Chapter 9

Financial Accounting

Business
157
Questions
43
True/False
85
Choices
29
Essay
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Questions

Q1
Free

The mixture of liabilities and stockholders' equity a business uses is called its capital structure.

True/False
expand_more
A) True.
B) False.
Answer:
True
Q2
Free

Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are tax- deductible.

True/False
expand_more
A) True.
B) False.
Answer:
False
Q3
Free

As a company's level of debt increases, bankruptcy risk increases.

True/False
expand_more
A) True.
B) False.
Answer:
True
Q4

Companies that are believed to have high bankruptcy risk generally receive higher credit ratings and pay a lower interest rate for borrowing.

True/False
expand_more
A) True.
B) False.
Answer:

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Q5

Bonds are the most common form of corporate debt.

True/False
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A) True.
B) False.
Answer:

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Q6

A private placement is when a company chooses to sell the debt securities directly to a single investor.

True/False
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A) True.
B) False.
Answer:

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Q7

Secured bonds are backed by the federal government.

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A) True.
B) False.
Answer:

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Q8

Unsecured bonds are not backed by a specific asset.

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A) True.
B) False.
Answer:

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Q9

Term bonds require payments in installments over a series of years.

True/False
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A) True.
B) False.
Answer:

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Q10

Serial bonds require payment of the full principal amount of the bond at a single maturity date.

True/False
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A) True.
B) False.
Answer:

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Q11

A callable bond allows the borrower to repay the bonds before their scheduled maturity date at a specified call price.

True/False
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A) True.
B) False.
Answer:

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Q12

Convertible bonds allow the investor to convert each bond into a specified number of shares of common stock.

True/False
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A) True.
B) False.
Answer:

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Q13

We can calculate the issue price of a bond as the face amount plus the total periodic interest payments.

True/False
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A) True.
B) False.
Answer:

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Q14

The market interest rate represents the true interest rate used by investors to value a company's bond issue.

True/False
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A) True.
B) False.
Answer:

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Q15

The stated interest rate is the rate quoted in the bond contract used to calculate the cash payments for interest.

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A) True.
B) False.
Answer:

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Q16

The market interest rate does not change over time.

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A) True.
B) False.
Answer:

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Q17

The stated interest rate does not change over time.

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A) True.
B) False.
Answer:

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Q18

As a company's default risk increases, investors demand a higher market interest rate on their bond investments.

True/False
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A) True.
B) False.
Answer:

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Q19

The lower the market interest rate, the lower the bond issue price will be.

True/False
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A) True.
B) False.
Answer:

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Q20

Bonds issued below face amount are said to be issued at a discount.

True/False
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A) True.
B) False.
Answer:

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Q21

A premium occurs when the issue price of a bond is above its face amount.

True/False
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A) True.
B) False.
Answer:

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Q22

The amount reported on the balance sheet for bonds payable is equal to the carrying value at the balance sheet date.

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A) True.
B) False.
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Q23

When bonds are issued at a discount (below face amount), the carrying value and the corresponding interest expense increase over time.

True/False
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A) True.
B) False.
Answer:

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Q24

When bonds are issued at a premium (above face amount), the carrying value and the corresponding interest expense increase over time.

True/False
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A) True.
B) False.
Answer:

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Q25

Interest expense is calculated as the carrying value times the market rate.

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A) True.
B) False.
Answer:

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Q26

The cash payment each period is calculated as the carrying value times the market rate.

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A) True.
B) False.
Answer:

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Q27

An amortization schedule provides a summary of the cash interest payments, interest expense, and changes in carrying value for each period.

True/False
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A) True.
B) False.
Answer:

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Q28

For bonds issued at a premium, the difference between interest expense and the cash paid increases the carrying value of the bonds.

True/False
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A) True.
B) False.
Answer:

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Q29

At the maturity date, the carrying value will equal the face amount of the bond.

True/False
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A) True.
B) False.
Answer:

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Q30

The market value of bonds moves in the opposite direction of interest rates.

True/False
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A) True.
B) False.
Answer:

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Q31

When an issuer retires debt of any type before its scheduled maturity date, the transaction is an early extinguishment of debt.

True/False
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A) True.
B) False.
Answer:

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Q32

Losses/gains on the early extinguishment of debt are reported as part of operating income in the income statement.

True/False
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A) True.
B) False.
Answer:

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Q33

Losses have the effect of reducing net income, while gains increase net income.

True/False
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A) True.
B) False.
Answer:

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Q34

A gain or loss is recorded on bonds retired at maturity.

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A) True.
B) False.
Answer:

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Q35

Monthly installment payments on a note payable include both an amount that represents interest and an amount that represents a reduction of the outstanding loan balance.

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A) True.
B) False.
Answer:

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Q36

A lease is a contractual arrangement by which the lessor provides the lessee the right to use an asset for a specified period of time.

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A) True.
B) False.
Answer:

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Q37

Operating leases are contractual agreements where the lessor owns the asset and the lessee simply uses the asset temporarily.

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A) True.
B) False.
Answer:

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Q38

Operating leases occur when the lessee essentially buys an asset and borrows the money through a lease to pay for the asset.

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A) True.
B) False.
Answer:

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Q39

The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.

True/False
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A) True.
B) False.
Answer:

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Q40

Leverage enables a company to earn a higher return using debt than without debt.

True/False
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A) True.
B) False.
Answer:

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Q41

Return on assets is calculated as net income divided by the ending balance for total assets.

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A) True.
B) False.
Answer:

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Q42

Return on equity is calculated as net income divided by average stockholders' equity.

True/False
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A) True.
B) False.
Answer:

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Q43

The times interest earned ratio compares interest expense with income available to pay interest charges.

True/False
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A) True.
B) False.
Answer:

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Q44

Which of the following is not a primary sourceof corporate debt financing?

Multiple Choice
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A) Bonds Payable
B) Common Stock
C) Leases
D) Notes Payable
Answer:

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Q45

The mixture of liabilities and stockholders' equity a business uses is called its:

Multiple Choice
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A) Bond contract
B) Indenture agreement
C) Capital structure
D) Accounting equation
Answer:

A) You need to subscribe to get the answer.

Q46

Which of the following is not a true statement?

Multiple Choice
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A) Companies that are believed to have high bankruptcy risk generally receive low credit ratings and must pay a higher interest rate for borrowing
B) As a company's level of debt increases, the risk of bankruptcy increases
C) Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax-deductible
D) The mixture of liabilities and stockholders' equity a business uses is called its capital structure
Answer:

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Q47

Samson Enterprises issued a ten-year, $20 million bond with a 10% interest rate for $19,500,000. The entry

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
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Q48

Megginson, Inc. issued a five-year corporate bond of $300,000 with a 5% interest rate for $330,000. What

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q49

The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q50

The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q51

Which of the following definitions describes a term bond?

Multiple Choice
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A) Matures on a single date
B) Secured only by the "full faith and credit" of the issuing corporation
C) Matures in installments
D) Supported by specific assets pledged as collateral by the issuer
Answer:

A) You need to subscribe to get the answer.

Q52

Which of the following definitions describes a serial bond?

Multiple Choice
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A) Matures on a single date
B) Secured only by the "full faith and credit" of the issuing corporation
C) Matures in installments
D) Supported by specific assets pledged as collateral by the issuer
Answer:

A) You need to subscribe to get the answer.

Q53

Which of the following definitions describes a secured bond?

Multiple Choice
expand_more
A) Matures on a single date
B) Secured only by the "full faith and credit" of the issuing corporation
C) Matures in installments
D) Supported by specific assets pledged as collateral by the issuer
Answer:

A) You need to subscribe to get the answer.

Q54

Term bonds are:

Multiple Choice
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A) bonds issued below the face amount
B) bonds that mature in installments
C) bonds that mature all at once
D) bonds issued below the face amount
Answer:

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Q55

Serial bonds are:

Multiple Choice
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A) bonds backed by collateral
B) bonds that mature in installments
C) bonds with greater risk
D) bonds issued below the face amount
Answer:

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Q56

Bonds can be secured or unsecured. Likewise, bonds can be term or serial bonds. Which is more common?

Multiple Choice
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A) Secured and term
B) Secured and serial
C) Unsecured and term
D) Unsecured and serial
Answer:

A) You need to subscribe to get the answer.

Q57

A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?

Multiple Choice
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A) Secured and term
B) Secured and serial
C) Unsecured and term
D) Unsecured and serial
Answer:

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Q58

Which of the following is not true regarding callable bonds?

Multiple Choice
expand_more
A) This feature allows the borrower to repay the bonds before their scheduled maturity date
B) This feature helps protect the borrower against future decreases in interest rates
C) Callable bonds benefit the bond investor
D) A bond can be both callable and convertible
Answer:

A) You need to subscribe to get the answer.

Q59

Convertible bonds:

Multiple Choice
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A) provide potential benefits only to the issuer
B) provide potential benefits only to the investor
C) provide potential benefits to both the issuer and the investor
D) provide no potential benefits
Answer:

A) You need to subscribe to get the answer.

Q60

The price of a bond is equal to:

Multiple Choice
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A) the future value of the face amount only
B) the present value of the interest only
C) the present value of the face amount plus the present value of the stated interest payments
D) the future value of the face amount plus the future value of the stated interest payments
Answer:

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Q61

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is also 10%. These bonds will sell at a price that is:

Multiple Choice
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A) Equal to $500,000
B) More than $500,000
C) Less than $500,000
D) The answer cannot be determined from the information provided
Answer:

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Q62

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 8%. These bonds will sell at a price that is:

Multiple Choice
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A) Equal to $500,000
B) More than $500,000
C) Less than $500,000
D) The answer cannot be determined from the information provided
Answer:

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Q63

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 6%. These bonds will sell at a price that is:

Multiple Choice
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A) Equal to $500,000
B) More than $500,000
C) Less than $500,000
D) The answer cannot be determined from the information provided
Answer:

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Q64

Ordinarily, the proceeds from the sale of a bond issue will be equal to:

Multiple Choice
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A) The face amount of the bond
B) The total of the face amount plus all interest payments
C) The present value of the face amount plus the present value of the stream of interest payments
D) The face amount of the bond plus the present value of the stream of interest payments
Answer:

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Q65

Bonds usually sell at their:

Multiple Choice
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A) Maturity value
B) Present value
C) Face value
D) Call Price
Answer:

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Q66

A $500,000 bond issue sold for $510,000. Therefore, the bonds:

Multiple Choice
expand_more
A) Sold at a premium because the stated interest rate was higher than the market rate
B) Sold for the $500,000 face amount plus $10,000 of accrued interest
C) Sold at a discount because the stated interest rate was higher than the market rate
D) Sold at a premium because the market interest rate was higher than the stated rate
Answer:

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Q67

A $500,000 bond issue sold for $490,000. Therefore, the bonds:

Multiple Choice
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A) Sold at a discount because the stated interest rate was higher than the market rate
B) Sold for the $500,000 face amount less $10,000 of accrued interest
C) Sold at a premium because the stated interest rate was higher than the market rate
D) Sold at a discount because the market interest rate was higher than the stated rate
Answer:

A) You need to subscribe to get the answer.

Q68

For a bond issue that sells for more than the bond face amount, the stated interest rate is:

Multiple Choice
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A) The actual yield rate
B) The prime rate
C) More than the market rate
D) Less than the market rate
Answer:

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Q69

For a bond issue that sells for less than the bond face amount, the stated interest rate is:

Multiple Choice
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A) The actual yield rate
B) The prime rate
C) More than the market rate
D) Less than the market rate
Answer:

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Q70

Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct?

Multiple Choice
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A) Both bonds will sell for the same amount
B) Bond X will sell for more than Bond Y
C) Bond Y will sell for more than Bond X
D) Both bonds will sell at a premium
Answer:

A) You need to subscribe to get the answer.

Q71

Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 9% interest. The current market rate of interest is 8%. Which of the following is correct?

Multiple Choice
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A) Both bonds will sell for the same amount
B) Bond X will sell for more than Bond Y
C) Bond Y will sell for more than Bond X
D) Both bonds will sell at a discount
Answer:

A) You need to subscribe to get the answer.

Q72

Raiders Company issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 12%. What is the

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q73

Raiders Company issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q74

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Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q75

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Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q76

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Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q77

Check attached image

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q78

The rate quoted in the bond contract used to calculate the cash payments for interest is called the:

Multiple Choice
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A) Face rate
B) Yield rate
C) Market rate
D) Stated rate
Answer:

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Q79

The rate of interest expense incurred on a bond payable for bonds of similar risk is called the:

Multiple Choice
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A) Face rate
B) Yield rate
C) Market rate
D) Stated rate
Answer:

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Q80

Which of the following is true for bonds issued at a discount?

Multiple Choice
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A) The stated interest rate is greater than the market interest rate
B) The market interest rate is greater than the stated interest rate
C) The stated interest rate and the market interest rate are equal
D) The stated interest rate and the market interest rate are unrelated
Answer:

A) You need to subscribe to get the answer.

Q81

Which of the following is true for bonds issued at a premium?

Multiple Choice
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A) The stated interest rate is less than the market interest rate
B) The market interest rate is less than the stated interest rate
C) The stated interest rate and the market interest rate are equal
D) The stated interest rate and the market interest rate are unrelated
Answer:

A) You need to subscribe to get the answer.

Q82

The cash interest payment each period is calculated as the:

Multiple Choice
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A) Face amount times the stated interest rate
B) Face amount times the market interest rate
C) Carrying value times the market interest rate
D) Carrying value times the stated interest rate
Answer:

A) You need to subscribe to get the answer.

Q83

Interest expense on bonds payable is calculated as the:

Multiple Choice
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A) Face amount times the stated interest rate
B) Face amount times the market interest rate
C) Carrying value times the market interest rate
D) Carrying value times the stated interest rate
Answer:

A) You need to subscribe to get the answer.

Q84

When bonds are issued at a discount, what happens to the carrying value and interest expense over the life of the bonds?

Multiple Choice
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A) Carrying value and interest expense increase
B) Carrying value and interest expense decrease
C) Carrying value decreases and interest expense increases
D) Carrying value increases and interest expense decreases
Answer:

A) You need to subscribe to get the answer.

Q85

When bonds are issued at a premium, what happens to the carrying value and interest expense over the life of the bonds?

Multiple Choice
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A) Carrying value and interest expense increase
B) Carrying value and interest expense decrease
C) Carrying value decreases and interest expense increases
D) Carrying value increases and interest expense decreases
Answer:

A) You need to subscribe to get the answer.

Q86

Bonds payable should be reported as a long-term liability in the balance sheet at:

Multiple Choice
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A) Face Value
B) Current bond market price
C) Carrying value
D) Face value less accrued interest since the last interest payment date
Answer:

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Q87

Check attached image

Multiple Choice
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A) Option a
B) Option b
C) Option c
Answer:

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Q88

Check attached image

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q89

Check attached image

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q90

For the issuer of 20-year bonds, the carrying value using the effective interest method would decrease each

Multiple Choice
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A) Option a
B) Option b
C) Option c
D) Option d
Answer:

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Q91

When bonds are issued at a discount and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

Multiple Choice
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A) Less than the interest expense
B) Equal to the interest expense
C) Greater than the interest expense
D) More than if the bonds had been sold at a premium
Answer:

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Q92

When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

Multiple Choice
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A) Less than the interest expense
B) Equal to the interest expense
C) Greater than the interest expense
D) More than if the bonds had been sold at a discount
Answer:

A) You need to subscribe to get the answer.

Q93

When bonds are issued at a discount and the effective interest method is used for amortization, at each interest payment date, the interest expense:

Multiple Choice
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A) Increases
B) Decreases
C) Remains the same
D) Is equal to the change in book value
Answer:

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Q94

When bonds are issued at a premium and the effective interest method is used for amortization, at each interest payment date, the interest expense:

Multiple Choice
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A) Increases
B) Decreases
C) Remains the same
D) Is equal to the change in book value
Answer:

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Q95

An amortization schedule for a bond issued at a discount:

Multiple Choice
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A) Has a carrying value that decreases over time
B) Is contained in the balance sheet
C) Is a schedule that reflects the changes in bonds payable over its term to maturity
D) All of the other answers are correct
Answer:

A) You need to subscribe to get the answer.

Q96

An amortization schedule for a bond issued at a premium:

Multiple Choice
expand_more
A) Has a carrying value that increases over time
B) Is contained in the balance sheet
C) Is a schedule that reflects the changes in bonds payable over its term to maturity
D) All of the other answers are correct
Answer:

A) You need to subscribe to get the answer.

Q97

What is the stated annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate.)

Multiple Choice
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A) 3%
B) 4%
C) 6%
D) 8%
Answer:

A) You need to subscribe to get the answer.

Q98

What is the market annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate.)

Multiple Choice
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A) 3%
B) 4%
C) 6%
D) 8%
Answer:

A) You need to subscribe to get the answer.

Q99

What is the interest expense on the bonds in 2012?

Multiple Choice
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A) $693,103
B) $600,000
C) $345,639
D) $347,464
Answer:

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What is the carrying value of the bonds as of December 31, 2013?

Multiple Choice
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A) $8,834,770
B) $8,686,606
C) $8,734,070
D) $8,783,433
Answer:

A) You need to subscribe to get the answer.

THA issued the bonds:

Multiple Choice
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A) At par
B) At a premium
C) At a discount
D) Cannot be determined from the given information
Answer:

A) You need to subscribe to get the answer.

THA issued the bonds for:

Multiple Choice
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A) $200,000
B) $194,758
C) $242,000
D) Cannot be determined from the given information
Answer:

A) You need to subscribe to get the answer.

The THA bonds have a life of:

Multiple Choice
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A) 2 years
B) 3 years
C) 6 years
D) Cannot be determined from the given information
Answer:

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What is the annual stated interest rate on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate.)

Multiple Choice
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A) 3%
B) 3
C) 6%
D) 7%
Answer:

A) You need to subscribe to get the answer.

What is the annual market interest rate on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate.)

Multiple Choice
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A) 4%
B) 3
C) 7%
D) 8%
Answer:

A) You need to subscribe to get the answer.

THA buys back the bonds for $196,000 immediately after the interest payment on 12/31/12 and retires them. What gain or loss, if any, would THA record on this date?

Multiple Choice
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A) No gain or loss
B) $370 gain
C) $4,000 gain
D) $1,242 loss
Answer:

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X2 issued the bonds:

Multiple Choice
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A) At par
B) At a premium
C) At a discount
D) Cannot be determined from the given information
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X2 issued the bonds for:

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A) $100,000
B) $107,000
C) $104,212
D) Cannot be determined from the given information
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The X2 bonds have a life of:

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A) 3 years
B) 4 years
C) 5 years
D) Cannot be determined from the given information
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What is the annual stated interest rate on the bonds?

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A) 3%
B) 3
C) 6%
D) 7%
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What is the annual market interest rate on the bonds?

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A) 3%
B) 3
C) 6%
D) 7%
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X2 buys back the bonds for $103,000 immediately after the interest payment on 12/31/12 and retires them. What gain or loss, if any, would X2 record on this date?

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A) No gain or loss
B) $3,000 gain
C) $1,202 loss
D) $327 loss
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When bonds are retired before their maturity date:

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A) GAAP has been violated
B) The issuing company will always report a non-operating gain
C) The issuing company will always report a non-operating loss
D) The issuing company will report a non-operating gain or loss
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The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million, but the market value of the bonds is $36 million. The entry to record the retirement will include:

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A) A credit of $6 million to a gain account
B) A debit of $6 million to a loss account
C) No gain or loss on retirement
D) A debit to cash for $42 million
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The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the market value of the bonds is $23 million. The entry to record the retirement will include:

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A) A debit of $5 million to a loss account
B) A credit of $5 million to a gain account
C) No gain or loss on retirement
D) A debit to cash for $18 million
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Which of the following statements is correct?

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A) Option a
B) Option b
C) Option c
D) Option d
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In each succeeding payment on an installment note:

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A) The amount of interest expense increases
B) The amount of interest expense decreases
C) The amount of interest expense is unchanged
D) The amounts paid for both interest and principal increase proportionately
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The entry to record a monthly payment on an installment note such as a car loan:

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A) Increases expense, decreases liabilities, and decreases assets
B) Increases expense, increases liabilities, and increases assets
C) Increases expense, decreases liabilities, and increases assets
D) Increases expense, increases liabilities, and decreases assets
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How does the amortization schedule for an installment note such as a car loan differ from an amortization schedule for bonds?

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A) The final carrying value is zero in an amortization schedule for an installment note
B) The final carrying value is zero in an amortization schedule for bonds
C) The final carrying value is zero in both amortization schedules
D) The final carrying value is not zero in either amortization schedule
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Which of the following leases is just like a rental?

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A) An operating lease
B) A capital lease
C) Both an operating and a capital lease
D) Neither an operating lease nor a capital lease
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Which of the following leases is essentially the purchase of an asset with debt financing?

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A) an operating lease
B) a capital lease
C) both an operating and a capital lease
D) neither an operating lease nor a capital lease
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Which of the following is not a reason why some companies lease rather than buy?

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A) Leasing may allow you to borrow with little or no down payment
B) Leasing can improve the balance sheet by reducing long-term debt
C) Leasing can lower income taxes
D) Leasing transfers the title to the lessee at the beginning of the lease
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Financial leverage is best measured by which of the following ratios?

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A) The debt to equity ratio
B) The return on equity ratio
C) The times interest earned ratio
D) The return on assets ratio
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Which of the following is true regarding a company assuming more debt?

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A) Assuming more debt is always bad for the company
B) Assuming more debt is always good for the company
C) Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds
D) Assuming more debt reduces leverage
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Which of the following is not a true statement?

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A) The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity
B) Leverage enables a company to earn a higher return using debt than without debt
C) Return on assets is calculated as net income divided by the ending balance for total assets
D) The times interest earned ratio compares interest expense with income available to pay interest charges
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The times interest earned ratio is calculated as

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A) Interest expense/Net income
B) Net income/Interest expense
C) (Net income + interest expense + tax expense)/Interest expense
D) Interest expense/(Net income + interest expense + tax expense)
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Selected financial data for Home Depot is provided below: What is the times interest earned ratio for Home Depot?

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A) 6
B) 3
C) 0
D) 97
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Selected financial data for Lowes is provided below: What is the times interest earned ratio for Lowes?

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A) 6
B) 10
C) 0
D) 164
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Frontier City is trying to decide between the following two alternatives to finance its new $10 million roller coaster: a. Issue $10 million of 6% bonds at face amount.

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Valentino's Pizza issues $40 million of 3% convertible bonds that mature in ten years. Each $1,000 bond is convertible into twenty-five shares of common stock. The current market price of Valentino's stock is $35 per share. 1. Explain why Valentino's might choose to issue convertible bonds. 2. Explain why investors might choose Valentino's convertible bonds.

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Stealth Fitness Center issues 7%, 10-year bonds with a face amount of $200,000. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually. At what price will the bonds be issued?

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Stealth Fitness Center issues 7%, 15-year bonds with a face amount of $200,000. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price will the bonds be issued?

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On January 1, 2012, Water Wonderland issues $20 million of 8% bonds, due in ten years, with interest payable semiannually on June 30 and December 31 each year. 1. If the market rate is 7%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price. 2. If the market rate is 8%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price. 3. If the market rate is 9%, will the bonds issue at face amount, a discount, or a premium? Calculate the issue price.

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Pizza Pier issues 7%, 10-year bonds with a face amount of $80,000 on January 1, 2012. The market interest rate for bonds of similar risk and maturity is also 7%. Interest is paid semiannually on June 30 and December 31. 1. Record the bond issue. 2. Record the first interest payment on June 30, 2012.

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Pizza Pier issues 7%, 10-year bonds with a face amount of $80,000 for $74,564 on January 1, 2012. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually on June 30 and December 31. 1. Record the bond issue. 2. Record the first interest payment on June 30, 2012.

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Pizza Pier issues 7%, 10-year bonds with a face amount of $80,000 for $85,951 on January 1, 2012. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually on June 30 and December 31. 1. Record the bond issue. 2. Record the first interest payment on June 30, 2012.

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Presented below is a partial amortization schedule for Discount Foods: 1. Record the bond issue. 2. Record the first interest payment.

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Presented below is a partial amortization schedule for Premium Foods: 1. Record the bond issue. 2. Record the first interest payment.

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On January 1, 2012, Ripstick Park issues $800,000 of 8% bonds, due in ten years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 8%, the bonds will issue at $800,000. Record the bond issue on January 1, 2012, and the first two semiannual interest payments on June 30, 2012, and December 31, 2012.

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On January 1, 2012, Ripstick Park issues $800,000 of 8% bonds, due in ten years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is

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On January 1, 2012, Ripstick Park issues $800,000 of 8% bonds, due in ten years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is

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Sun City issues bonds on January 1, 2012 that pay interest semiannually on June 30 and December 31.

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Pizza Pier retires its 7% bonds for $70,000 before their scheduled maturity. At the time, the bonds have a carrying value of $74,937. Record the early retirement of the bonds.

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Magic Mountain retires its 8% bonds for $125,000 before their scheduled maturity. At the time, the bonds have a carrying value of $118,000. Record the early retirement of the bonds.

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On January 1, 2012, Julee Enterprises borrows $30,000 to purchase a new Toyota Highlander by agreeing to a 6%, 4-year note with the bank. Payments of $704.55 are due at the end of each month with the first installment due on January 31, 2012. Record the issuance of the note payable and the first two monthly payments.

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Western World has the following selected data ($in millions):

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Two leading home improvement chains in the United States are Home Depot and Lowes. Selected financial

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What is capital structure? Why would a company choose to borrow money rather than issue additional stock?

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Why do some companies issue bonds rather than borrow money directly from a bank?

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Contrast the following types of bonds: (a) Secured and unsecured. (b) Term and serial. (c) Callable and convertible.

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Explain how each of the columns in an amortization schedule is calculated, assuming the bonds are issued at a discount. How is the amortization schedule different if bonds are issued at a premium?

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What are the potential risks and rewards of carrying additional debt? How does additional debt affect a company's return to investors?

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Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. 1. Stated interest rate The true interest rate used by investors to value a bond. __ __ 2. Market interest rate The stated interest rate is more than the market interest rate. __ __ 3. Bonds issued at a premium The stated interest rate equals the market interest rate. __ __ 4. Bonds issued at a discount The stated interest rate is less than the market interest rate. __ __ 5. Bonds issued at face value The rate quoted in the bond contract used to calculate the cash payments for interest. __ __

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Listed below are ten terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the letter designating the term in the space provided. 1. Debt to equity ratio The rate quoted in the bond contract used to calculate the cash payments for interest. __ __ 2. Market interest rate The lessor owns the asset and the lessee simply uses the asset temporarily. __ __ 3. Operating lease Total liabilities divided by total stockholders' equity; measure a company's risk. __ __ 4. Premium The true interest rate used by investors to value a bond. __ __ 5. Amortization schedule The issue price is below its face amount. __ __ 6. Capital lease Provides a summary of the cash interest payments, interest expense, and changes in carrying value for debt instruments. __ __ 7. Stated interest rate The lessee essentially buys an asset and borrows the money through a lease to pay for the asset. __ __ 8. Sinking fund The issue price is above its face amount. __ __ 9. Times interest earned ratio Ratio that compares interest expense with income available to pay those charges. __ __ 10. Discount An investment fund used to set aside money to be used to pay debts as they come due. __ __

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Listed below are four bond terms followed by a list of definitions. Match (by letter) the bond terms with their definitions. Each letter is used only once. 1. Matures in installments. Serial bond. __ __ 2. Matures on a single date. Term bond. __ __ 3. Supported by specific assets pledged as collateral by the issuer Secured bond. __ __ 4. Secured only by the "full faith and credit" of the issuing corporation. Unsecured bond. __ __

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Listed below are four bond terms followed by a list of definitions. Match (by letter) the bond terms with their definitions. Each letter is used only once. 1. A contract between the issuer and the investor Callable bond. __ __ 2. Allows the investor to transfer each bond into shares of common stock Convertible bond. __ __ 3. Allows the issuer to pay off the bonds early at a fixed price Bond issue costs. __ __ 4. Includes underwriting, legal, accounting, registration, and printing fees Bond indenture. __ __

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Listed below are eight bond terms followed by a list of definitions. Match (by letter) the bond terms with their definitions. Each letter is used only once. 1. Allows the issuer to pay off the bonds early at a fixed price Serial bond. __ __ 2. Matures on a single date Callable bond. __ __ 3. Supported by specific assets pledged as collateral by the issuer Convertible bond. __ __ 4. Allows the investor to transfer each bond into shares of common stock Bond issue costs. __ __ 5. A contract between the issuer and the investor Bond indenture. __ __ 6. Secured only by the "full faith and credit" of the issuing corporation Secured bond. __ __ 7. Includes underwriting, legal, accounting, registration, and printing fees Unsecured bond. __ __ 8. Matures in installments Term bond. __ __

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