Exam 4

which of the following statements are disadvantage of bond financing?

-bonds require payment of interest and par value -bonds can decrease return on equity

identify the disadvantage of the corporate form of business

-coporate taxation -government regulation

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

-par -interest

a _____ is the issuers written promise to pay an amount equaling the par value. The par value is paid at a specified future date. Most often, the issuers is required to make semiannual interrest payments

bond

the legal document that describes the rights and obligations of both the bondholders and the issuers is called the bond_______.

bond indenture

the _____ value per share is the price at which a stock is bought and sold

market

a charter application usually must be signed by the prospective stockholders called incorporaters or ________. Then, it is filled with the appropriate state official.

promoters

a charter application usually must be signed by the prospective stockholders called incorporators or ______. Then it is filed with the appropriate state official

promoters

capital _______ is a general terms that refers to any shares issued to obtain capital

stock

which of the following is not a characteristic of a coporation?

unlimited liability of stockholders

---bond market values are expressed as a percentage of their par 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%

---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 $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 issuers records the sale with a debit to _____ in the amount of $----

cash 100000

advantages of bonds

do not affect owner control -interest on bonds is tax deductible -bonds can increase return on equity

an advantage of purchasing preferred stock is that preffered shareholders are guaranteed to receive dividend payments each year

false

the legal document identifying the right and olbiations of both the bondholders and the issuers is called the bond____. This document describes the number of bonds authorized, their par value, and the contract interrest rate.

indenture

----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 issuers records the first semi-annual interrest payment with a debit to which of the following accounts and in what amount?

interest expense, $2,500

the bonds____ rate of interest is the rate that borrowers are willing to pay and lenders are willing to accpet for a particular bond and its risk level

market

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

maturity

the market value per share is the price at which stock is bought and sold. Which of the following factors does not influence market value?

par-value

When the current market rate is less than the bond contract rate on the date of issuance, the bond will be sold at a(n)

premium

Two of the biggest disadvantages of the corporate form of business are government regulation and corporate

tax

two of the biggest disadvatages of the corporate form of business are government regulation and corporate ______.

tax

a corporation is created by obtaining a charter from:

the state government

corporation purchase and hold their own stock, known as treasury stock, for several reasons. Identify which of the following is not a reason that a coporation would buy treasury stock.

to reduce the market value of the common shares outstanding

-- a corporation has agreed to pay a $.10 cash dividend on shares of common stock. On the date of record, no formal journal entry is required.

true

bonds are securities that can be readily bought and sold. A bond issue consists of a number of bonds, usually in denominations of ___ or ___ and is sold to many different lenders

$1000 or $5000

select the correct answer regarding the characteristics of a corporation:

a separate legal entity

no-par value stock is stock not assigned a value per share by the corporate charter. Its advantage is that it can be issued ________ without the possibility of a minimum legal capital

at any price

Most bonds require par value to be repaid _______ and interest to be paid _________.

at the maturity date semiannually

_________ stock is the number of shares that a corporations charter allows it to sell.

authorized

which of the following statements is an advantage of bond financing?

bonds do not affect owner control

_________ is a general term that refers to any shares issued to obtain capital

capital stock

a company issues $50,000 of 8%, 10 years 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 $

cash 2000

a company issues $75,000 of 6%, 10 year bonds dated January 1 that pay interrest 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 credit to_____ in the amount of $

cash 75000

when all authorized shares of stock have the same rights and characteristics, the stock is called ____ stock

common

identify the advantages of the corporate form of business

continuous life -limited liability -ease of capital accumlation

the _____ rate is the interest rate specified in the indenture-- sometimes reffered to as the coupon rate, stated rate, or nominal rate.

contract

a ______ is an entity created by law that is separate from its owners. Owners are called stockholders or shareholders. These entities can be privately or publicly held.

corporation

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, the issuer will record the sale with a ____ to Bonds Payable in the amount of $

credit 100000

---a company issues $500,000 at 6%, 10-years bonds dated January 1 ,2017 that mature of December 31 ,2026. The bonds pay interest semiannually on June 30 and December 31 each year. If bonds are sold at par value , the issuers records the sale with which of the following enteries?

debit to cash $500,000; and credit to Bond Payable $500,000

when a bond contract rate is less than the current market rate on the date of issuance, the bond will be sold at a

discount

a bond is its issuers written promise to pay an amount equaling the value of the bond with interest

par

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

par

the bonds carrying value can be determinded by which of the following formulas?

par value- discount on bonds payable

corporations can be separated into two types. A_____ held corporation does not offer its stock for public sale and usually has few stockholders. A ______ held corporation offer its stock for public sale and can have thousands of stockholders

privately -publicly

a charter application usually must be signed by the prospective stockholders called incorporaters or promoters. Then it is filed with the appropriate state offical.

promoter

---- stockholders do not have the power to bind the corporation to contracts. This is reffered to as lack of mutal agency.

true (this is describing what is known as lack of mutual agency)