ACCT 210 ch. 10

A company borrows $50,000 by signing a $50,000, 6%, 5-year note that requires equal payments of $11,870 at the end of each year. The first payment will record interest expense of: Multiple choice question. $1,500 Reason: $50,000x.06=$3,000. $3,000 $712 incorrect Reason: $50,000x.06=$3,000.

$3,000

Jared's Co. has total assets of $60,000 and total liabilities of $40,000. Its debt-to-equity ratio is ____. Multiple choice question. 0.7 Reason: Assets=liabilities+equity. $60,000 assets = $40,000 liabilities + equity. Equity= ($60,000 - 40,000) = $20,000. $40,000/$20,000=2.0. 2.0 1.5 incorrect Reason: Assets=liabilities+equity. $60,000 assets = $40,000 liabilities + equity. Equity= ($60,000 - 40,000) = $20,000. $40,000/$20,000=2.0.

2.0

A company borrows $50,000 by signing a $50,000, 8% note that requires six equal payments of __________ (round to the nearest dollar) at the end of each year. (The present value of an annuity of six annual payments, discounted at 8% equals 4.6229.)

Blank 1: 10816

A company borrows $100,000 by signing a $100,000, 5% note that requires four equal payments of ___________ (round to the nearest dollar) at the end of each year. (The present value of an annuity of four annual payments, discounted at 5% equals 3.5460.)

Blank 1: 28,201

A company borrows $80,000 by signing an $80,000, 6%, 5-year note that requires equal payments of $18,992 at the end of each year. The first payment will record interest expense of $ ________ .

Blank 1: 4800

A company borrows $60,000 by signing a $60,000, 8%, 6-year note that requires equal payments of $12,979 at the end of each year. The first payment will record interest expense of $4,800 and will reduce principal by $ ___________ .

Blank 1: 8179

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

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 $ __________ .

Blank 1: Cash Blank 2: 2000

The difference between the cash interest paid and the bond interest expense is the premium ____________ under the effective interest of amortization of a bond premium method.

Blank 1: amortization

A(n) _______________ is the issuer's written promise to pay an amount equaling the par value. The par value is paid at a specified future date. Most often, the issuer is required to make semiannual interest payments.

Blank 1: bond

Holders of ____________ bonds have the right to convert their bonds to stock. When conversion occurs, the bonds' carrying value is transferred to equity accounts and no gain or loss is recognized.

Blank 1: convertible

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 Bond Payable in the amount of $ ____________ .

Blank 1: credit Blank 2: 400000

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

Blank 1: maturity

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.

Blank 1: 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.

Blank 1: note or notes

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

Blank 1: par Blank 2: interest

The required semiannual interest payment for a premium bond using the effective interest amortization method includes the following: Multiple choice question. Bond Interest Expense is debited and Cash and Premium on Bonds Payable are credited Reason: Bond Interest Expense and Premium on Bonds Payable are debited and Cash is credited. Cash is debited and Bond Interest Expense and Bonds Payable are credited Reason: Bond Interest Expense and Premium on Bonds Payable are debited and Cash is credited. Bond Interest Expense is debited and Cash is credited Reason: Since this is a premium bond, the premium on bonds payable account is also debited. Bond Interest Expense and Premium on Bonds Payable are debited and Cash is credited

Bond Interest Expense and Premium on Bonds Payable are debited and Cash is credited

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 payment of principal at maturity with a debit to ______ in the amount of ______. Multiple choice question. Cash; $90,000 Reason: When the bonds mature, Bonds Payable is debited and Cash is credited for the par value of $50,000. Bonds Payable; $50,000 correct Interest Expense; $50,000 Reason: When the bonds mature, Bonds Payable is debited and Cash is credited for the par value of $50,000. Bonds Payable; $90,000 Reason: When the bonds mature, Bonds Payable is debited and Cash is credited for the par value of $50,000. Cash; $50,000 Reason: When the bonds mature, Bonds Payable is debited and Cash is credited for the par value of $50,000.

Bonds Payable; $50,000

Which of the following statements are disadvantages of bond financing? (Check all that apply.) Multiple select question. Unlike equity financing, bond interest is not tax deductible. Large bonds issuances can affect owner control. incorrect Bonds can decrease return on equity. correct Bonds require payment of interest and par value.

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? Multiple choice question. Bonds can decrease return on equity. incorrect Bonds do not affect owner control. Interest on bonds is payable at maturity.

Bonds do not affect owner control.

Which of the following statements is not an advantage of bond financing? Multiple choice question. Bonds do not affect owner control. Interest on bonds is tax deductible. Bonds require interest payments and payment of par value. correct Bonds can increase return on equity.

Bonds require interest payments and payment of par value.

Which of the following is a disadvantage of bond financing? Multiple choice question. Bonds require payment of periodic interest and the par value. correct Bonds can increase return on equity. Large bond issuances can decrease owner control. Reason: Bonds Payable are a liability and not a part of owner's equity.

Bonds require payment of periodic interest and the par value.

Which of the following is a disadvantage of bond financing? Multiple choice question. Large bond issuances can decrease owner control. incorrectReason: Bonds Payable are a liability and not a part of owner's equity. Bonds can increase return on equity. Bonds require payment of periodic interest and the par value.

Bonds require payment of periodic interest and the par value.

_____ bonds (and notes) have an option exercisable by the issuer to retire them at a stated dollar amount before maturity. Multiple choice question. Term Unsecured Serial Callable

Callable

_____ bonds give the issuer the option to retire the bonds at a stated dollar amount before maturity. Multiple choice question. Secured Term Convertible Callable

Callable

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? Multiple choice question. Debit to Cash $500,000; debit to Interest Expense $300,000; and credit to Bond Payable $800,000. Debit to Cash $500,000; and credit to Bond Payable $500,000. correct Debit to Bond Payable $500,000; and credit to Cash $500,000.

Debit to Cash $500,000; and credit to Bond Payable $500,000.

_______ bonds (and notes) mature at more than one date (often in series) and, thus, are usually repaid over a number of periods. Multiple choice question. Serial correct Convertible Secured Bearer

Serial

_____ bonds (and notes) are scheduled for maturity on one specified date. Multiple choice question. Callable Secured Term correct Serial

Term

Which of the following are true of amortizing a premium bond using the effective interest amortization method: Multiple select question. The semiannual cash interest payment is less than the bond interest expense. Reason: The semiannual cash interest payment is larger than the bond interest expense. The excess of the interest expense over the cash payment increases the principal. Reason: The excess of the cash payment over the interest expense reduces the principal. The excess of the cash payment over the interest expense reduces the principal. correct The semiannual cash interest payment is larger than the bond interest expense.

The excess of the cash payment over the interest expense reduces the principal. The semiannual cash interest payment is larger than the bond interest expense.

_______ bonds (and notes), also called debentures, are backed by the issuer's general credit standing. Multiple choice question. Bearer Unsecured correct Serial Convertible

Unsecured

Most bonds require par value to be repaid _______ and interest to be paid _________. Multiple choice question. at the maturity date; at the maturity date semiannually; semiannually incorrect at the maturity date; semiannually

at the maturity date; semiannually

Bonds payable to whomever holds them are called _____ bonds or unregistered bonds. Multiple choice question. unsecured convertible bearer correct term

bearer

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) ________ to bond payable in the amount of _______. Multiple choice question. debit; $171,000 Reason: 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) debit to bond payable in the amount of $90,000. debit; $90,000 correct credit; $90,000 Reason: When the bonds mature, the Bond Payable account is debited to reduce it. credit; $171,000 Reason: 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) debit to bond payable in the amount of $90,000.

debit; $90,000

The ____ ratio helps assess the risk of a company's financing structure by dividing total liabilities by total equity. Multiple choice question. equity price-earnings debt-to-equity correct debt

debt-to-equity

The _________ method allocates total bond interest expense over the bonds' life in a way that yields a constant rate of interest. Multiple choice question. effective interest equal interest straight-line incorrect Reason: The effective interest method allocates total bond interest expense over the bonds' life, which yields a constant rate of interest.

effective interest

A(n) _____ note is an obligation requiring a series of payments to the lenders. Multiple choice question. secured installment correct registered term

installment

While the straight-line method of amortizing bond premium or discounts keeps the amortization equal over the life of the bond, the effective interest method keeps the __________ equal over the life of the bond. Multiple choice question. bond par value interest rate carrying value

interest rate

While the straight-line method of amortizing bond premium or discounts keeps the amortization equal over the life of the bond, the effective interest method keeps the __________ equal over the life of the bond. Multiple choice question. interest rate correct carrying value bond par value

interest rate

A(n) _______ is a legal agreement that helps to protect a lender if a borrower fails to 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. Multiple choice question. collateral agreement note payable mortgage

mortgage

A _____ _____ is similar to a bond payable but is normally transacted with a single lender such as a bank. Multiple choice question. note receivable Reason: A note payable is similar to a bond payable but is normally transacted with a single lender such as a bank. account receivable Reason: A note payable is similar to a bond payable but is normally transacted with a single lender such as a bank. note payable correct account payable Reason: A note payable is similar to a bond payable but is normally transacted with a single lender such as a bank.

note payable

A bond is its issuer's written promise to pay an amount equaling the _____ value of the bond with interest. Multiple choice question. par correct market Reason: The issuer is required to pay back the par value of the bonds. carrying Reason: The issuer is required to pay back the par value of the bonds. selling Reason: The issuer is required to pay back the par value of the bonds.

par

The ________ 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. Multiple choice question. net realizable value selling price par correct fair market value

par

Under the effective interest amortization of a premium bond, the _____ account is debited for the amortization of the interest expense. Multiple choice question. discount on bonds payable Reason: Under the effective interest amortization of a premium bond, the premium on bonds payable account is debited for the amortization of the interest expense. bond interest expense incorrect Reason: Under the effective interest amortization of a premium bond, the premium on bonds payable account is debited for the amortization of the interest expense. premium on bonds payable cash Reason: Under the effective interest amortization of a premium bond, the premium on bonds payable account is debited for the amortization of the interest expense.

premium on bonds payable

Bonds issued in the names and addresses of their holders are _______ bonds. Multiple choice question. term registered correct bearer secured

registered

Many bonds are _______, which reduces the holder's risk by requiring the issuer to set aside assets at specified amounts and dates to repay the bonds. Multiple choice question. secured convertible debt incorrect sinking fund bonds term

sinking fund bonds

_______ bonds (and notes) have specific assets of the issuer pledged (or mortgaged) as collateral. Multiple choice question. Term Registered Secured correct Convertible

Secured

A company sells a 5-year, 8% bond with a par value of $100,000 when the market is 10% for $96,454. The bond requires semi-annual interest payments of $4,000. Using the effective interest amortization method, the company will recognize _____ interest expense on the first semi-annual interest payment. Multiple choice question. $5,000 Reason: $4,000 is the cash payment. The initial discount is $100,000 - 96,454=$3,546. Bond interest expense = $96,454 x .05 = 4,823. The discount of $823 is added to the cash payment to determine the Bond Interest Expense ($4,000 + 823)=$4823. $3,858 Reason: $4,000 is the cash payment. The initial discount is $100,000 - 96,454=$3,546. Bond interest expense = $96,454 x .05 = 4,823. The discount of $823 is added to the cash payment to determine the Bond Interest Expense ($4,000 + 823)=$4823. $4,823 $4,000 incorrect Reason: $4,000 is the cash payment. The initial discount is $100,000 - 96,454=$3,546. Bond interest expense = $96,454 x .05 = 4,823. The discount of $823 is added to the cash payment to determine the Bond Interest Expense ($4,000 + 823)=$4823.

$4,823

A company sells a 6-year, 6% bond with a par value of $100,000 when the market is 8% for $90,615 The bond requires semi-annual interest payments of $3,000. Using the effective interest amortization method, the company will recognize _____ for the amortization of the discount on the first semi-annual interest payment. Multiple choice question. $3,000 Reason: $3,000 is the cash payment. $3,000 is the semiannual cash payment. Carrying value of $90,615 x semiannual market rate of 4% = bond interest expense of $3,625. Discount amortization = $3,625 - $3,000 = $625. $782 Reason: $3,000 is the semiannual cash payment. Carrying value of $90,615 x semiannual market rate of 4% = bond interest expense of $3,625. Discount amortization = $3,625 - $3,000 = $625. $625 $3,625 incorrect Reason: $3,000 is the semiannual cash payment. Carrying value of $90,615 x semiannual market rate of 4% = bond interest expense of $3,625. Discount amortization = $3,625 - $3,000 = $625.

$625

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by: Multiple choice question. $15,142 Reason: $15,142-5,600=$9,542. $5,600 Reason: $15,142-5,600=$9,542. $21,142 incorrect Reason: $15,142-5,600=$9,542. $9,542

$9,542

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? (Check all that apply.) Multiple select question. Debit to Interest Expense for $3,000. correct Debit to Interest Expense for $6,000. Reason: Interest is paid semiannually; therefore, Interest Expense is debited for $3,000. Credit to Cash for $6,000. incorrect Reason: Interest is paid semiannually; therefore, Cash is credited for $3,000. Credit to Cash for $3,000.

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

A company issues $100,000 of 5%, 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 debit to which of the following accounts and in what amount? Multiple choice question. Interest Expense, $5,000 Reason: Interest Expense is debited in the amount of $2,500. Cash, $5,000 incorrect Reason: Interest Expense is debited in the amount of $2,500. Cash, $2,500 Reason: Interest Expense is debited in the amount of $2,500. Interest Payable, $2,500 Reason: Interest Expense is debited in the amount of $2,500. Interest Expense, $2,500 Interest Payable, $5,000 Reason: Interest Expense is debited in the amount of $2,500.

Interest Expense, $2,500

A company borrows $60,000 by signing a $60,000, 8%, 6-year note that requires equal payments of $12,979 at the end of each year. The first payment will record interest expense of $4,800 and will reduce principal by $8,179. The journal entry to record this payment will include a debit to which of the following accounts and in what amount? (Check all that apply.) Multiple select question. Interest Expense; $4,800 correct Cash; $8,179 Reason: Debit Interest Expense for $4,800 and Notes Payable for $8,179. Interest Payable; $4,800 Reason: Debit Interest Expense for $4,800 and Notes Payable for $8,179. Notes Payable; $8,179

Interest Expense; $4,800 Notes Payable; $8,179

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by $9,542. The journal entry to record this transaction will include a debit to which of the following accounts and for how much? (Check all that apply.) Multiple select question. Interest Payable; $5,600 Reason: Debit Interest Expense for $5,600 and debit Notes Payable for $9,542. Notes Payable; $9,542 correct Interest Expense $5,600 correct Cash; $15,142 Reason: Debit Interest Expense for $5,600 and debit Notes Payable for $9,542.

Notes Payable; $9,542 Interest Expense $5,600