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Accounting > Chapter 12 Quiz > Flashcards

Chapter 12 Quiz Flashcards

1
Q

Bond

A

form of an interest bearing note used by corporations to borrow on a long term basis

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2
Q

Bond Indenture

A

the contract between a corporation issuing bonds and the bond holders

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3
Q

Carrying Amount

A

the balance of the bonds payable account (fact amount of the bonds) less any unamortized discount or plus any unamortized premium

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4
Q

Discount

A

the excess of the face amount of bonds over their issue price

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5
Q

Earnings per Share

A

measures the income earned by each share of common stock

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6
Q

Effective Rate of Interest

A

the market rate of interest at the time bonds are issued

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7
Q

Installment Notes

A

a debt that requires the borrower to make equal periodic payments to the lender for the term of the debt

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8
Q

Mortgage Notes

A

an installment note that is secured by the assets of the borrower

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9
Q

Premium

A

the excess of the issue price of bonds over their face amount

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10
Q

Term Bonds

A

all bonds of an issue mature at the same time

-as a result the entire principal received from the issue must be paid at once

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11
Q

Serial Bonds

A

maturity of bonds in an issue is spread over several dates

-staggers the repayment of principal over several years

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12
Q

Convertible Bonds

A

may be exchanged for shares of stock or other securities under certain conditions
-convert to common stock usually

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13
Q

Callable Bonds

A

the issuing corporation has the right to pay off the bonds before maturity
-risky because you expect more years of interest payments

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14
Q

Secured Bonds

A

assets are pledged as collateral on the bond

-gives bondholder a claim on specified assets if the company fails to make bond payments

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15
Q

Debenture Bonds

A

the bonds are backed only by the credit of the issuing corporation

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16
Q

Junk Bonds

A

cheap and very risky

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17
Q

Zero Coupon Bonds

A

no interest rate attached- risky

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18
Q

Corporate Bonds (characteristics)

A
  • issued with face values of $1,000 (or multiples of it)
  • usually pay interest semiannually
  • prices quotes as a percentage of face value
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19
Q

All of a company’s bonds mature at the same time. These are known as _____bonds

A

Term Bonds

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20
Q

Bonds that may be exchanged for other securities are called ________ bonds

A

Convertible Bonds

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21
Q

When contract rate of interest on bonds equals the market rate of interest, the bonds sell at _______ ________.

A

Face Value

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22
Q

When the contract rate of interest on bonds is lower than the market rate of interest, the bonds sell at a(n) _____

A

discount

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23
Q

When amortizing a discount on bonds payable, the amount of the discount amortization on bonds payable ____________ (increases or decreases) interest expense

A

increases

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24
Q

When amortizing a premium on bonds payable, the amount of the premium amortization on bonds payable ____________ (increases or decreases) interest expense

A

decreases

25
Q

A debt that requires the borrower to make equal periodic payments to the lender for the term of the note is called a(n) ___ ___

A

installment note

26
Q

The ratio that measures the income earned by each share of common stock is

A

earnings per share

27
Q

a bond that gives the bondholder a right to exchange the bond for other securities under certain conditions is called a

  • convertible bond
  • sinking bond
  • term bond
  • debenture bond
A

convertible bond

28
Q

bonds that are issued on the basis of the general credit of the corporation are called

  • callable bonds
  • convertible bonds
  • debenture bonds
  • term bonds
A

debenture bonds

29
Q

If the market rate of interest is less than the coupon rate of interest, the bonds will sell for a

  • discount
  • face value
  • maturity value
  • premium
A

premium

30
Q

the entry to record the amortization of a discount on bonds payable is

A

debit interest expense, credit discount on bonds payable

31
Q

under the straight line method of bond discount amortization, as a bond payable approaches maturity, the total yearly amount of interest expense

  • increases
  • decreases
  • remains the same
  • increases or decreases, depending on the size of the original discount
A

remains the same

32
Q

The entry to record the amortization of a premium on bonds payable is

A

debit premium on bonds payable, credit interest expense

33
Q

From the first to the final payment, interest expense on an installment note payable behaves as follows

  • decreases
  • remains the same
  • decreases and then increases
A

decreases

34
Q

t or f- the interest rate specified on the bond indenture is called the contract rate or effective rate

A

false

35
Q

t or f- if the market rate is lower than the contract rate, the bonds will sell at a discount

A

false

36
Q

t or f- the amortization of a premium on a bonds payable increases interest expense

A

false

37
Q

t or f- at the maturity date, the carrying amount of a bond payable will equal its face value

A

true (both are zero)

38
Q

t or f- the straight line method of allocating bond discount provides for a constant amount of interest expense each period

A

true

39
Q

t or f- bonds that may be exchanges for other securities under certain conditions are called callable bonds

A

false

40
Q

t or f- a corporations earnings per share can be affected by whether it finances its operations with common stock, preferred stock, or bonds

A

true

41
Q

t or f- if the price paid to redeem bonds is below the bond carrying vaule the difference is recorded as a gain

A

true

42
Q

t or f- the balance in a discount on bonds payable account is reported in the balance sheet as a deduction from the related bonds payable

A

true

43
Q

t or f- an installment note secured by a pledge of the borrowers assets is called a debenture note

A

false

44
Q

a corporation issuing bonds enters into a contract with the bondholders. this contract is known as a ____ _____

A

bond indenture

45
Q

in computing earnings per share on common stock, any ____________ dividends should be subtracted from net income

A

preferred

46
Q

a corp reserves the right to redeem _____ bonds before they mature

A

callable bonds

47
Q

bonds issued on the general credit of the issuing corp are called _____ _______

A

debenture bonds

48
Q

the ____ rate determines the periodic interest paid on a bond

A

contract/ coupon

49
Q

when the market rate of interest on bonds is lower than the contract rate, the bonds will sell at a(n) _________

A

premium

50
Q

the two methods for amortizing a bond discount are the _____ ____ method and the ____ _____ _____ method

A

straight line/ effective interest rate

51
Q

the balance of the bonds payable accounts( face amount of bonds) less any unamortized discount or plus any unamortized premium is called the _________ ______

A

carrying amount

52
Q

the entry to record a payment on an installment note

A

debit notes payable
debit interest expense
credit cash

53
Q

If the balance of bonds payable and discount on bonds payable are $400,000 and $12,000, the carrying amount of the bonds is ______

A

$388,000

54
Q

If $2,000,000 of bonds are sold at 101 1/2, the amount of cash received is

A

(2000000x1.015)= $2,030,000

55
Q

Jones co has redeemed bonds at 102. The bonds have a face value of $600,000 and an unamortized premium of $10,000. Jones Co will record a gain/ loss on redemption of

A

$2,000 loss

56
Q

a firm redeems bonds at 95. bonds have a face value o f$500,000 and an unamortized discount of $15,000. the firm will record a gain/loss on redemption of___

A

$10,000 gain

475000 paid vs 485000 value

57
Q

if bp equals $5,000,000 and pobp equals $45,000, the carrying amount of the bonds is _____

A

$5,045,000

58
Q

bonds payable has a balance of $900,000 and dobp has a balance of $45,000. the carrying amount is____

  • $45000
  • 855000
  • 900,000
  • 945000
A

-$855000

59
Q

A bond issue with a face value of $800,000 on which there is unamortized premium of $30,000 is redeemed for $790,000. the gain or loss on the redemtion of the bonds is a

  • 10000 gain
  • 20000 gain
  • 40000 loss
  • 40000 gain
A
  • $40,000 gain

Accounting (9 decks)

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