Question 1

Compare the advantages and disadvantages of bond financing.

Accepted Answer

Advantages of bond financing include tax

Question 2

A bond traded at 102½ means that:

Accepted Answer

A)  The market rate of interest is 2.5%. 
B)  The bond pays 2.5% interest. 
C)  The bond is currently traded at $1,025 per $1,000 bond. 
D)  The bonds were issued at $1,025 each. 
E)  None of these answers is correct. 
A)  The market rate of interest is 2.5%. 
B)  The bond pays 2.5% interest. 
C)  The bond is currently traded at $1,025 per $1,000 bond. 
D)  The bonds were issued at $1,025 each. 
E)  None of these answers is correct.

Question 3

Which of the following is the debt-to-equity ratio calculation?

Accepted Answer

A)  Total current liabilities + Total long term liabilities) ÷ total shareholders' equity 
B)  Total current liabilities ÷ total assets - shareholders' equity) 
C)  Total liabilities ÷ total liabilities + shareholders' equity) 
D)  Total long-term Liabilities ÷ Total shareholders' Equity 
E)  Total current liabilities + total long-term liabilities) ÷ total long-term liabilities + shareholders' equity) 
A)  Total current liabilities + Total long term liabilities) ÷ total shareholders' equity 
B)  Total current liabilities ÷ total assets - shareholders' equity) 
C)  Total liabilities ÷ total liabilities + shareholders' equity) 
D)  Total long-term Liabilities ÷ Total shareholders' Equity 
E)  Total current liabilities + total long-term liabilities) ÷ total long-term liabilities + shareholders' equity)

Question 4

Willa Inc issued $110,000, 9%, 5-year bonds. The current market rate was 9.5%. Willa received $106,000 for the bonds. Using the effective interest method, the amount ofinterest expense to be recorded for the first semiannual payment was:

Accepted Answer

A)  $6,500,00. 
B)  $7,000.00. 
C)  $3,910.60. 
D)  $3,750.00. 
E)  $5,035.00. 
A)  $6,500,00. 
B)  $7,000.00. 
C)  $3,910.60. 
D)  $3,750.00. 
E)  $5,035.00.

Question 5

Owners of coupon bonds are not required to pay income tax on the interest received.

Accepted Answer

A) True 
 B)False

Question 6

The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties, is called an):

Accepted Answer

A)  Mortgage contract. 
B)  Bond indenture. 
C)  Mortgage. 
D)  Debenture. 
E)  Installment note. 
A)  Mortgage contract. 
B)  Bond indenture. 
C)  Mortgage. 
D)  Debenture. 
E)  Installment note.

Question 7

If a bond is issued at a premium, interest expense will increase over the term of the bond.

Accepted Answer

A) True 
 B)False

Question 8

An annuity is a series of varying payments occurring at different time intervals throughout a bonds life.

Accepted Answer

A) True 
 B)False

Question 9

When graphing the carrying value of a premium bond vs the par value of a premium bond, the lines intersect at the maturity date of the bond.

Accepted Answer

A) True 
 B)False

Question 10

Debentures are secured debt.

Accepted Answer

A) True 
 B)False

Question 11

You graphed periodic interest expense and cash interest paid over the life of a bond.You noticed that the periodic interest expense line is increasing and greater than thecash interest paid line. Identify the statement below that is best described by the graph you drew.

Accepted Answer

A)  The bond was issued at a premium. 
B)  The bond was issued at a discount. 
C)  The bond was issued at par. 
D)  The bond premium or discount is not being amortized. 
E)  Discounted interest amortization is used. 
A)  The bond was issued at a premium. 
B)  The bond was issued at a discount. 
C)  The bond was issued at par. 
D)  The bond premium or discount is not being amortized. 
E)  Discounted interest amortization is used.

Question 12

Bonds owned by investors whose names and addresses are recorded by the issuingcorporation, and for which interest payments are made with cheques to the bondholders, are called:

Accepted Answer

A)  Registered bonds. 
B)  Serial bonds. 
C)  Bearer bonds. 
D)  Callable bonds. 
E)  Coupon bonds. 
A)  Registered bonds. 
B)  Serial bonds. 
C)  Bearer bonds. 
D)  Callable bonds. 
E)  Coupon bonds.

Question 13

Sami Corporation borrowed $300,000 from the bank by signing a 5-year, 8%installment note. The present value of an annuity factor at 8% for 5 years is 3.9927. To the nearest dollar, the annual payment is:

Accepted Answer

A)  $60,000. 
B)  $19,964. 
C)  $24,000. 
D)  $37,500. 
E)  $75,137. 
A)  $60,000. 
B)  $19,964. 
C)  $24,000. 
D)  $37,500. 
E)  $75,137.

Question 14

An operating lease:

Accepted Answer

A)  Requires the lessee to record a leased asset and a lease liability. 
B)  Allows the lessee to report rent expense. 
C)  Is the economic equivalent of a purchase with a financing arrangement. 
D)  Is also called a rent-to-own lease. 
E)  None of these answers is correct. 
A)  Requires the lessee to record a leased asset and a lease liability. 
B)  Allows the lessee to report rent expense. 
C)  Is the economic equivalent of a purchase with a financing arrangement. 
D)  Is also called a rent-to-own lease. 
E)  None of these answers is correct.

Question 15

Computers "R" Us borrowed $40,000 for 2 years at 7%. The face value of the note is$45,600.

Accepted Answer

A) True 
 B)False

Question 16

Explain the amortization of bond discount.

Accepted Answer

Bond discounts arise when bonds are issu

Question 17

The effective interest method allocates bond interest expense over the life of the bonds in a way that yields a constant rate of interest.

Accepted Answer

A) True 
 B)False

Question 18

IFRS recommendations require that corporations use the effective interest method for amortization of bond discounts.

Accepted Answer

A) True 
 B)False

Question 19

An installment note is an obligation requiring a series of periodic payments to the lender.

Accepted Answer

A) True 
 B)False

Question 20

To determine the discount on a bond the issuing value is deducted from the par value of the bonds.

Accepted Answer

A) True 
 B)False

Compare the advantages and disadvantages of bond financing.

A bond traded at 102½ means that:

Which of the following is the debt-to-equity ratio calculation?

Willa Inc issued $110,000, 9%, 5-year bonds. The current market rate was 9.5%. Willa received $106,000 for the bonds. Using the effective interest method, the amount ofinterest expense to be recorded for the first semiannual payment was:

Owners of coupon bonds are not required to pay income tax on the interest received.

The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties, is called an):

If a bond is issued at a premium, interest expense will increase over the term of the bond.

An annuity is a series of varying payments occurring at different time intervals throughout a bonds life.

When graphing the carrying value of a premium bond vs the par value of a premium bond, the lines intersect at the maturity date of the bond.

Debentures are secured debt.

You graphed periodic interest expense and cash interest paid over the life of a bond.You noticed that the periodic interest expense line is increasing and greater than thecash interest paid line. Identify the statement below that is best described by the graph you drew.

Bonds owned by investors whose names and addresses are recorded by the issuingcorporation, and for which interest payments are made with cheques to the bondholders, are called:

Sami Corporation borrowed $300,000 from the bank by signing a 5-year, 8%installment note. The present value of an annuity factor at 8% for 5 years is 3.9927. To the nearest dollar, the annual payment is:

An operating lease:

Computers "R" Us borrowed $40,000 for 2 years at 7%. The face value of the note is$45,600.

Explain the amortization of bond discount.

The effective interest method allocates bond interest expense over the life of the bonds in a way that yields a constant rate of interest.

IFRS recommendations require that corporations use the effective interest method for amortization of bond discounts.

An installment note is an obligation requiring a series of periodic payments to the lender.

To determine the discount on a bond the issuing value is deducted from the par value of the bonds.

Property, Plant and Equipment and Intangibles

Current Liabilities

Partnerships

Organization and Operation of Corporations

Corporate Reporting: Profit, Earnings Per Share, and Retained Earnings

Accounting for Debt and Share Investments

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Filters

Exam 14: Bonds and Long-Term Notes Payable

Compare the advantages and disadvantages of bond financing.

A bond traded at 102½ means that:

Which of the following is the debt-to-equity ratio calculation?

Willa Inc issued $110,000, 9%, 5-year bonds. The current market rate was 9.5%. Willa received $106,000 for the bonds. Using the effective interest method, the amount ofinterest expense to be recorded for the first semiannual payment was:

Owners of coupon bonds are not required to pay income tax on the interest received.

The contract between the bond issuer and the bondholders, which identifies the rights and obligations of the parties, is called an):

If a bond is issued at a premium, interest expense will increase over the term of the bond.

An annuity is a series of varying payments occurring at different time intervals throughout a bonds life.

When graphing the carrying value of a premium bond vs the par value of a premium bond, the lines intersect at the maturity date of the bond.

Debentures are secured debt.

You graphed periodic interest expense and cash interest paid over the life of a bond.You noticed that the periodic interest expense line is increasing and greater than thecash interest paid line. Identify the statement below that is best described by the graph you drew.

Bonds owned by investors whose names and addresses are recorded by the issuingcorporation, and for which interest payments are made with cheques to the bondholders, are called:

Sami Corporation borrowed $300,000 from the bank by signing a 5-year, 8%installment note. The present value of an annuity factor at 8% for 5 years is 3.9927. To the nearest dollar, the annual payment is:

An operating lease:

Computers "R" Us borrowed $40,000 for 2 years at 7%. The face value of the note is$45,600.

Explain the amortization of bond discount.

The effective interest method allocates bond interest expense over the life of the bonds in a way that yields a constant rate of interest.

IFRS recommendations require that corporations use the effective interest method for amortization of bond discounts.

An installment note is an obligation requiring a series of periodic payments to the lender.

To determine the discount on a bond the issuing value is deducted from the par value of the bonds.

Property, Plant and Equipment and Intangibles

Current Liabilities

Partnerships

Organization and Operation of Corporations

Corporate Reporting: Profit, Earnings Per Share, and Retained Earnings

Accounting for Debt and Share Investments

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Filters