Smartbook Chapter 10

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

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

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

par

_____ bonds (and notes) are scheduled for maturity on one specified date.

term

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

unsecured

A company issues $100,000 of 5%, 10-year bonds dated January 1. The bonds pay interest semiannually on June 30 and December 31 each year. If the bonds are sold at par value, the issuer records the sale with a debit to ______ in the amount of $______.

cash/ 100,000

A(n) _______ on bonds payable occurs when a company issues bonds with a contract rate less than the market rate.

discount

A company borrows $60,000 by signing a $60,000, 8%, 6-year note that requires equal payments of $12,979 at the end of each year. The first payment will record interest expense of $4,800 and will reduce principal by $_______.

8179

Since bond market values are expressed as a percentage of their bond value, a $1,000 bond that is sold at 93 will trade at $______

930

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

Par value - discount on bonds payable

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

contract

When the market rate is 10%, a company issues $60,000 of 12%, 10-year bonds and pay interest semiannually. When the bonds mature, the issuer records its payment of principal with a (debit/credit) _______ to Cash in the amount of $______.

credit/ 60,000

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

indenture

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

indenture

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

par

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by:

$9,542

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 $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 $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.

Most bonds require par value to be repaid _______ and interest to be paid _________. Multiple choice question.

at the maturity date; semiannually

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 _______. Multiple choice question.

credit/ 100,000

A company issues $100,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $98,000 for the bonds, the issuer will record the sale with a (debit/credit) _________to Bonds 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 $90,000 of 6%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $85,000 for the bonds, the issuer will record the sale with a (debit/credit) ________ to Discount on Bonds Payable in the amount of $________

debit/ 5000

Total bond interest _______ is the sum of the interest payments plus the bond discount.

expense

A company borrows $60,000 from a bank to purchase equipment. It signs an 8% note requiring six annual payments of principal plus interest. This is an example of a(n) _____ note.

installment

A(n) _____ note is an obligation requiring a series of payments to the lenders.

installment

A bond discount increases __________ at each semi-annual interest payment.

interest expense

The par value of a bond, also called the face value, is paid at a stated future date, known as the bond's _______ date.

maturity

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

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

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

Most bonds require (interest/par) _______ value to be repaid at maturity and (interest/par) _______ to be paid semiannually.

par/ interest

When the contract rate of the bonds is higher than the market rate, the bond sells at a higher price than par value. The amount by which the bond price exceeds par value is the _______ on bonds.

premium

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

_______ bonds (and notes) have specific assets of the issuer pledged (or mortgaged) as collateral. Multiple choice question.

secure