Test 3-Bonds and redemption pt.2

Question 1

When a note is secured by an asset, it is called a __________.

If the borrower fails to pay a __________, the lender has the right to take possession of the pledged asset and sell it to pay off the debt.

Answer 1

mortgage note

Question 2

When an installment note is issued, an entry is recorded:

Answer 2

debiting Cash
Crediting Notes Payable.

Question 3

each installment note payment includes an ________ & ___________

Answer 3

interest and principal component.

Question 4

The interest portion of an installment note payment is computed by :

Answer 4

the interest rate x the carrying amount (book value)

Question 5

The principal portion of the payment is then computed:

Answer 5

the total installment note payment (cash paid) - the interest component.

Question 6

carrying Amt (Column A) _____the amount borrowed from the bank.

and it ______ every year

Answer 6

equals

decreases

Question 7

The note payment (Column B) remains ______

Answer 7

constant

Question 8

the interest expense ______each year.

Answer 8

decreases

Question 9

Notes payable _______ each year by the amount of the principal repayment (Column D).

Answer 9

decreases

Question 10

The principal repayment (Column D) _____ each year as the interest expense decreases (Column C).

Answer 10

increases

Question 11

The carrying amount (Column E) _____, the initial amount borrowed.

to $0 at the end of the term

Answer 11

decreases