chapter 9 accounting - bondsThe ________ value of a bond, also called the face amount or face value, is paid at a stated future date, known as the bond's maturity date.

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

indenture

A(n) _______ 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.

mortgage

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.

$1,000; $5,000

A company issued $50,000 of 8%, 10-year bonds on January 1. The bonds pay semi annual interest. The present value factor of a single amount of 20 periods at 8% is 0.2145.The present value of 10 periods at 4% is 0.6756. The present value of 20 periods at 4% is 0.4564. Determine the present value of the par value of the bonds.

$22,820 Reason: Use the present value of 20 periods at 4%: $50,000 x 0.4564 = $22,820.

A company issues $100,000 of 6%, 5-year bonds dated January 1 that pay interest semiannually. The bonds are issued when the market rate is 8%. The present value tables indicate the present value factor of an annuity for 3% at 10 periods is 8.5302; and for 4% at 10 periods is 8.1109. To find the present value of the interest payments, multiply _______ by the present value factor _________.

$3,000; 8.1109 Reason: Interest payment = $100,000 x 6% x 1/2 = $3,000. Present value=1/2 of the market rate (4%) and double the number of periods (10).

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 ____ of their par value.

103%

A company issues $75,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $69,000 for the bonds, the issuer will record the sale with a debit to which of the following accounts?

Cash and Discount on Bonds Payable

A company issues $60,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $59,000 for the bonds, the issuer will record the sale with a (debit/credit) _________ to Discount on Bonds Payable in the amount of $_____

debit; 1000

When the market rate is 8%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually for a selling price of $60,000. When the bonds mature, the issuer records its payment of principal with a (debit/credit) to Bonds Payable in the amount of $________

debit; 50,000

Star Bank provided cash to a customer, J. Brown, to pay for a building. Star required that Brown also sign a(n) (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.

mortgage

A _____ _____ is similar to a bond payable but is normally transacted with a single lender such as a bank.

note payable

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

notes

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

unsecured

When the market rate is 12%, a company issues $50,000 of 9%, 10-year bonds and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a debit to _______ in the amount of _______.

Bonds Payable; $50,000

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?

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

The bond carrying value can be determined by which of the following formulas?

Par value - discount on bonds payable

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:

a discount

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

contract

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 the issuer accepts $103,000 for the bonds, the issuer will record the sale with a (debit/credit) ______ to Bond Payable in the amount of _______.

credit; $100,000

A company issues $400,000 of 8%, 10-year bonds dated January 1. 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 a (debit/credit) _____ to Bonds Payable in the amount of $______

credit; 400,000

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) to (Discount/Premium) on Bonds Payable in the amount of $4,000.

credit; premium

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

par

The bond carrying value can be determined by taking the bond ____ value minus the discount on bonds payable.

par

The bond contract rate determines the annual interest paid by multiplying the bond ______ value by the contract rate.

par

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

premium