Question 1

The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, include which of the following?

Accepted Answer

A)   Funds are obtained without surrendering ownership control.
B)   Interest expense is tax-deductible.
C)   The company's default risk decreases.
D)   a. and b.E) A) and B)
F) A) and C)

Question 2

Sun City issues bonds on January 1, 2012 that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below:  Required:
1. Were the bonds issued at face amount, a discount, or a premium?
2. What is the original issue price of the bonds?
3. What is the face amount of the bonds?
4. What is the term to maturity in years?
5. What is the stated annual interest rate?
6. What is the market annual interest rate?
7. What is the total cash interest paid over the term to maturity?

Accepted Answer

1. Premium.
2. $55,338,768.
3. $50,000,0...

Question 3

Interest expense on bonds payable is calculated as the:

Accepted Answer

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.E) B) and D)
F) All of the above

Question 4

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?

Accepted Answer

If the market rate i...

Question 5

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

Accepted Answer

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.E) B) and C)
F) C) and D)

Question 6

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:

Accepted Answer

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.E) None of the above
F) C) and D)

Question 7

Serial bonds are:

Accepted Answer

A)   bonds backed by collateral.
B)   bonds that mature in installments.
C)   bonds with greater risk.
D)   bonds issued below the face amount.E) A) and B)
F) A) and C)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The cash interest payment each period is calculated as the:

Accepted Answer

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.E) B) and D)
F) A) and D)

Question 12

Convertible bonds:

Accepted Answer

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.E) C) and D)
F) A) and B)

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The entry to record a monthly payment on an installment note such as a car loan:

Accepted Answer

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.E) B) and D)
F) A) and D)

Question 15

Match between columns
                        Premises:    Bond indenture. 
   Callable bond. 
   Bond issue costs. 
   Convertible bond.

Accepted Answer

The Answer of  Allows the issuer to pay off is...

Exam 9: Long-Term Liabilities

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

Correct Answer
verified

Interest expense on bonds payable is calculated as the:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

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?

Correct Answer
verified
If the market rate i...
View Answer

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:

Correct Answer
verified

Listed below are four bond terms followed by a list of definitions. Match the bond terms with their definitions. Each letter is used only once.

The cash interest payment each period is calculated as the:

Correct Answer
verified

Convertible bonds:

Correct Answer
verified

Correct Answer
verified
1. Premium.
2. $55,338,768.
3. $50,000,0...
View Answer

The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, include which of the following?

Correct Answer
verified

Serial bonds are:

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The entry to record a monthly payment on an installment note such as a car loan:

Correct Answer
verified

Exam 9: Long-Term Liabilities

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

Correct AnswerverifiedShow Answer

Interest expense on bonds payable is calculated as the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedIf the market rate i...View AnswerShow Answer

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:

Correct AnswerverifiedShow Answer

Listed below are four bond terms followed by a list of definitions. Match the bond terms with their definitions. Each letter is used only once.

The cash interest payment each period is calculated as the:

Correct AnswerverifiedShow Answer

Convertible bonds:

Correct AnswerverifiedShow Answer

Correct Answerverified1. Premium.2. $55,338,768.3. $50,000,0...View AnswerShow Answer

The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, include which of the following?

Correct AnswerverifiedShow Answer

Serial bonds are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The entry to record a monthly payment on an installment note such as a car loan:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If the market rate i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
1. Premium.
2. $55,338,768.
3. $50,000,0...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified