ACC Chap 10

mortgage

(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.

1,250

A $200,000 4 year bond was issued for $210,000. The semi-annual amortization of the bond premium using the straight-line method equals $

interest expense

A bond discount increases Blank______ at each semi-annual interest payment.

8179

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 $8179Field 1Field 1 8179 , Correct Unavailable.

installment

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) installmentField 1Field 1 installment , Correct Unavailable note.

$9,542

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:

Interest Expense, $2,500

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?

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

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?

2000

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 cashField 1Field 1 cash , Correct Unavailable in the amount of $

debit

A company issues $50,000 of 9%, 10-year bonds dated January 1, 2026, that mature on December 31, 2035, and pay interest semiannually of $2,250. On December 31, 2031, when the bond premium is $2,500, the bonds are called for $55,000. The journal entry to record this transaction would record a (debit/credit) creditField 1Field 1 credit , Incorrect Unavailable to Loss on Bond Retirement of $2,500.

Gain; $500 Reason: $50,000+2500=$52,500. $52,000-$52,500=$500 Gain.

A company issues $50,000 of 9%, 10-year bonds dated January 1, 2027, that mature on December 31, 2036, and pay interest semiannually for $2,250. On December 31, 2031, when the bond premium is $2,500, the bonds are called for $52,000. The journal entry to record this transaction would record a (Gain/Loss) Blank______ on bond retirement in the amount of Blank______.

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

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 Bond Payable $500,000; and credit to C

Credit, premium

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 (debit/credit) creditField 1Field 1 credit , Correct Unavailable_ to (Discount/Premium) premiumField 2Field 2 premium , Correct Unavailable_ on Bonds Payable in the amount of $4,000.

debit; $90,000

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) Blank______ to bond payable in the amount of Blank______.

installment

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

discount

A(n) discountField 1Field 1 discount , Correct Unavailable on bonds payable occurs when a company issues bonds with a contract rate less than the market rate.

103%

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.

$1,000; $5,000

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.

registered

Bonds issued in the names and addresses of their holders are Blank______ bonds.

bearer

Bonds payable to whomever holds them are called Blank______ bonds or unregistered bonds.

Bonds can decrease return on equity Bonds require payment of both periodic interest and the par maturity

Bonds require payment of periodic interest and the par value.

a discount

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:

notes

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

sinking

Many bonds are (sinking/secured) securedField 1Field 1 secured , Incorrect Unavailable fund bonds, which reduces the holder's risk by requiring the issuer to set aside assets at specified amounts and dates to repay the bonds.

sinking fund bonds

Many bonds are Blank______, which reduces the holder's risk by requiring the issuer to set aside assets at specified amounts and dates to repay the bonds.

sinking funds

Many bonds are Blank______, which reduces the holder's risk by requiring the issuer to set aside assets at specified amounts and dates to repay the bonds.

930

Since bond market values are expressed as a percentage of their bond value, a $1,000 bond that is sold at 93 will trade at $

mortgage

Star Bank provided cash to a customer, J. Brown, to pay for a building. Star required that Brown also sign a(n) mortgageField 1Field 1 mortgage , Correct Unavailable (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.

contract

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

Market

The bond's Blank______ rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

Indenture

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

indenture

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

Maturity Date

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

Interest Expense

The straight-line bond amortization method allocates an equal portion of the total bond interestField 1Field 1 interest , Correct Unavailable expenseField 2Field 2 expense , Correct Unavailable to each

discount

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

carrying

When a bond is sold at a discount, the Blank______ value will increase at each semi-annual interest payment by the amortization of bond discount.

decrease

When a bond is sold at a premium, the carrying value will Blank______ each period that the premium is amortized.

Example: a $1,000 bond trading at 103 1/2 is bought or sold for $1,035 (1,000 x 1.035) The same bond trading at 95 is bought at $950 ($1,000 x 0.95)

When bonds are bought and sold they have a market value of par

Premium

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)

Bonds require payment of periodic interest and the par value.

Which of the following is a disadvantage of bond financing?

Bonds do not affect owner control.

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

Bonds require interest payments and payment of par value.

Which of the following statements is not an advantage of bond financing?

term

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

convertible

______ bonds (and notes) can be exchanged for a fixed number of shares of the issuing corporation's common stock. Multiple choice question. Term Convertible Secured Callable

Callable

______ bonds (and notes) have an option exercisable by the issuer to retire them at a stated dollar amount before maturity.

secured

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

Serial

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

unsecured

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

credit, premium

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) ______ to (Discount/Premium) ______ on Bonds Payable in the amount of $5,000.