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Terms in this set (24)
The interest rate that is printed on the bond certificate is not referred to as the:
A. Stated rate.
B. Contract rate.
C. Nominal rate.
D. Effective rate.
D. Effective rate.
Most corporate bonds are:
A. Mortgage bonds.
B. Debenture bonds.
C. Secured bonds.
D. Collateral bonds.
B. Debenture bonds.
The method used to pay interest depends on whether the bonds are:
A. Registered or coupon.
B. Mortgaged or unmortgaged.
C. Indentured or debentured.
D. Callable or redeemable.
A. Registered or coupon.
The rate of interest that actually is incurred on a bond payable is called the:
A. Face rate.
B. Contract rate.
C. Effective rate.
D. Stated rate.
C. Effective rate.
Interest expense is:
A. The effective interest rate times the amount of the debt outstanding during the interest period.
B. The stated interest rate times the amount of the debt outstanding during the interest period.
C. The effective interest rate times the face amount of the debt.
D. The stated interest rate times the face amount of the debt.
A. The effective interest rate times the amount of the debt outstanding during the interest period.
Bonds usually sell at their:
A. Maturity value.
B. Face value.
C. Present value.
D. Statistical expected value.
C. Present value.
Straight-line amortization of bond discount or premium:
A. Can be used for amortization of discount or premium in all cases and circumstances.
B. Provides the same amount of interest expense each period as does the effective interest method.
C. Is appropriate for deep discount bonds.
D. Provides the same total amount of interest expense over the life of the bond issue as does the effective interest method.
D. Provides the same total amount of interest expense over the life of the bond issue as does the effective interest method.
An amortization schedule for bonds issued at a premium:
A. Summarizes the amortization of the premium, a contra-asset account with a credit balance.
B. Is reported in the balance sheet.
C. Is a schedule that reflects the changes in the debt over its term to maturity.
D. All of the above are correct.
C. Is a schedule that reflects the changes in the debt over its term to maturity.
Ordinarily, the proceeds from the sale of a bond issue will be equal to:
A. The face amount of the bond.
B. The total of the face amount plus all interest payments.
C. The present value of the face amount plus the present value of the stream of interest payments.
D. The face amount of the bond plus the present value of the stream of interest payments.
C. The present value of the face amount plus the present value of the stream of interest payments.
For a bond issue that sells for more than the bond face amount, the effective interest rate is:
A. The rate printed on the face of the bond.
B. The Wall Street Journal prime rate.
C. More than the rate stated on the face of the bond.
D. Less than the rate stated on the face of the bond.
D. Less than the rate stated on the face of the bond.
When bonds are sold at a premium and the effective interest method is used, at each subsequent interest payment date, the cash paid is:
A. Less than the effective interest.
B. Equal to the effective interest.
C. Greater than the effective interest.
D. More than if the bonds had been sold at a discount.
C. Greater than the effective interest.
When bonds are sold at a discount and the effective interest method is used, at each subsequent interest payment date, the cash paid is:
A. More than the effective interest.
B. Less than the effective interest.
C. Equal to the effective interest.
D. More than if the bonds had been sold at a premium.
B. Less than the effective interest.
When bonds are sold at a discount and the effective interest method is used, at each interest payment date, the interest expense:
A. Increases.
B. Decreases.
C. Remains the same.
D. Is equal to the change in book value
A. Increases.
When bonds are sold at a premium and the effective interest method is used, at each interest payment date, the interest expense:
A. Remains constant.
B. Is equal to the change in book value.
C. Increases.
D. Decreases.
D. Decreases.
Zero-coupon bonds
A. offer a return in the form of a deep discount off the face value.
B. result in zero interest expense for the issuer.
C. result in zero interest revenue for the investor.
D. are reported as shareholders' equity by the issuer.
A. offer a return in the form of a deep discount off the face value.
When a long-term note is given in exchange for equipment, the amount considered as paid for the machine is:
A. The invoice price.
B. The wholesale price.
C. The present value of cash outflows discounted at the stated rate.
D. The present value of the note payments discounted at the market rate.
D. The present value of the note payments discounted at the market rate
When an equipment dealer receives a long-term note in exchange for equipment, the present value of the future cash flows received on the notes:
A. Is treated as a current liability at the exchange date.
B. Is recorded as interest revenue at the exchange date.
C. Is recorded as interest receivable at the exchange date.
D. Is credited to sales revenue at the exchange date.
D. Is credited to sales revenue at the exchange date.
Which of the following indicates the margin of safety provided to creditors?
A. Rate of return on shareholders' equity.
B. Times interest earned ratio.
C. Gross margin.
D. Debt to equity ratio.
B. Times interest earned ratio.
Bonds payable should be reported as a long-term liability in the balance sheet of the issuing corporation at the:
A. Face amount price less any unamortized discount or plus any unamortized premium.
B. Current bond market price.
C. Face amount less any unamortized premium or plus any unamortized discount.
D. Face amount less accrued interest since the last interest payment date.
A. Face amount price less any unamortized discount or plus any unamortized premium.
The unamortized balance of discount on bonds payable is reported in the balance sheet as:
A. A prepaid expense.
B. An expense account.
C. A current liability.
D. A contra-liability.
D. A contra-liability.
The times interest earned ratio indicates
A. the margin of safety provided to creditors.
B. the extent of "trading on the equity" or financial leverage.
C. profitability without regard to how resources are financed.
D. the effectiveness of employing resources provided by owners.
A. the margin of safety provided to creditors.
The debt to equity ratio indicates
A. the margin of safety provided to creditors.
B. the extent of "trading on the equity" or financial leverage.
C. profitability without regard to how resources are financed.
D. the effectiveness of employing resources provided by owners.
B. the extent of "trading on the equity" or financial leverage.
The rate of return on assets indicates
A. the margin of safety provided to creditors.
B. the extent of "trading on the equity" or financial leverage.
C. profitability without regard to how resources are financed.
D. the effectiveness of employing resources provided by owners.
C. profitability without regard to how resources are financed.
The rate of return on shareholders' equity indicates
A. the margin of safety provided to creditors.
B. the extent of "trading on the equity" or financial leverage.
C. profitability without regard to how resources are financed.
D. the effectiveness of employing resources provided by owners.
D. the effectiveness of employing resources provided by owners.
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