Chapter 14: Smartbook

Since bond market values are expressed as a percentage of their bond value, a $1,000 bond that is being sold at 93 would be trading at

$930

A company issues $60,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $59,000 for the bonds, the issuer will record the sale with a ______ to discount on Bonds Payable in the amount of _________.

debit ; $1,000

A company issues $90,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $85,000 for the bonds, the issuer will record the sale with a ______ to discount on Bonds Payable in the amount of ___________.

debit ; $5,000

When the market rate is 8%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually for a selling price of $60,000. When the bonds mature, the issuer records its payment of principal with a ____ to Bonds Payable in the amount of _____________.

debit ; $50,000

A(n) ________ on Bonds Payable occurs when a company issues bonds with a contract rate less than the market rate.

discount

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

indenture

A company borrows $60,000 from a bank to purchase equipment. It signs an 8% note requiring six annual payments of principle plus interest. This is an example of a(n) ____________ note.

installment

A(n) ____________ note is an obligation requiring a series of payments to the lenders.

installment

A(n) _____________ is a legal agreement that helps to protect a lender if a borrower does not make required payments on notes or bonds. This agreement give the lender the right to be paid from the cash proceeds of the sale of the borrower's assets, as identified in the agreement.

mortgage

Star Bank provided cash to a customer, J. Brown, to pay for a building. Star required that Brown also sign a (n) ___________ note payable, which allows the bank to be paid by the cash proceeds of the sale of the building if Brown fails to pay on the note.

mortgage

Lyle Co. borrowed $20,000 from First Bank by signing a written promise to pay a definite sum of money on a specific future date. Lyle will record this in the general ledger as a(n) _____ payable

note

A _____________ is similar to a Bond Payable but is normally transacted with a single lender such as a bank.

note payable

Bond market values are expressed as a percentage of their par (face) value. For example, a company's bonds might be trading at 103, meaning that they can be bought or sold for ____ of their par value.

103%

A company issues $500,000 of 6%, 10-year bonds dated January 1, 2017 that mature on December 31, 2026. 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 which of the following entries?

Debit to Cash $500,000 and Credit to Bonds Payable $500,000

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

The ________ rate is the interest rate specified, sometimes referred to as the coupon rate, stated rate, or normal rate.

contract

A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $98,000 for the bonds, the issuer will record the sale with a _________ to Bonds Payable in the amount of __________.

credit ; $100,000

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 ________ to Bonds Payable in the amount of _____________.

credit ; $400,000

When the market rate is 10%, a company issues $60,000 of 12%, 10-year bonds and pay interest semiannually when the bonds mature, the issuer records its payment of principal with a _______ to cash in the amount of ________.

credit ; $60,000

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 ______ to _____ on Bonds Payable in the amount of $4,000.

credit ; premium

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 __________ to _________ on Bonds Payable in the amount of $5,000.

credit ; premium

The ______ value of a bond, also called the face amount or face value, is paid at a stated future date, known as the bonds maturity date.

par

The bond contract rate determines the annul interest paid by multiplying the bond _____ 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 _______ on bonds.

premium

When the market rate is less than the bond contract rate on the date of issuance, the bonds will be sold at a ________.

premium