ch. 10 Bonds

Question 1

the disadvantage of bond financing is:

Answer 1

bonds pay periodic interest and require the repayment of par value at maturity

Question 2

the advantage of bond financing is:

Answer 2

bonds do not affect owner control

Question 3

the discount on Bonds Payable account is:

Answer 3

a contra liability (DOES THE OPPOSITE OF LIABILITIES -> UP BY DEBITS, DOWN BY CREDITS)

Question 4

the premium on Bonds Payable account is an:

Answer 4

adjunct liability account

Question 5

a contra liability is also called a:

Answer 5

discount

Question 6

a $1000 bond trading at 102.5 means that:

Answer 6

the market rate of interest is the same as the contract rate of interest

Question 7

bond sold at bigger than 100:

Answer 7

premium

Question 8

bond sold at less than 100:

Answer 8

discount

Question 9

the carrying value of bonds at maturity ALWAYS equals

Answer 9

the par value of the bond

Question 10

amortizing a bond discount:

Answer 10

allocates a portion of the total discount to interest expense each interest period

Question 11

a discount of bonds payable:

Answer 11

occurs when a company issues bonds with a contract rate less than the market rate

Question 12

if an issuer sells bonds at premium:

Answer 12

the carrying value DECREASES from the issue price to the par value over the bond’s term

Question 13

a bondholder that owns $1000, 10%, 10-year bond as:

Answer 13

the right to receive $1000 at maturity

Question 14

a bond is issued at par value when:

Answer 14

the market rate of interest is the same as the contract rate of interest

Question 15

when a bond sells at a premium:

Answer 15

the contract rate is above market rate

Question 16

a bond sells at a discount the:

Answer 16

contract rate is below the market rate

Question 17

a legal contract between the bond issuer and the bondholders is called a:

Answer 17

bond indenture

Question 18

the document which bondholders receive that is evidence of the issuing company’s debt is referred to as:

Answer 18

bond certificate

Question 19

a disadvantage of bond financing is:

Answer 19

bonds pat periodic interest and require the repayment of par value at maturity

Question 20

an advantage of bond financing is:

Answer 20

bonds do not affect owner control

Question 21

the Discounts on Bonds Payable account is:

Answer 21

a contra liability account

Question 22

the Premium on Bonds payable Account is an:

Answer 22

adjunct liability account

Question 23

a $1,000 bond trading at 102.5 means that:

Answer 23

the bond traded is bought or sold for $1,025

Question 24

the carrying value of bonds at maturity always equals:

Answer 24

the par value of the bond

Question 25

amortizing a bond discount:

Answer 25

allocates a portion of the total discount to interest expense each interest period

Question 26

a discount on bonds payable:

Answer 26

occurs when a company issues bonds with a contract rate less than the market rate

Question 27

if an issuer sells bonds at a premium:

Answer 27

the carrying value decreases from the issue price to the par value over the bond’s term