Chapter 22 - Long-term Bonds

Question 1

FINANCING THROUGH BONDS

mortgage loan

Answer 1

• a long term debt created when a note is given as part of the purchase price for land of buildings

Question 2

FINANCING THROUGH BONDS

bonds payable

Answer 2

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

Question 3

FINANCING THROUGH BONDS

secured bonds

Answer 3

• bonds for which property is pledged to secure the claims of bond holders

Question 4

FINANCING THROUGH BONDS

collateral trust bonds

Answer 4

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

Question 5

FINANCING THROUGH BONDS

bond indenture

Answer 5

• a bond contract

Question 6

FINANCING THROUGH BONDS

debenture

Answer 6

• unsecured bonds backed only by a corporation’s general credit

Question 7

FINANCING THROUGH BONDS

registered bonds

Answer 7

• bonds issued to a party whose name is listed in the corporations records

Question 8

FINANCING THROUGH BONDS

coupon bonds

Answer 8

• unregistered bonds that have coupons attached for each interest payment; also called bearer bonds

Question 9

FINANCING THROUGH BONDS

serial bonds

Answer 9

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

Question 10

FINANCING THROUGH BONDS

convertible bonds

Answer 10

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

Question 11

FINANCING THROUGH BONDS

callable bonds

Answer 11

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

Question 12

FINANCING THROUGH BONDS

call price

Answer 12

• the amount the corporation must pay for the bond when it is called

Question 13

FINANCING THROUGH BONDS

market interest rate

Answer 13

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

Question 14

FINANCING THROUGH BONDS

face interest rate

Answer 14

• the contractual interest specified on the bond

Question 15

FINANCING THROUGH BONDS

trading on the equity, or leveraging

Answer 15

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

Question 16

BOND ISSUE AND INTEREST

premium on bonds payable

Answer 16

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

Question 17

BOND ISSUE AND INTEREST

straight-line amortization

Answer 17

• amortizing the premium or discount on bonds payable in equal amounts over the life of the bond

Question 18

BOND ISSUE AND INTEREST

discount on bonds payable

Answer 18

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

Question 19

BOND ISSUE AND INTEREST

carrying value of bonds

Answer 19

• 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 20

BOND ISSUE AND INTEREST

bond issue costs

Answer 20

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

Question 21

BOND RETIREMENT

bond retirement

Answer 21

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

Question 22

BOND RETIREMENT

bond sinking fund investment

Answer 22

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