Chapter 10

On the maturity date, the balance in the Premium on Bonds Payable or Discount on Bonds Payable account will be __ and the carrying value of the bond will be _________

0, face value

What is the difference between a debenture bond and a secured bond?

A secured bond is backed by collateral while a debenture bond is not

The tax advantage for a company to issue bonds rather than stock to raise money is:

Bond interest is tax deductible but dividends are not

Bond interest is usually paid _______ or ___________ and the principle is paid on the ________ _______

annually, semi-annually, maturity date

When bonds are retired before their due date, the amount paid to retire the bonds will be the ___ ____ or _______ ______ indicated on the _____ __________

call price, redemption price, bond certificate

Bonds can be retired before the due date. If the issuer determines the bond can be retired early it is a ________ bond; if the purchaser determines the bond can be retired early it is called a _________ bond

callable, redeemable

To calculate a gain or loss on the early retirement of a bond, compare the _____ _____ to the ____ _____ of the bond

carrying value, call price

Discount on Bonds Payable is a ____________ account

contra-liability

When recording the gain on the early retirement of a bond, the account Gain on Bond Redemption will be _______ and will be reported on the ______ ________

credited, income statement

When recording the loss on the early retirement of a bond, the account Gain on Bond Redemption will be _______ and will be reported on the ______ ________

debited, income statement

Bonds are a form of ____ financing

debt

Over time, the balance in the Premium on Bonds Payable account will ______ and the carrying value of a bond sold at a premium will ______

decrease, decrease

Over time, the balance in the Discount on Bonds Payable account will _______ and the carrying value of a bond sold at a discount will _______

decrease, increase

If market rate > face rate, then bonds are issued at a:

discount

Interest expense is greater than the cash interest payments when a bond is sold at a ________

discount

If market rate = face rate, then bonds are issued at:

face value

Interest expense is equal to the cash interest payments when a bond is sold at ________

face value

When bonds are retired at their due date, the amount paid to retire the bonds will be their ____ ______

face value

If the redemption price of a bond is less than the carrying value, the company will have a ____ on the early retirement of the bonds

gain

Premium on Bonds Payable is a ________ account

liability

Bonds are usually classified as ________ ________ on the _______ _______

long-term liabilities, balance sheet

If the redemption price of a bond is greater than the carrying value, the company will have a ____ on the early retirement of the bonds

loss

Bonds are issued at a price that will ensure that the investor will make the ______ rate of return

market

The rate of interest investors could make by investing in other comparable bonds is the ________ rate. Two alternate terms for this rate are the _______ rate and the ____ ______

market, effective, bond yield

The carrying value of a bond is the balance in the Bonds Payable account ____ the balance in the discount account

minus

The carrying value of a bond is the balance in the Bonds Payable account _____ the balance in the Discount on Bonds Payable account.

minus

The rate of interest on the bond certificate is used to calculate the bond interest _________

payments

The issue price of a bond is expressed in bond markets as a/an ________ of face value

percentage

The carrying value of a bond is the balance in the Bonds Payable account _____ the balance in the premium account

plus

The carrying value of a bond is the balance in the Bonds Payable account ______ the balance in the Premium on Bonds Payable account.

plus

If market rate < face rate, then bonds are issued at a:

premium

Interest expense is less than the cash interest payments when a bond is sold at a ________

premium

The issue price of a bond is the sum of the_______ values of two cash flows. These two cash flows are the ____ _____ of the bond and the ________ payments.

present, face value, interest

The rate of inters on the bond certificate is the ______ rate. Four alternative terms for this rate are ____ rate, ____ rate, ____ rate, and ____ rate

stated, face, nominal, contract, coupon