accounting 201 chapter nine smartbook
Periodic payments on installment notes typically include
a portion that reflects interest and a portion that reduces the outstanding loan balance
Bonds may issue at:
a premium, a discount, face amount
On January 1, year 1, Klondike issued 10-year bonds with a stated rate of 10% and a face amount of $100,000. The bonds pay interest annually. The market rate of interest was 12%. Calculate the issue price of the bonds. Round your answer to the nearest dollar.
(5.65022 x $10,000) + (0.32197 x $100,000) = $88,699
On January 1, year 1, Ziegler issued 5-year bonds with a stated rate of 8% and a face amount of $100,000. The bonds pay interest semiannually. The market rate of interest was 10%. Calculate the issue price of the bonds. Round your answer to the nearest dollar.
(7.72173 x $8,000 x 0.5) + (0.61391 x $100,000) = $92,278
Totito Inc. issues $100,000 face amount bonds at $98,000. The journal entry to record the issuance should include:
A debit to discount on bonds payable for $2000 A credit to bonds payable for $100,000
___ bonds are supported by a specific asset the issuer pledges as collateral.
Secured
Which of the following are correct regarding bonds?
They obligate the issuing company to repay the bonds at a specific date. They obligate the issuing company to pay a specific amount.
The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______.
cash, bonds payable
two types of financing
debt and equity
Quattro Lending Company is considering lending a large sum to Eleance Inc. During its decision process, Quattro should especially consider Eleance's existing:
long-term liabilities
When a corporation repurchases its bonds from the bondholders, the corporation ___ the bonds.
retires
A series of equal amounts paid or received over equal time periods is called a(n)
anuity
A corporation that wishes to borrow from the general public rather than a bank will issue
bonds
A contract in 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(n)
lease
A(n) ___ is a contractual arrangement in which an owner provides a user the right to use an asset for a specified period of time
lease
Munster Inc. issues $20 million in bonds and pledges its land holdings as collateral. Munster's bonds are:
secured
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
The price of a bond includes
the present value of the face amount plus the present value of the periodic interest
True/False Bonds may be retired at maturity or retired early
true
Bonds will be issued a premium if the stated interest rate is
greater than the market interest rate
Loans requiring periodic payments of interest and principle are referred to as ___ notes.
installement
A formal debt instrument that obligates the borrower to repay a stated amount (referred to as the principal or face amount) at a specified maturity date can be a note or a(n)
bond
If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value, the transaction will be recorded with a
debit to cash of $100,000 and a credit to bonds payable of $100,000
Financing with ____ requires borrowing, whereas financing with ___ requires issuing shares of stock.
debt, equity
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:
discount on bonds payable for $2,000 cash for $98,000
Identify the characteristics of an annuity.
equal time periods between payment dates a series of amounts that are equal
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
Bond Characteristics (6)
secured unsecured term serial callable convertible