6.06 Chapter 10 Connect SmartBook

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

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

103%

A company issues $100,000 of 5%, 10-year bonds dated January 1. The bonds pay interest semiannually on June 30 and December 31 each year. If the bonds are sold at par value, the issuer records the sale with a debit to in the amount of $

Blank 1: Cash Blank 2: 100000, 100,000, or $100,000

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 (debit/credit) to Cash in the amount of $.

Blank 1: credit Blank 2: 60000

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 (debit/credit) to Discount on Bonds Payable in the amount of $.

Blank 1: debit Blank 2: 1000

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 (debit/credit) to Bonds Payable in the amount of $.

Blank 1: debit Blank 2: 50000

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

Blank 1: discount

The legal contract between the bondholders and the issuer is called the bond (issuance/indenture/certificate) .

Blank 1: indenture

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

Blank 1: installment

The par value of a bond, also called the face value, is paid at a stated future date, known as the bond's date.

Blank 1: maturity

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

Blank 1: note or notes

The bond carrying value can be determined by taking the bond value minus the discount on bonds payable.

Blank 1: par

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

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 Bond Payable $500,000.

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

Par value - discount on bonds payable

______ bonds (and notes) have specific assets of the issuer pledged (or mortgaged) as collateral.

Secured

______ bonds (and notes) mature at more than one date (often in series) and, thus, are usually repaid over a number of periods.

Serial

______ bonds (and notes) are scheduled for maturity on one specified date.

Term

______ bonds (and notes), also called debentures, are backed by the issuer's general credit standing.

Unsecured

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 Blank______ rate is the interest rate specified, sometimes referred to as the coupon rate, stated rate, or nominal rate.

contract

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) Blank______ to Bond Payable in the amount of Blank______.

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

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

indenture

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

installment

A(n) Blank______ is a legal agreement that helps to protect a lender if a borrower does not make required payments on notes or bonds. This agreement gives 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) (mortgage/installment/bond) 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

A Blank______ Blank______ is similar to a bond payable but is normally transacted with a single lender such as a bank.

note payable

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

par

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 market rate is less than the bond contract rate on the date of issuance, the bonds will be sold at a (discount/premium) .

premium