Chapter 9 LS Assignment
The Discount on Bonds Payable account is classified as a
contra-liability
which of the following are common characteristics or provisions of bonds?
convertible callable secured or unsecured
which of the following are common characteristics or provisions of bonds?
convertible secured or unsecured term or serial
The possibility that a company will be unable to pay its loans and its interest payments when due refers to the company's _ risk.
default
match the bonds with the effect on the bond-related interest expense
discount bonds- interest expense increases each interest period premium bonds - interest expense decreases each period
If bonds are retired before the maturity date, this is considered a(n)
early extinguishment of debt
common terms used for the market interest rate is (are):
effective interest rate yield rate
In order to expand its business, mueller inc. is selling $10 million in common stock. Mueller is utilizing this type of financing:
equity
When a company repurchases its own securities, the stock is recorded in which account?
treasury stock
true or false: when pricing a bond, the present value of the annuity of the coupon payments is added to the present value of the maturity value of the bond.
true
Katie company issues $14 million in bonds. The bonds are well received by investor solely based on the excellent reputation and past performance of the company, its products, and its executives. Katie most likely is issuing a(n) _ bond.
unsecured
most bonds issued today are _.
unsecured
merkel corporation issues $200,000 face amount bonds with a stated interest rate of 6%. If the market interest rate is 6%, the bonds will issue at
face amount
The carrying value at maturity is equal to the face amount of bonds issued at:
face amount, discount, and premium
true or false: the market interest rate for corporate bonds is the same for each company and is set by the federal reserve board.
false
Bonds will be issued a premium if the stated interest rate is
greater than the market interest rate
a bond will be issued at a discount when the market rate of interest is
greater than the stated rate
The higher the market interest rate on bonds the _ will be the issue price
lower
for a bond issued at a discount, the stated interest rate will be _ than its yield or return earned by bond investors.
lower
The _ rate of interest is the interest rate on the date the bonds are issued.
market
a common reason for redeeming a bond prior to its maturity date is that
market interest rates decreased
bonds that systematically mature over a series of years are called _ bonds.
serial
Margot inc. issues $10 million in bonds, of which $2 million are due each year for the next 5 years. margot inc.'s bonds are commonly referred to as a
serial bonds
the _ rate of interest is used to compute the cash interest paid to bondholders.
stated
The _ rate of interest on a bond is the interest rate printed on the bond, whereas the _ rate of interest is the current rate of interest being paid on investments with similar characteristics.
stated, market
_ bonds require payment of the full principle amount of the bond at the end of the loan term.
term
Bonds that mature on one specific date are called _ bonds , whereas bonds that mature in installments are referred to as _ bonds.
term,serial
bondholders are willing to pay a premium to acquire a bond because
the bond;s stated interest rate is higher than the market interest rate
Mann Inc. issues $100,000 bonds at face amount. The bonds pay interest of 6%. Berkely inc., a company with comparable risk, issues $100,000 bonds, paying 5% interest for $98,000 which of the following is true?
both bonds yield a return of 6% to investors.
The mixture of debt financing and equity financing a company uses is referred to as the company's _ structure.
capital
Bonds and leases are normally classified as _ liabilities.
long-term
An early extinguishment of debt occurs if bonds or any type of debt are retired prior to the _ date.
maturity
An investment fund into which an organization makes payment each year over the life of its outstanding debt is referred to as a(n) _ fund.
sinking
ABC Company issues a bond with a face value of $100,000 at par on January 1. The bond carries a stated annual interest rate of %6 payable in cash on December 31 of each year. If ABC issues monthly financial statement, it must make an adjusting entry on January 31 that includes _.
-A debit to interest expense $500 -A credit to Interest payable of $500
A corporation will issue bonds when
the interest on the bond plus the bond issue cost is less than the interest payments for a bank loan
Margot purchases $10,000 face amount corporate bonds at 98.7. The bonds pay 5% interest semiannually and mature in 10 years. How much did margot pay for her investment?
9870
Which of the following are typically shown in an amortization schedule related to an installment notes payable?
the cash paid each payment period the carrying value of the note at the end of the period the carrying value of the note at the beginning of the period
which of the following statements is correct?
Bonds may sell below, above, or at their face amount
_ leases occur when a lessee essentially buys an asset and borrows the money through a lease to pay for the asset.
capital
which of the following types of leases results in higher total liabilities reported on the balance sheet?
capital lease
The journal entry to record the issuing of 100 bonds a their $1,000 face value will include a debit to _ and a credit to _.
cash; bonds payable
munster inc.issues $20 million in bonds and pledges its land holdings as collateral. Munster's bonds are:
secured
a bond that sells for more than its face amount is sold at a(n)
premium
wichtel company issues $100,000 face amount, 10% semiannual bonds that are due in 7 years. The market interest rate is *%. To calculate the issue of the bonds, wichtel should use an interest rate of _% and _# of interest periods.
4;14
At the beginning of the year, Petra owes $10,000 on an installment notes payable, which has an interest rate of 6%. At the end of the year, Petra makes a payment of $2,000. After the payment, the carrying value of the installment notes payable will be:
8,600
On Janurary, 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
92278
If ABC Company issues 100 of it's $1,000 bonds at a price of 110, the journal entry will include which of the following entries?
A credit to premium on Bonds Payable of $10,000 A credit to bonds payable of $100,000 A debit to Cash of $110,000
On January 1, Year 1, Liang corporation issues a $100,000 bond at a discount for $95,083. The coupon rate is 10% and the effective interest rate is 12%. The bonds pay interest semiannually on June 30 and December 31. The journal entry to record the interest payment on June 30, Year 1 will include which of the following entries?
Credit discount on bonds payable $705. Debit interest expense $5,705
Werner Inc. issues bonds at a premium. Werner's journal entry to record the issuance should include:
Credit to premium on bonds payable debit to cash credit to bonds payable
emily uses a financial calculator to a calculate the issue price of $100,000 face amount bonds. The bonds pay 6% interest semi-annually over a five-year period. The market interest rate is 6%.
I=3 n=10 fv=100,000
Which of the following are possible benefits of leasing an asset rather than purchasing an asset?
Lower periodic payments on the asset improvement in cash flows tax savings
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.
Margot inc. issues bonds with a stated rate of 5%; the company's market interest rate is 6%. The bonds will issue at:
a discount
bonds may issue at
a discount face amount a premium
Gleuck Company issues bonds with a stated rate of 5% and a market rate 4%. Glueck's bonds will issue at
a premium
a series of equal amounts paid or received over equal time periods is called a(n)
annuity
match the timing of retirement with the likely income statement effect
at maturity - no gain or loss is recognized prior to maturity - typically results in gain or loss recognized
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 is referred to as a(n)
bond
convertible bonds may be beneficial to lenders (bond issuer) because they tend to:
bonds notes payable leases
On January 1, Year 1, Saturn Corporation issues $100,000 of bonds with a stated rate of 8% for $107,020. The bonds pay interest on June 30 and December 31. The effective rate at the issue date was 6%. The journal entry to record the interest expense on June 30 will include which of the following?
credit cash $4,000 (semi-annual int rate-6%/2=3%x$107,020) Debit premium on bonds payable $789 (semi annual int rate=6%/2=3%x$107,020) Debit to interest expense $3,211 (semi-annual int rate = 6%/2=3%x$107,020)
The journal entry to recognize the signing of an installment notes payable includes:
credit notes payable debit cash
An advantage to financing with debt is that
interest is tax deductible
What type of company is more likely to issue bonds?
large companies
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
_ has grown into the most popular method of external financing of corporate assets in America.
leasing
improved cash flows and lower income taxes are common advantages of acquiring equipment through
leasing
tyler wants to calculate the issue price of bonds. He already knows the face amount and interest payment amount. He also needs to know the
number of periods to maturity
When the rights and risks of ownership are retained by the lessor, the lease is classified as a(n) _ lease.
operating
A lease that specifies that the rights and risk of ownership are retained by the lessor is classified as a(n):
operating lease
neumann corporation is planning to issues bonds with a face amount of $2 million. if neumann's accountant, betty, wants to calculate the expected issue she should calculate the _ of the related future cash payments using _ interest rate.
present value; market
Dorothea Inc. is selling all of its bonds to a large pension fund. This is an example of a(n) _ placement.
private
Bonds that are backed by collateral are _.
secured
On december 31, leann corp. pays $5,120 on an installment note that requires annual payments. The outstanding loan balance on January 1 was $50,000; the effective interest rate is 8%. The journal entry to recognize the payment should include debits to
(c) installment notes for $1,120 (d) interest expense for $4,000
Totito Inc. issues $100,000 face amount bonds at 98. 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
the terms "effective interest rate" and "yield rate" refer to the _ interest rate.
market
Regardless of whether bonds are issued at face amount, a discount, or a premium, their carrying value is equal to face amount is the _ date.
maturity
When a corporation repurchases its bonds from the bondholders, the bonds are called _ bonds.
retired
Corporation issues a $100000 bond at a discount for $95083 The coupon rate is 10% and the effective interest rate is 12% The bonds pay interest semiannually on June 30 and December 31. The journal entry to record the interest payment on June 30, Year 1 will include which of the following entries?
Credit cash $5,000
Which of the following are typically shown in an amortization schedule related to an installment notes payable requiring period payment of interest and principal?
interest expense based on the beginning period carrying value and the effective rate of the loan the cash paid each payment period the decrease in the carrying value of the note the carrying value of the note at the end of the period