Ch 9 Accounting

A bond is a formal debt instrument that obligates the borrower to repay a stated amount at the maturity date. This stated amount is referred to as the:

Principal or Face Amount

Convertible bonds:

Provide potential benefits to both the issuer and the investor.

Serial Bonds are:

bonds that mature in installments

The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the market value of the bonds is $23 million. The entry to record the retirement will include: A) A debit of $5 million to a loss account. B) A credit of $5 million to a gain account. C) No gain or loss on retirement. D) A credit to cash for $18 million.

A: A debit of $5 million to a loss account

When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds? A) Carrying value and interest expense increase. B) Carrying value and interest expense decrease. C) Carrying value decreases and interest expense increases. D) Carrying value increases and interest expense decreases.

A: carrying value and interest expense increase

The cash interest payment each period is calculated as the: A) Face amount times the stated interest rate. B) Face amount times the market interest rate. C) Carrying value times the market interest rate. D) Carrying value times the stated interest rate.

A: face amount times the states interest rate

The entry to record a monthly payment on an installment note such as a car loan: A) Increases expenses, decrease liabilities and decreases assets. B) Increases expenses, increases liabilities and increases assets. C) Increases expenses, decreases liabilities and increases assets. D) Increases expenses, increase liabilities, and decreases assets.

A: increase expenses, decrease liabilities, decrease assets

In each succeeding payment on an installment note: A) The amount that goes to decreasing the carrying value of the note increases. B) The amount that goes to decreasing the carrying value of the note decreases. C) The amount that goes to decreasing the carrying value of the note is unchanged. D) The amounts paid for both interest and principal increase proportionately.

A: the amount that goes to the decreasing the carrying value of the note increases

Which of the following describes monthly installment payments of a note payable? A) The monthly payments equal interest expense plus the reduction of the note's carrying value. B) The amount of interest expense recorded each month increases over time. C) The amount of the reduction in the note's carrying value recorded each month decreases over time. D) All of the other answer choices are correct.

A: the monthly payments equal interest expense plus the reduction of the notes carrying value.

A common advantage of obtaining long-term funds by issuing bonds, rather than borrowing from the bank, includes which of the following? A) Bonds involve less surrendering of ownership control. B) Bonds usually have a lower interest rate. C) Bonds are more likely to involve borrowing from a single lender. D) Bond issue costs are usually lower than fees charged by the bank.

B: Bonds usually have a lower interest rate

Which of the following is the number one method of external financing by U.S Companies? A) Issuing installment notes. B) Leasing. C) Issuing bonds. D) Borrowing from banks.

B: Leasing

Term bonds are:

Bonds that mature all at once

Interest expense on bonds payable is calculated as the: A) Face amount times the stated interest rate. B) Face amount times the market interest rate. C) Carrying value times the market interest rate. D) Carrying value times the stated interest rate.

C: carrying value times the market interest rate

Which of the following is not true regarding callable bonds? A) This feature allows the issuer to repay the bonds before their scheduled maturity date. B) This feature helps protect the issuer against future decreases in interest rates. C) This feature usually allows the issuer to repay bonds just below face value. D) This feature benefits the issuer more when the bond's stated rate is 8% and the market interest rate is 5%.

C: the feature usually allows the issuer to repay bonds just below face value

The mixture of liabilities and stockholder's equity business uses is called its:

Capital Structure

Which of the following is not a primary source of corporate debt financing? A: Bonds Payable B: Common Stock C: Leases D: Notes Payable

Common Stock

Which of the following represents an advantage of leasing rather than buying an asset with an installment note? A) Leasing may offer protection against the risk of declining asset values. B) Lease payments often are lower than installment payments. C) Leasing offers flexibility and lower costs when disposing of an asset. D) All of the other answer choices are correct.

D: All of the above

Which of the following is not a reason companies lease rather than buy? A) Leasing may allow you to borrow with little or no down payment. B) Leasing may offer protection against risk of declining asset values. C) Leasing offers flexibility and lower costs when disposing of an asset. D) Leasing transfers the title to the lessee at the beginning of the lease.

D: Leasing transfers the title to the lessee at the beginning of the lease.

Profits generated by the company are an: A: Source of external financing B: Source of Internal Financing C: Liability D: Asset

Source of Internal Financing

The true interest rate used by investors to value a bond is called the:

market interest rate

For a ten-year installment note, the portion of the periodic installment payment that represents interest in the third year is: A) The same as in the fourth year. B) The same as in the first year. C) Less than in the fourth year. D) More than in the fourth year.

more than the fourth year