Chapter 12

Question 1

Account that is directly related to another account. Have the same normal balance of related account and are added together on balance sheet

Answer 1

Adjunct Account

Question 2

Details each loan payment’s allocation between principal and interest and the beginning and ending loan balances

Answer 2

Amortization Schedule

Question 3

Stream of equal cash payments made at equal time intervals

Answer 3

Annuity

Question 4

Long-term debt issued to multiple lenders

Answer 4

Bond Payable

Question 5

Issuer may call and pay off specified price whenever issuer wants

Answer 5

Callable Bonds

Question 6

Bond Payable - Discount account current balance or + premium account current balance

Answer 6

Carrying Amount of Bonds

Question 7

Interest calculated on the principal and on all previously earned interest

Answer 7

Compound Interest

Question 8

Unsecured bonds backed only by the goodwill of the bond issuer

Answer 8

Debentures

Question 9

Measures the proportion of total liabilities to total equity

Answer 9

Debt to Equity Ratio

Question 10

Occurs when a bond’s issue price is less than face value

Answer 10

Discount on Bonds Payable

Question 11

Allocates an amount of bond discount or premium, based in the market interest rate at issuance, to each interest period over the life of the bond

Answer 11

Effective-Interest Amortization Method

Question 12

Amount a borrower must payback to the bondholders on the maturity date

Answer 12

Face Value

Question 13

Occurs when a company earns more income on borrowed money than the related interest expense

Answer 13

Leverage

Question 14

Interest rate the investors demand in order to loan their money

Answer 14

Market Interest Rate

Question 15

Long-term debt that is backed with a security interest in specific property

Answer 15

Mortgage Payable

Question 16

Occurs when a bond’s issue price is more than face value

Answer 16

Premium on Bonds Payable

Question 17

Amount a person would invest now to receive a greater amount in the future

Answer 17

Present Value

Question 18

Bonds that give the bondholders the right to take specified assets of the issuer if the issuer fails to pay principal or interest

Answer 18

Secured Bonds

Question 19

Bonds that mature in installments at regular intervals

Answer 19

Serial Bonds

Question 20

Interest calculated only on the principal amount

Answer 20

Simple Interest

Question 21

Interest rate that determines that the amount of cash interest the borrower pays and the investor receives each year

Answer 21

Stated Interest Rate

Question 22

Allocates an equal amount of bond discount or premium to each interest period over the life of the bond

Answer 22

Straight-Line Amortization

Question 23

Bonds that all mature at the same time

Answer 23

Term Bonds

Question 24

Recognition that money earns income over time

Answer 24

Time Value of Money