Question 1

When a bond sells at a premium:

Accepted Answer

A)  The contract rate is above the market rate. 
B)  The contract rate is equal to the market rate. 
C)  The contract rate is below the market rate. 
D)  It means that the bond is a zero coupon bond. 
E)  The bond pays no interest. 
A)  The contract rate is above the market rate. 
B)  The contract rate is equal to the market rate. 
C)  The contract rate is below the market rate. 
D)  It means that the bond is a zero coupon bond. 
E)  The bond pays no interest.

Question 2

A corporation plans to invest $1 million in oil exploration. The corporation is considering two plans to raise the money. Under Plan #1, bonds with a contract rate of interest of 6% would be issued. Under Plan #2, additional ordinary shares would be issued at $20 per share. The corporation currently has 300,000 shares outstanding, and it expects to earn $700,000 per year before bond interest and income taxes. The net income and return on investment for both plans is shown below:

Accepted Answer

Comment on the relative effects of each

Question 3

A company issued 9.2%, 10-year bonds with a par value of $100,000. Interest is paid semiannually. The market interest rate on the issue date was 10%, and the issuer received $95,016 cash for the bonds. On the first semiannual interest date, what amount of cash should be paid to the holders of these bonds for interest?

Accepted Answer

$100,000 x

Question 4

The _____________________ ratio is used to assess the risk of a company's financing structure.

Accepted Answer

The answer of The _____________________ ratio is used to assess...

Question 5

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

Accepted Answer

A)  $3,500.00. 
B)  $3,673.01. 
C)  $3,705.30. 
D)  $7,000.00. 
E)  $7,346.03. 
A)  $3,500.00. 
B)  $3,673.01. 
C)  $3,705.30. 
D)  $7,000.00. 
E)  $7,346.03.

Question 6

A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

Accepted Answer

A) True 
 B)False

Question 7

A company issues bonds with a par value of $800,000 on their issue date. The bonds mature in 5 years and pay 6% annual interest in two semiannual payments. On the issue date, the market rate of interest is 8%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:

Accepted Answer

The answer of A company issues bonds with a par...

Question 8

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the issuance of the bond is:

Accepted Answer

A)  Debit Cash $400,000; debit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207. 
B)  Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000. 
C)  Debit Bonds Payable $400,000; debit Interest Expense $16,207; credit Cash $416,207. 
D)  Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000. 
E)  Debit Cash $383,793; credit Bonds Payable $383,793. 
A)  Debit Cash $400,000; debit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207. 
B)  Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000. 
C)  Debit Bonds Payable $400,000; debit Interest Expense $16,207; credit Cash $416,207. 
D)  Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000. 
E)  Debit Cash $383,793; credit Bonds Payable $383,793.

Question 9

Bonds payable to whoever holds them are called _________________ bonds.

Accepted Answer

The answer of Bonds payable to whoever holds them are...

Question 10

On January 1, Year 1, Merrill Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Merrill to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the first payment on the note on December 31, Year 1 is:

Accepted Answer

A)  Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
B)  Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238. 
C)  Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000. 
D)  Debit Notes Payable $14,238; credit Cash $14,238. 
E)  Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238. 
A)  Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
B)  Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238. 
C)  Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000. 
D)  Debit Notes Payable $14,238; credit Cash $14,238. 
E)  Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.

Question 11

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Accepted Answer

A) True 
 B)False

Question 12

A company issued 10-year, 9% bonds with a par value of $500,000 when the market rate was 9.5%. The company received $484,087 in cash proceeds. Using the effective interest method, prepare the issuer's journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.

Accepted Answer

Cash payment: $500,000 x 9% x

Question 13

Return on equity _______________ when the expected rate of return from the acquired assets is greater than the rate of interest on the bonds used to finance the asset acquisition.

Accepted Answer

The answer of Return on equity _______________ when the expected...

Question 14

The party that has the right to exercise the call option on callable bonds is (are):

Accepted Answer

A)  The bondholders. 
B)  The bond issuer. 
C)  The bond indenture. 
D)  The bond trustee. 
E)  The bond underwriter. 
A)  The bondholders. 
B)  The bond issuer. 
C)  The bond indenture. 
D)  The bond trustee. 
E)  The bond underwriter.

Question 15

The present value of an annuity can be best or easier computed as the sum of the individual future values for each payment.

Accepted Answer

A) True 
 B)False

Question 16

When the contract rate on a bond issue is less than the market rate, the bonds will generally sell at a discount.

Accepted Answer

A) True 
 B)False

Question 17

Secured bonds:

Accepted Answer

A)  Are called debentures. 
B)  Have specific assets of the issuing company pledged as collateral. 
C)  Are backed by the issuer's bank. 
D)  Are subordinated to those of other unsecured liabilities. 
E)  Are the same as sinking fund bonds. 
A)  Are called debentures. 
B)  Have specific assets of the issuing company pledged as collateral. 
C)  Are backed by the issuer's bank. 
D)  Are subordinated to those of other unsecured liabilities. 
E)  Are the same as sinking fund bonds.

Question 18

A company's ability to issue unsecured debt depends on its credit standing.

Accepted Answer

A) True 
 B)False

Question 19

___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Accepted Answer

The answer of ___________________ bonds have an option exercisable by...

Question 20

The ____________ concept is the idea that cash paid (or received) in the future has less value now than the same amount of cash paid (or received) today.

Accepted Answer

The answer of The ____________ concept is the idea that...

When a bond sells at a premium:

The _____________________ ratio is used to assess the risk of a company's financing structure.

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

Bonds payable to whoever holds them are called _________________ bonds.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Return on equity _______________ when the expected rate of return from the acquired assets is greater than the rate of interest on the bonds used to finance the asset acquisition.

The party that has the right to exercise the call option on callable bonds is (are):

The present value of an annuity can be best or easier computed as the sum of the individual future values for each payment.

When the contract rate on a bond issue is less than the market rate, the bonds will generally sell at a discount.

Secured bonds:

A company's ability to issue unsecured debt depends on its credit standing.

___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

The ____________ concept is the idea that cash paid (or received) in the future has less value now than the same amount of cash paid (or received) today.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Long-Term Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments and International Operations

Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Filters

Exam 14: Long-Term Liabilities

When a bond sells at a premium:

The _____________________ ratio is used to assess the risk of a company's financing structure.

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

Bonds payable to whoever holds them are called _________________ bonds.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Return on equity _______________ when the expected rate of return from the acquired assets is greater than the rate of interest on the bonds used to finance the asset acquisition.

The party that has the right to exercise the call option on callable bonds is (are):

The present value of an annuity can be best or easier computed as the sum of the individual future values for each payment.

When the contract rate on a bond issue is less than the market rate, the bonds will generally sell at a discount.

Secured bonds:

A company's ability to issue unsecured debt depends on its credit standing.

___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

The ____________ concept is the idea that cash paid (or received) in the future has less value now than the same amount of cash paid (or received) today.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Long-Term Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments and International Operations

Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Filters