Question 1

When the proceeds of a note are less than the face value of the note,which of the following is true.

Accepted Answer

A) The market rate was less than the face rate of interest. 
B) The note was issued at a premium. 
C) The market rate of interest was greater than the face rate of interest. 
D) The market rate of interest was the same as the face rate of interest. 
A) The market rate was less than the face rate of interest. 
B) The note was issued at a premium. 
C) The market rate of interest was greater than the face rate of interest. 
D) The market rate of interest was the same as the face rate of interest.

Question 2

Trego Corporation issued a five-year $70,000 installment note with a market interest rate of 9 percent and 60 monthly payments.What is the amount of the monthly payments?

Accepted Answer

A) $1,453.08 
B) $1,166.67 
C) $5,812.84 
D) $14,316 
A) $1,453.08 
B) $1,166.67 
C) $5,812.84 
D) $14,316

Question 3

Klocke Corporation is planning to issue debentures with a face value of $10,000,000 on September 1,2010.The debentures mature in 10 years and have a face interest rate of 8 percent that is paid semiannually on March 1 and September 1 of each year.Klocke thinks the market interest rate will be 10%.Assume that Klocke has a fiscal year end on Feb 28.
Required:
(A.)Calculate the proceeds of the bond and set up an amortization schedule for the first year of the bond's life.
(B.)Where will the proceeds of the bond be reported on the budgeted financial statements.
(C.)What is the amount of interest expense Klocke will incur in the first year of the bond's life.What amount and where will the interest be reported on the budgeted financial statements for 2011.
(D.)How will the bond be reported on the budgeted balance sheet for 2011.

Accepted Answer

(A.)Market rate is 10%. A x P_20,5% = PV $400,

Question 4

Documented restrictions that lenders place in the debt agreements for firms using their funds are called:

Accepted Answer

A) covenants 
B) debentures 
C) subordinates 
D) preemptive rights 
A) covenants 
B) debentures 
C) subordinates 
D) preemptive rights

Question 5

When the market rate of interest is greater than a note's face rate of interest:

Accepted Answer

A) the note is issued at a discount 
B) the note is issued at its face value 
C) the proceeds of the note are greater than the face value of the note 
D) unable to determine from the information given 
A) the note is issued at a discount 
B) the note is issued at its face value 
C) the proceeds of the note are greater than the face value of the note 
D) unable to determine from the information given

Question 6

Match between columns
                        Premises: A bond feature that allows the bondholder to exchange the bond for a specified number of common or preferred stock.
A long-term note issued to the public.
A bond secured with real estate.
A bond that allows the company issuing the bond to buy the bond back at a set price.
Unsecured bonds whose repayment ranks after other debt securities in the event the firm is liquidated.
A bond that is payable to whomever has physical possession of the bond.
A bond issue that has specific portions of the bond issue coming due periodically over the life of the bond issue.
A bond that pledges specific assets of the corporation to the bondholders in the event the company defaults on the bond issue.
Bonds with no specific assets pledged as collateral.
A bond contract.
Bonds that are numbered and made payable in the name of the bondholders.
Restrictions place on the borrowing company to protect the lender.

Accepted Answer

The Answer of Covenants and Subordinated bonds and Serial bond is...

Question 7

Sprint is planning to issue debentures with a face value of $10,000,000 on September 1,2010.The debentures mature in 10 years and have a face interest rate of 8 percent that is paid semiannually on March 1 and September 1 of each year.Sprint thinks the market interest rate will be 6%.Assume that Sprint has a fiscal year end on Aug 31.
Required:
(A.)Calculate the proceeds of the bond and set up an amortization schedule for the first year of the bond's life.
(B.)Where will the proceeds of the bond be reported on the budgeted financial statements.
(C.)What is the amount of interest expense Sprint will incur in the first year of the bond's life and where will the interest be reported on the budgeted financial statements for August 31,2011.
(D.)How will the bond be reported on the budgeted balance sheet on August 31,2011.

Accepted Answer

(A.) A x P_20,3% = PV $400,000 x 14.8775 = PV

Question 8

When a note is issued at a discount,the carrying value of a note is equal to the:

Accepted Answer

A) face value of the note less the discount 
B) face value of the note plus the discount 
C) market value of the note less the discount 
D) market value of the note plus the discount 
A) face value of the note less the discount 
B) face value of the note plus the discount 
C) market value of the note less the discount 
D) market value of the note plus the discount

Question 9

How should interest expense on a non-interest-bearing note be determined?

Accepted Answer

A) There is no interest expense on a non-interest-bearing note 
B) By dividing the discount on the note by the number of years till maturity 
C) By multiplying the face amount of the note times the market rate of interest 
D) By multiplying the carrying value of the note times the market rate of interest 
A) There is no interest expense on a non-interest-bearing note 
B) By dividing the discount on the note by the number of years till maturity 
C) By multiplying the face amount of the note times the market rate of interest 
D) By multiplying the carrying value of the note times the market rate of interest

Question 10

When considering how to finance the acquisition of an asset,which of the following statements is true?

Accepted Answer

A) The amount borrowed should be larger than the cost of the assets acquired. 
B) The cash flows generated by the assets should dictate the type of note (noninterest bearing,installment,etc)the company uses to finance the asset. 
C) The cash flow required by the type of note used should dictate the type of asset acquired. 
D) In order to minimize debt the company should not borrow unless there is no cash to fund the acquisition of the asset. 
A) The amount borrowed should be larger than the cost of the assets acquired. 
B) The cash flows generated by the assets should dictate the type of note (noninterest bearing,installment,etc)the company uses to finance the asset. 
C) The cash flow required by the type of note used should dictate the type of asset acquired. 
D) In order to minimize debt the company should not borrow unless there is no cash to fund the acquisition of the asset.

Question 11

All other factors being equal a $1,000,000,10 year,8% face rate convertible bond will differ how from a $1,000,000,10 year,8% nonconvertible bond.

Accepted Answer

A) Lower market rate of interest and higher cash proceeds 
B) Higher market rate of interest and smaller cash proceeds 
C) Same Market interest rate and same cash proceeds 
D) Lower market interest rate and smaller cash proceeds 
A) Lower market rate of interest and higher cash proceeds 
B) Higher market rate of interest and smaller cash proceeds 
C) Same Market interest rate and same cash proceeds 
D) Lower market interest rate and smaller cash proceeds

Question 12

"All other things being equal,a convertible bond should sell at a higher price than
a straight bond." Is this statement accurate? Why or why not?

Accepted Answer

This statement is accurate; co

Question 13

While each payment of an installment note is the same amount,which of the following statements is true?

Accepted Answer

A) All payments will cover the same amount of interest and principal 
B) The first payments will cover more interest expense than the later payments. 
C) The first payments will cover more principal than the later payments. 
D) The first installment payments cover interest until it is paid and then the remaining payments cover the repayment of the principal. 
A) All payments will cover the same amount of interest and principal 
B) The first payments will cover more interest expense than the later payments. 
C) The first payments will cover more principal than the later payments. 
D) The first installment payments cover interest until it is paid and then the remaining payments cover the repayment of the principal.

Question 14

On Sept 1,2010 Innsbrook Corporation has just issued a $1,000,000 note.The note will have a ten-year life and a 12% face rate of interest that is paid annually.
If the market rate of interest for the note is 10% what will be the proceeds of the note (how much cash will be the maker of the note will receive)?
Set up an amortization table for the note for the two years of the note's life.How much cash interest will Innsbrook pay during the first year of the note's life? How much interest expense will the note incur during the second year of the note's life?

Accepted Answer

FV = $1,000,000,ANN = $120,000

Question 15

When the present value of a note's promised cash flows is equal to the note's face value:

Accepted Answer

A) the note is issued at a discount 
B) the note is issued at a premium 
C) the market rate of interest is less than the face rate of interest 
D) the face rate of interest and the market rate of interest are the same 
A) the note is issued at a discount 
B) the note is issued at a premium 
C) the market rate of interest is less than the face rate of interest 
D) the face rate of interest and the market rate of interest are the same

Question 16

What does discount on a note payable represent?

Accepted Answer

A) loss from borrowing 
B) gain from borrowing 
C) additional interest expense over the term of the note 
D) additional interest revenue over the term of the note 
A) loss from borrowing 
B) gain from borrowing 
C) additional interest expense over the term of the note 
D) additional interest revenue over the term of the note

Question 17

George Ryan obtained a car loan that requires him to make payments of $235 per month for 36 months.This is an example of a:

Accepted Answer

A) lump-sum note 
B) periodic payment note 
C) noninterest-bearing note 
D) periodic and lump-sum note 
A) lump-sum note 
B) periodic payment note 
C) noninterest-bearing note 
D) periodic and lump-sum note

Question 18

Dighton Corporation is considering issuing a 4 year $500,000 noninterest bearing note,a 4 year annual payment,8 percent face rate,$500,000 installment note,or a 4 year,$500,000,10 percent note.If the market interest rate is 8 percent answer the following:
A.Which note will generate the most cash and which will generate the least?
B.Which note is the most expensive way to borrow fund?

Accepted Answer

A.The interest bearing note will generat

Question 19

The amount of cash raised from the issuance of debt is referred to as the:

Accepted Answer

A) redemption value 
B) effective value 
C) maturity value 
D) cash proceeds 
A) redemption value 
B) effective value 
C) maturity value 
D) cash proceeds

Question 20

In a debt instrument,named assets that creditors will receive if the borrower defaults on the note are called:

Accepted Answer

A) collateral 
B) covenants 
C) debentures 
D) leveraged assets 
A) collateral 
B) covenants 
C) debentures 
D) leveraged assets

When the proceeds of a note are less than the face value of the note,which of the following is true.

Trego Corporation issued a five-year $70,000 installment note with a market interest rate of 9 percent and 60 monthly payments.What is the amount of the monthly payments?

Documented restrictions that lenders place in the debt agreements for firms using their funds are called:

When the market rate of interest is greater than a note's face rate of interest:

When a note is issued at a discount,the carrying value of a note is equal to the:

How should interest expense on a non-interest-bearing note be determined?

When considering how to finance the acquisition of an asset,which of the following statements is true?

All other factors being equal a $1,000,000,10 year,8% face rate convertible bond will differ how from a $1,000,000,10 year,8% nonconvertible bond.

"All other things being equal,a convertible bond should sell at a higher price than a straight bond." Is this statement accurate? Why or why not?

While each payment of an installment note is the same amount,which of the following statements is true?

When the present value of a note's promised cash flows is equal to the note's face value:

What does discount on a note payable represent?

George Ryan obtained a car loan that requires him to make payments of $235 per month for 36 months.This is an example of a:

The amount of cash raised from the issuance of debt is referred to as the:

In a debt instrument,named assets that creditors will receive if the borrower defaults on the note are called:

Accounting and Business

Business Processes and Accounting Information

Operating Processes: Planning and Control

Short-Term Decision Making

Strategic Planning Regarding Operating Processes

Planning, The Balanced Scorecard, and Budgeting

Accounting Information Systems

Purchasinghuman Resourcespayment Process: Recording and Evaluating Expenditure Process Activities

Recording and Evaluating Conversion Process Activities

Recording and Evaluating Revenue Process Activities

Time Value of Money

Planning Investments: Capital Budgeting

Planning Equity Financing

Recording and Evaluating Capital Resource Process Activities: Financing

Recording and Evaluating Capital Resource Process Activities: Investing

Company Performance: Profitability

Company Performance: Owners Equity and Financial Position

Company Performance: Cash Flows

Company Performance: Comprehensive Evaluation

Filters

Exam 14: Planning Debt Financing

When the proceeds of a note are less than the face value of the note,which of the following is true.

Trego Corporation issued a five-year $70,000 installment note with a market interest rate of 9 percent and 60 monthly payments.What is the amount of the monthly payments?

Documented restrictions that lenders place in the debt agreements for firms using their funds are called:

When the market rate of interest is greater than a note's face rate of interest:

When a note is issued at a discount,the carrying value of a note is equal to the:

How should interest expense on a non-interest-bearing note be determined?

When considering how to finance the acquisition of an asset,which of the following statements is true?

All other factors being equal a $1,000,000,10 year,8% face rate convertible bond will differ how from a $1,000,000,10 year,8% nonconvertible bond.

"All other things being equal,a convertible bond should sell at a higher price than a straight bond." Is this statement accurate? Why or why not?

While each payment of an installment note is the same amount,which of the following statements is true?

When the present value of a note's promised cash flows is equal to the note's face value:

What does discount on a note payable represent?

George Ryan obtained a car loan that requires him to make payments of $235 per month for 36 months.This is an example of a:

The amount of cash raised from the issuance of debt is referred to as the:

In a debt instrument,named assets that creditors will receive if the borrower defaults on the note are called:

Accounting and Business

Business Processes and Accounting Information

Operating Processes: Planning and Control

Short-Term Decision Making

Strategic Planning Regarding Operating Processes

Planning, The Balanced Scorecard, and Budgeting

Accounting Information Systems

Purchasinghuman Resourcespayment Process: Recording and Evaluating Expenditure Process Activities

Recording and Evaluating Conversion Process Activities

Recording and Evaluating Revenue Process Activities

Time Value of Money

Planning Investments: Capital Budgeting

Planning Equity Financing

Recording and Evaluating Capital Resource Process Activities: Financing

Recording and Evaluating Capital Resource Process Activities: Investing

Company Performance: Profitability

Company Performance: Owners Equity and Financial Position

Company Performance: Cash Flows

Company Performance: Comprehensive Evaluation

Filters