Chap 22

Question 1

Bond Indenture

Answer 1

a bond contract

Question 2

Bond Issue Costs

Answer 2

costs incurred in issuing bonds, such as legal and accounting fees and printing costs

Question 3

Bond Retirement

Answer 3

when a bond is paid and the liability is removed from the company’s balance sheet

Question 4

Bond Sinking Fund Investment

Answer 4

a fund established to accumulate assets to pay off bonds when they mature

Question 5

Bonds Payable

Answer 5

long-term debt instruments that are written promises to repay the principle at a future date; interest is due at a fixed rate payable over the life of the bond

Question 6

Call Price

Answer 6

the amount the corporation must pay for the bond when It is called

Question 7

Callable Bonds

Answer 7

bonds that allow the issuing corporation to require the holder to surrender the bonds for payment before their maturity date

Question 8

Carrying Value of Bonds

Answer 8

the balance of the ‘Bonds Payable’ account plus the ‘Premium on Bonds Payable’ account minus the ‘Discount on Bonds Payable’ account; also called BOOK VALUE OF BONDS

Question 9

Collateral Trust Bonds

Answer 9

bonds secured by the pledge of securities, such as stocks or bonds of other companies

Question 10

Convertible Bonds

Answer 10

bonds that give the owner the right to convert the bonds into common stock under specified conditions

Question 11

Coupon Bonds

Answer 11

unregistered bonds that have coupons attached for each interest payment; also called BEARER BONDS

Question 12

Debentures

Answer 12

unsecured bonds backed only by a corporation’s general credit

Question 13

Discounts on Bonds Payable

Answer 13

the excess of the face value over the price received by the corporation for a bond

Question 14

Face Interest Rate

Answer 14

the contractural interest rate specified on the bond

Question 15

Leveraging

Answer 15

using borrowed funds to earn a profit greater than the interest that must be paid on borrowing

Question 16

Market Interest Rate

Answer 16

the interest rate a corporation is willing to pay and investors are willing to accept at the current time

Question 17

Mortgage Loan

Answer 17

a long-term debt created when a note is given as part of the purchased price for land or buildings

Question 18

Premium on Bonds Payable

Answer 18

the excess of the price paid over the face value of a bond

Question 19

Registered Bonds

Answer 19

bonds issued to a party who name is listed in the corporation’s records

Question 20

Secured Bonds

Answer 20

bonds for which property is pledged to secure the claims of bondholders

Question 21

Serial Bonds

Answer 21

bonds issued at one time but payable over a period of years

Question 22

Straight-Line Amortization

Answer 22

Amortizing the premium of discount on bonds payable in equal amounts each month over the life of the bond

Question 23

Trading on the Equity

Answer 23

aka, Leveraging