Accounting Ch. 10

To reduce the risk that they won't get paid, lenders frequently require borrowers to pledge designated assets as . . . for loans.

collateral

Interest Expense

cost incurred by the borrower for the use of some other entities' assets

Bond premiums reduce the . . . interest rate

effective

Serial Bonds

mature at specified intervals throughout the life of the total issue

Term Bonds

mature on a specified date in the future

In practice, bonds normally pay interest . . .

semiannually

A line of credit . . .

- usually limits the amount that can be borrowed - normally has a fluctuating interest rate

Assume that a $1,000 face value bond sells at a $100 discount. If the bond has a 7% stated rate of interest and a 5 year term to maturity, the effective rate of interest is approximately . . .

10%

The letters in the acronym EBIT stand for . . .

Earnings Before Interest and Taxes

With respect to a bond liability, the lender is called the . . . , while the borrower is called the . . .

bondholder, issuer

Bond obligations normally . . .

have longer terms to maturity than bank notes

If a bond sells at a discount, the effective rate of interest will be . . . the stated rate of interest.

higher than

Loans that require payments of principle and interest at regular intervals are called . . .

installment notes

Which of the following is deductible for tax purposes?

interest expense only

Effective Rate of Interest

interest rate the exists on the day the bonds are issued

Stated Rate of Interest

interest rate written in the bond certificate

Bonds issued at a discount are sold for . . . face value.

less than

Bond Premium

the difference between the selling price and the face amount of a bond sold for more than the face amount