 and September 30. On 12/31/X1, Werner Inc. should (Select all that apply.) credit interest payable credit discount on bonds payable debit discount on bonds payable not make any entry related to the bonds. debit interest expense

debit interest expense credit discount on bonds payable credit cash debit interest payable

On December 31, 20X1, Werner Inc. has $1 million face amount, 6% bonds outstanding. The bonds were issued at a discount and pay interest semi-annually on March 31 and September 30. On 3/31/X2, Werner Inc. should (Select all that apply.) debit interest expense not make any entry related to the bonds. credit discount on bonds payable credit interest payable credit cash debit discount on bonds payable debit interest payable

increase by $354.

On January 1, 20X1, Water Company issues $100,000 of 6% bonds. Interest of $3,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years and sell for 95,842. On June 30, 20X1, the company recognizes interest expense of $3,354. As a result of recognizing this transaction, the bond carrying value will increase by $354. not change. decrease by $354. increase by $709. decrease by $709.

increase by $709.

On January 1, 20X1, Wormer Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years and sell for $191,684. On June 30, 20X1, the company recognizes interest expense of $6,709. As a result of recognizing this transaction, the bond carrying value will decrease by $709. decrease by $1,418 increase by $709. not change. increase by $1,418

$6,709.

On January 1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The bond issues for $191,684 with an effective interest rate of 7%. Effective interest recognized on June 30 of year 1, will be equal to (round to whole dollars) $13,418 $6,709. $5,751. $6,000.

$709.

On January 1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The market interest rate is 7%. The bond issues for $191,684. On June 30 year 1, the company should recognize a discount amortization of $709. $0. $249. $1,418

$217,966

On January 1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The market yield for bonds of similar risk and maturity is 4%. Utilizing the time value of money tables in your book, calculate the issue price of the bonds (round the result to whole dollars). $183,777 $200,000 $217,966 $215,567

$191,684

On January 1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The market yield for bonds of similar risk and maturity is 7%. Utilizing the time value of money tables in your book, calculate the issue price of the bonds (round the result to whole dollars). $143,811 $191,684 $167,199 $200,000

debit investment in bonds $200,000 credit cash $200,000

On January 1, Meister Company issues $200,000 of 6% bonds. Interest of $6,000 is payable semiannually on June 30 and December 31. The bonds mature in 5 years. The bonds were issued at face amount. All the bonds are privately placed with one investor. On the date of issue, the investor should record what journal entry? (Select all that apply.) debit investment in bonds $200,000 debit cash $200,000 credit investment in bonds $200,000 credit cash $200,000 credit bonds payable $200,000

$95,944

On January 1, Schneider Company issues $100,000 of 7% bonds. Interest of $3,500 is payable semi-annually on June 30 and December 31. The bonds mature in 5 years. The market yield for bonds of similar risk and maturity is 8%. Utilizing the time value of money tables in your book, calculate the issue price of the bonds (round the result to whole dollars). $100,000 $95,944 $69,804 $82,032

accrue interest expense of $1,000.

On November 1, 20X1, Chocolate Company issues $100,000, 6% interest bonds at face amount. Interest is payable on April 30 and October 31. On 12/31/X1, the company's balance sheet date, Chocolate should accrue interest expense of $6,000. accrue interest expense of $2,000 accrue interest expense of $1,000.

accrued and added to the bond issue price

On September 30th, year 1, Wald Corporation issues 20-year bonds that pay interest semi-annually on June 30 and December 31. The interest accrued between June 30, year 1 and September 30, year 1 will be ignored deducted from the bond issue price accrued and added to the bond issue price

Debit investment in bonds $80,000; credit discount on bond investment for $6,000; credit cash for $74,000.

Otto Company purchases bonds with a face amount of $80,000 for $74,000. Which of the following journal entries would be correct? Debit bond investment for $80,000; credit gain for $6,000; credit cash for $74,000. Debit investment in bonds $80,000; credit discount on bond investment for $6,000; credit cash for $74,000. Debit investment in bonds for $80,000; credit cash for $80,000.

Peter should recognize 3 months of interest.

Peter Company issues 10-year bonds on October 1, 20X1. The bonds pay 6% interest semi-annually. Peter Company has a calendar year year-end. Which of the following statements is correct regarding interest recognized in its 12/31/X1 income statement relating to this bond issue? Peter should recognize 3 months of interest. Peter should recognize 6 months of interest. Peter should not recognize any interest until April 1, 20X2.

effective interest rate

The creditworthiness of the company issuing the bonds will affect the company's ability to redeem its outstanding bond issue effective interest rate stated interest rate return on equity

Accrual Accounting

The effective interest method is an application of which principle or concept? going concern revenue recognition accrual accounting periodicity concept

present value of the future cash flows using original rates.

Three years ago, Harper Company issued 10-year bonds at a discount. The company utilizes the effective interest method to recognize periodic interest. After 3 years, the carrying value of the bonds is equal to the present value of the future cash flows using current rates. maturity value plus accrued interest payable. present value of the future cash flows using original rates.

They obligate the issuing company to pay a specific amount. They obligate the issuing company to repay the bonds at a specific date.

Which of the following are correct regarding bonds? (Select all that apply.) They obligate the issuing company to repay the bonds when interest rates increase. They obligate the issuing company to repay the bonds when market interest rates decrease. They obligate the issuing company to pay a specific amount. They obligate the issuing company to pay an estimated amount. They obligate the issuing company to repay the bonds at a specific date.

nominal rate stated rate coupon rate

Which of the following are terms that can be used to refer to the periodic interest rate paid by bond issuers? (Select all that apply.) market rate effective rate nominal rate stated rate coupon rate

A document detailing the promises made by the bond issuer.

Which of the following correctly describes a bond indenture? The relationship between the effective interest and the stated interest rates. The portfolio of bonds that are issued during a particular fiscal period. A document detailing the promises made by the bond issuer.

Holds the bond indenture Represents the rights of the bond holders Appointed by bond issuer

Which of the following describe the role of a trustee with respect to corporate bonds? (Select all that apply.) Holds the bond indenture Represents the rights of the bond issuer Represents the rights of the bond holders Appointed by bond issuer

creditworthiness of the issuer

Which of the following is a critical factor in determining the effective market interest rate for a particular bond issue? creditworthiness of the issuer frequency of scheduled interest payments reputation of the trustee who holds the indenture

The trustee holding the indenture can sue the issuer on behalf of the bondholders.

Which of the following is correct regarding the default of a bond issuer? A class action suit must be filed by the trustees as well as the individual bondholders. Each bondholder must sue the issuing company for payment. The trustee holding the indenture can sue the issuer on behalf of the bondholders.

Interest expense is equal to the effective interest rate multiplied by the outstanding balance of the debt.

Which of the following is correct regarding the effective interest method? Interest paid is equal to the effective interest rate multiplied by the maturity value. Interest expense is equal to the effective interest rate multiplied by the outstanding balance of the debt. Interest recorded is equal to the effective interest rate multiplied by the issue price.

It is secured by the faith and credit of the issuer

Which of the following is true regarding a debenture bond? It is secured by the faith and credit of the issuer. It is secured by an outside third party. It is secured by the issuer's long-term assets.

Bond issues are priced to yield the market rate. Supply and demand influence bond yields.

Which of the following statements are correct regarding bond yields? (Select all that apply.) All bonds issued at a given point of time will yield the same return. Bond issues are priced to yield the market rate. Supply and demand influence bond yields.

They receive payment only after other specific debt has been satisfied.

Which of the following statements is correct regarding payment priority to holders of subordinated debentures in the case of a bankruptcy? They receive payment only after other specific debt has been satisfied. They are paid at the same time that other specific debt is satisfied. They receive payment after secured debt has been satisfied.

The bonds' book value is probably not equal to their current market value

Which of the following statements is correct relating to bonds that were issued two years ago with an effective interest rate that was lower than the current effective interest rate? The bonds' book value is probably not equal to their current market value The bonds' book value is equal to their current market value