ch 9 SB accounting

callable bonds can be redeemed at the choice of

the bond issuer

second semiannual interest rate

D interest expense; C Discount on BP; C cash

periodic payments on installment notes typically include

a portion that reflects interest, a portion that reduces the outstanding loan balance

bonds maybe be retired

at maturity or retired early

a formal debt instrument that obligates the borrower to repay a stated amount at a specific maturity date can be a note or a

bond

Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance of the bonds should include debit(s) to

cash for $98,000 ; discount on bonds payable for $2000

journal entry to record issuing of 100 bonds at their $1000 face value will include a debit to _ and a credit to_

cash; bonds payable

Werner issues bonds at a discount. the related discount account should be classified as a

contra account

Werner Inc. issues bonds at a premium. Werner's journal entry to record the issuance should include

debit cash; credit bonds payable ; credit premium on bonds payable

financing with _ requires borrowing

debt or liabilities

after the first interest payment, the balance of the discount has _ which _ the bond's carrying value

decreased ; increased

financing with _ requires issuing shares of stock

equity

two types of financing

equity and debt

funds coming from outside of the company are sources of

external financing

rate of interest printed on the face of a bond is referred to as the _ interest rate

face, nominal

a bond will be issued at a discount when the market rate of interest is

greater than the stated rate

loans requiring periodic payments of interest and principle are referred to as __ notes

installment

for the first payment _ is calculated

interest expense

profits generated by the company are a source of

internal financing

a _ is a contractual arrangement which an owner provides a user the right to use an asset for a specific period of time

lease

a contract which an owner provides a user the right to use an asset in return for periodic cash payments over a period of time is called a

lease

a bond will be issued at a premium when the market rate of interest is _ the stated rate

less than

the _ rate of interest is an implied rate based on the price investors pay to purchase a bond

market

common reason for redeeming a bond prior to its maturity date is that

market interest rates decreased

when a corporation repurchases its bonds from the bondholders, the corporation _ the bonds

reitred

we use the _ carrying value to calculate interest expense of the second semiannual interest period

revised

ABC Company is in the process of issuing bonds. The bonds have a stated interest rate of 6%, which is 2% above the current market rate. What effect will the two interest rates have on the bond issue price?

the issue price will be above the bond's face value

regarding bonds, they obligate

the issuing company to repay the bonds at a specific date, issuing company to pay a specific amount

debt to equity ratio is calculated as

total liabilities divided by total stockholders equity

True or false: When pricing a bond, the present value of the interest payments is added to the present value of the maturity value of the bond.

true

the true interest rate used by investors to value a bond issue is referred to as the

market interest rate

common types of analysis that help assess a specific company's performance include comparisons

between companies, to the same industry, over time

the discount on bonds payable account is classified as a

contra liability

the discount on bonds payable amount is classified as a

contra-liability

ABC Company issues a bond with a face value of $100,000 at face amount on January 1. The bond carries a stated annual interest rate of 6% payable in cash on December 31 of each year. If ABC issues monthly financial statements, it must make an adjusting entry on January 31 that includes

debit interest expense $500; credit interest payable $500

ABC Company issues a bond with a face value of $100,000 at face amount on January 1. ABC prepares financial statements only at December 31, so no adjusting entries are made during the year to accrue interest. If the bond carries a stated interest rate of 6% payable in cash on December 31 of each year, the journal entry to record the first bond interest payment includes ______.

debit interest expense of $6000 credit to cash of $6000

Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance should include

debit to discount on bonds payable for 2000; credit to bonds payable for 100,000

the _ rate of interest is used to pay periodic interest on the bonds, market rate of interest is used to calculate interest expense

nominal

price of bond includes

present value of the face amount plus the present value of the periodic interest payments

If ABC Company issues 100 of its $1,000 bonds at a price of $110,000, the journal entry will include which of the following entries?

credit bonds payable 100,000 ; debit cash 110,000; credit premium bonds payable 10,000

On January 1, Year 1, Liang Corporation issues a $100,000 bond at a discount for $95,083. The coupon rate is 10% and the market interest rate is 12%. The bonds pay interest semiannually on June 30 and December 31. The journal entry to record the interest payment on June 30, Year 1 will include which of the following entries?

credit cash $5000 ; credit discount on bonds payable $705 ; debit interest expense $5,705

possibility that a company will be unable to pay its loans and its interest payments when due refers to the company's _ risk

default

true or false: when pricing a bond, the present value of the interest payments is added to the present value of the maturity value of the bond

true