Chapter 12 Quiz Flashcards
Bond
form of an interest bearing note used by corporations to borrow on a long term basis
Bond Indenture
the contract between a corporation issuing bonds and the bond holders
Carrying Amount
the balance of the bonds payable account (fact amount of the bonds) less any unamortized discount or plus any unamortized premium
Discount
the excess of the face amount of bonds over their issue price
Earnings per Share
measures the income earned by each share of common stock
Effective Rate of Interest
the market rate of interest at the time bonds are issued
Installment Notes
a debt that requires the borrower to make equal periodic payments to the lender for the term of the debt
Mortgage Notes
an installment note that is secured by the assets of the borrower
Premium
the excess of the issue price of bonds over their face amount
Term Bonds
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
Serial Bonds
maturity of bonds in an issue is spread over several dates
-staggers the repayment of principal over several years
Convertible Bonds
may be exchanged for shares of stock or other securities under certain conditions
-convert to common stock usually
Callable Bonds
the issuing corporation has the right to pay off the bonds before maturity
-risky because you expect more years of interest payments
Secured Bonds
assets are pledged as collateral on the bond
-gives bondholder a claim on specified assets if the company fails to make bond payments
Debenture Bonds
the bonds are backed only by the credit of the issuing corporation
Junk Bonds
cheap and very risky
Zero Coupon Bonds
no interest rate attached- risky
Corporate Bonds (characteristics)
- issued with face values of $1,000 (or multiples of it)
- usually pay interest semiannually
- prices quotes as a percentage of face value
All of a company’s bonds mature at the same time. These are known as _____bonds
Term Bonds
Bonds that may be exchanged for other securities are called ________ bonds
Convertible Bonds
When contract rate of interest on bonds equals the market rate of interest, the bonds sell at _______ ________.
Face Value
When the contract rate of interest on bonds is lower than the market rate of interest, the bonds sell at a(n) _____
discount
When amortizing a discount on bonds payable, the amount of the discount amortization on bonds payable ____________ (increases or decreases) interest expense
increases
When amortizing a premium on bonds payable, the amount of the premium amortization on bonds payable ____________ (increases or decreases) interest expense
decreases
A debt that requires the borrower to make equal periodic payments to the lender for the term of the note is called a(n) ___ ___
installment note
The ratio that measures the income earned by each share of common stock is
earnings per share
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
convertible bond
bonds that are issued on the basis of the general credit of the corporation are called
- callable bonds
- convertible bonds
- debenture bonds
- term bonds
debenture bonds
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
premium
the entry to record the amortization of a discount on bonds payable is
debit interest expense, credit discount on bonds payable
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
remains the same
The entry to record the amortization of a premium on bonds payable is
debit premium on bonds payable, credit interest expense
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
decreases
t or f- the interest rate specified on the bond indenture is called the contract rate or effective rate
false
t or f- if the market rate is lower than the contract rate, the bonds will sell at a discount
false
t or f- the amortization of a premium on a bonds payable increases interest expense
false
t or f- at the maturity date, the carrying amount of a bond payable will equal its face value
true (both are zero)
t or f- the straight line method of allocating bond discount provides for a constant amount of interest expense each period
true
t or f- bonds that may be exchanges for other securities under certain conditions are called callable bonds
false
t or f- a corporations earnings per share can be affected by whether it finances its operations with common stock, preferred stock, or bonds
true
t or f- if the price paid to redeem bonds is below the bond carrying vaule the difference is recorded as a gain
true
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
true
t or f- an installment note secured by a pledge of the borrowers assets is called a debenture note
false
a corporation issuing bonds enters into a contract with the bondholders. this contract is known as a ____ _____
bond indenture
in computing earnings per share on common stock, any ____________ dividends should be subtracted from net income
preferred
a corp reserves the right to redeem _____ bonds before they mature
callable bonds
bonds issued on the general credit of the issuing corp are called _____ _______
debenture bonds
the ____ rate determines the periodic interest paid on a bond
contract/ coupon
when the market rate of interest on bonds is lower than the contract rate, the bonds will sell at a(n) _________
premium
the two methods for amortizing a bond discount are the _____ ____ method and the ____ _____ _____ method
straight line/ effective interest rate
the balance of the bonds payable accounts( face amount of bonds) less any unamortized discount or plus any unamortized premium is called the _________ ______
carrying amount
the entry to record a payment on an installment note
debit notes payable
debit interest expense
credit cash
If the balance of bonds payable and discount on bonds payable are $400,000 and $12,000, the carrying amount of the bonds is ______
$388,000
If $2,000,000 of bonds are sold at 101 1/2, the amount of cash received is
(2000000x1.015)= $2,030,000
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
$2,000 loss
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___
$10,000 gain
475000 paid vs 485000 value
if bp equals $5,000,000 and pobp equals $45,000, the carrying amount of the bonds is _____
$5,045,000
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
-$855000
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
- $40,000 gain
