Accounting Chapter 9
The two types of financing are
debt financing. equity financing.
The debt to equity and the times interest earned ratios provide investors and creditors with a measure of ______________risk.
financial
A company that earns a return in excess of the cost of borrowing the funds is providing its shareholder with a greater return than what would have been earned with ______.
equity
Bonds will be issued a premium if the stated interest rate is
greater than the market interest rate.
the price of a bond includes
present value of the face amount plus the present value of the periodic interest payments
The higher the debt to equity ratio is for a company, the ______ the risk of bankruptcy is for that company.
higher
Identify two ratios commonly used to assess a company's financial risk.
Times interest earned ratio Debt to equity ratio
Loans requiring periodic payments of interest and principle are referred to as _____________ notes.
installment
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.
88,699
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 $2,000 A credit to bonds payable for $100,000
Multiple Choice Question Which of the following statements is correct? Bonds may be retired at maturity or retired early. Bonds for which the effective interest rate rises must be retired early. Bonds can be retired only at maturity.
Bonds may be retired at maturity or retired early.
Which of the following are correct regarding bonds?
Bonds may be retired at maturity or retired early.
Which of the following statements is correct?
Bonds may sell below, above, or at their face 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
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.
Periodic payments on installment notes typically include (Select all that apply.)
a portion that reduces the outstanding loan balance. a portion that reflects interest.
Bonds may issue at:
a premium a discount face amount
A series of equal amounts paid or received over equal time periods is called a(n) .
annuity
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. direct purchase plan. indenture. contingent contract.
lease
Which of the following are correct regarding bonds? They obligate the issuing company to pay a specific amount. They obligate the issuing company to repay the bonds when market interest rates decrease. They obligate the issuing company to pay an estimated amount. They obligate the issuing company to repay the bonds at a specific date. They obligate the issuing company to repay the bonds when interest rates increase.
They obligate the issuing company to pay a specific amount. They obligate the issuing company to repay the bonds at a specific date.
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
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.
$92,278
The debt to equity ratio is calculated as
total liabilities divided by total stockholders' equity.
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
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.
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. (Enter one word per blank)
lease
In order to assess a company's financial risk, investors and creditors frequently consider and analyze the company's:
long-term debt
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.
retired
Identify the characteristics of an annuity.
Equal time periods between payment dates A series of amounts that are equal
True or false: The debt to equity ratio is calculated as total liabilities divided by common stock.
False