ACG2071 Adaptive learnings chpt. 10

A company issues $500,000 of 9%, 10-year bonds dated January 1 and pay interest semiannually on June 30 and December 31 each year. The bonds are sold for $480,000, yielding a discount of $20,000. Using the straight-line amortization method, the company will amortize the discount by Blank______ on each semiannual interest payment.

$1,000

Bonds are securities that can be readily bought and sold. A bond issue consists of a number of bonds, usually in denominations of Blank______ or Blank______ and is sold to many different lenders.

$1,000; $5,000

A company issues $50,000 of 5%, 10-year bonds dated January 1 and pay interest semiannually on June 30 and December 31 each year. The bonds are sold for $48,000. Using the straight-line amortization method, the company will amortize the discount by $_______ on each semiannual interest payment.

100

A $200,000 4 year bond was issued for $210,000. The semi-annual amortization of the bond premium using the straight-line method equals $______

1250

A company issues $400,000 of 8%, 10-year bonds dated January 1. The bonds pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the sale with a (debit/credit) to Bonds Payable in the amount of $____

Blank 1: credit Blank 2: 400000

A company issues $80,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $84,000 for the bonds, the issuer will record the sale with a (debit/credit) to (Discount/Premium) on Bonds Payable in the amount of $4,000.

Blank 1: credit Blank 2: Premium

A company issues $60,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $62,000 for the bonds, the premium on bonds payable will (increase/decrease) total interest expense recognized over the life of the bond by $____

Blank 1: decrease Blank 2: 2000

When the market rate is 12%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a debit to Blank______ in the amount of Blank______.

Bonds Payable; $50,000

Which of the following statements are disadvantages of bond financing?

Bonds can decrease return on equity. Bonds require payment of interest and par value.

Which of the following statements is an advantage of bond financing?

Bonds do not affect owner control.

Which of the following statements is not an advantage of bond financing?

Bonds require interest payments and payment of par value.

A company issues $50,000 of 8%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the first semi-annual interest payment with a credit to ________ in the amount of $_______.

Cash 2000

A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a credit to _____ in the amount of $____

Cash 75000

A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $69,000 for the bonds, the issuer will record the sale with a debit to which of the following accounts?

Cash and Discount on Bonds Payable

Select all that apply A company issues $100,000 of 6%, 10-year bonds dated January 1, that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the first semi-annual interest payment with which of the following entries?

Debit to Interest Expense for $3,000. Credit to Cash for $3,000.

A company issues $50,000 of 9%, 10-year bonds dated January 1, 2027, that mature on December 31, 2036, and pay interest semiannually for $2,250. On December 31, 2031, when the bond premium is $2,500, the bonds are called for $54,000. The journal entry to record this transaction would record a (Gain/Loss) __ on Bond Retirement in the amount of __.

Loss; $1,500

Most bonds require (interest/par) value to be repaid at maturity and (interest/par) to be paid semiannually.

Par interest

The bond carrying value can be determined by which of the following formulas?

Par value - discount on bonds payable

Market rates help determine the selling price of bonds. Identify which scenarios should be matched together. Premium Discount Par Contract rate is greater than the market rate Contract rate is less than the market rate Contract rate is equal to market rate

Premium matches Choice Contract rate is greater than the market rate Discount matches Choice Contract rate is less than the market rate Par matches Choice Contract rate is equal to market rate

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:

a discount

Most bonds require par value to be repaid Blank______ and interest to be paid Blank______.

at the maturity date; semiannually

When a bond is sold at a discount, the Blank______ value will increase at each semi-annual interest payment by the amortization of bond discount.

carrying

A bond ______ may be issued as evidence of the company's debt.

certificate

A bond ________ is evidence of the company's debt.

certificate

A company issues $100,000 of 6%, 10-year bonds dated January 1 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 (debit/credit) ______ to Bond Payable in the amount of _______.

credit; $100,000

A company issues $90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $95,000 for the bonds, the issuer will record the sale with a (debit/credit) Blank______ to (Discount/Premium) Blank______ on Bonds Payable in the amount of $5,000.

credit; Premium

A company issues $50,000 of 9%, 10-year bonds dated January 1, 2026, that mature on December 31, 2035, and pay interest semiannually of $2,250. On December 31, 2031, when the bond premium is $2,500, the bonds are called for $55,000. The journal entry to record this transaction would record a (debit/credit) to Loss on Bond Retirement of $2,500.

debit

A company issues $90,000 of 9%, 10-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value, the issuer records the payment of principal at maturity with a (debit/credit) Blank______ to bond payable in the amount of Blank______.

debit; $90,000

A company issues $90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts $95,000 for the bonds, the $5,000 premium on bonds payable will Blank______ total interest expense recognized over the life of the bond.

decrease

When a bond is sold at a premium, the carrying value will Blank______ each period that the premium is amortized.

decrease

Total bond interest _______ is the sum of the interest payments plus the bond discount.

expense

The legal contract between the bondholders and the issuer is called the bond Blank______.

indenture

A bond discount increases Blank______ at each semi-annual interest payment.

interest expense

The bond's ______ rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

market

The rate that borrowers are willing to pay and lenders are willing to accept for a particular bond at its risk level is called the bond's _____ rate.

market

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 bond contract rate determines the annual interest paid by multiplying the bond Blank______ value by the contract rate.

par

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 Blank______ on bonds.

premium

When the current market rate is less than the bond contract rate on the date of issuance, the bond will be sold at a(n) .

premium

The Blank______ bond amortization method allocates an equal portion of the total bond interest expense to each interest period.

straight-line