Financial Accounting 12e - Chapter 14 - Long-Term Liabilities: Bonds and Notes

Question 1

When the market rate of interest is < contract rate for a bond-bond will sell for a premium.

Accepted Answer

True

Question 2

Present value = amt of cash received in the future is equivalent to same amt held earlier.

Accepted Answer

False

Question 3

One reason a dollar today is worth more than a dollar 1 year from today is time value of money.

Accepted Answer

True

Question 4

A bond is usually divided into a number of individual bonds of $500 each.

Accepted Answer

False

Question 5

Bondholders claims on the assets of the corporation rank ahead of stockholders.

Accepted Answer

True

Question 6

The face value of a term bond is payable at a single specific date in the future.

Accepted Answer

True

Question 7

An unsecured bond is the same as a

Accepted Answer

debenture bond

Question 8

When corp issuing bonds has right to repurchase bonds prior to MD for specific price, bonds are

Accepted Answer

callable bonds

Question 9

The present value of $30K to be received in 2 years, at 12% compounded annually, is (rounded)

Accepted Answer

$23,916

Question 10

The prices of bonds are quoted as a percentage of the bonds' market value.

Accepted Answer

False

Question 11

The interest rate specified in the bond indenture is called the

Accepted Answer

contract rate

Question 12

Bondholders are creditors of the issuing corporation.

Accepted Answer

True

Question 13

If bondholder has the right to exchange a bond for shares of common stock = convertible bond

Accepted Answer

True

Question 14

The market interest rate related to a bond is also called the

Accepted Answer

effective interest rate

Question 15

A legal doc that indicates the name of the issuer, the face value and other data is called

Accepted Answer

a bond certificate

Question 16

The present value of $40k to be received in 1 year, at 6% compounded annually, is (rounded)

Accepted Answer

$37,736

Question 17

Present value of $5k to be received in 4 yrs, market rate of 6% compounded annual is $3,636.30.

Accepted Answer

False

Question 18

Secured bond is a debenture bond & is backed only by general creditworthiness of the corp.

Accepted Answer

False

Question 19

Which of the following is not an advantage of issuing bonds instead of common stock?

Accepted Answer

Earnings per share on common stock may be lower

Question 20

Bonds subject to retirement at a stated $ amt prior to maturity at option of issuer are called

Accepted Answer

callable bonds

Question 21

When the market rate of interest on bonds is higher than contract rate, the bonds will sell at

Accepted Answer

a discount

Question 22

A bond is simply a form of an interest bearing note.

Accepted Answer

TrueF

Question 23

The price of a bond is = to the sum of the interest payments and the face amount of the bonds.

Accepted Answer

False

Question 24

When a corp. issues bonds, it executes a contract with the bondholders, known as bond debenture

Accepted Answer

False

Question 25

The effective-interest method of amortizing a bond discount or premium is the preferred method.

Accepted Answer

True

Question 26

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

Accepted Answer

True

Question 27

Bonds of major corporations are traded on bond exchanges.

Accepted Answer

True

Question 28

Debenture bonds are

Accepted Answer

do not pledge specific assets as collateral

Question 29

One potential advantage of financing corps through the use of bonds rather than common stock is

Accepted Answer

the interest expense is deductible for tax purposes

Question 30

The present value of an annuity is the sum of the present values of each cash flow.

Accepted Answer

True

Question 31

When the maturities of a bond issue are spread over several dates, the bonds are called

Accepted Answer

serial bonds

Question 32

Market rate of interest is affected by investors' assessment of current economic conditions.

Accepted Answer

True

Question 33

An equal stream of periodic payments is called an annuity.

Accepted Answer

True

Financial Accounting 12e - Chapter 14 - Long-Term Liabilities: Bonds and Notes

Questions 33

Financial Accounting 12e - Chapter 14 - Long-Term Liabilities: Bonds and Notes

Questions 33