Question 1

For a bond issue that sells for less than the bond face amount, the stated interest rate is:

Accepted Answer

A)   The actual yield rate.
B)   The prime rate.
C)   More than the market rate.
D)   Less than the market rate.E) A) and B)
F) A) and C)

Question 2

The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 3

Match between columns
                        Premises:    Secured bond. 
   Unsecured bond. 
   Term bond. 
   Serial bond.

Accepted Answer

The Answer of  Secured only by the "full faith is...

Question 4

The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the market value of the bonds is $23 million. The entry to record the retirement will include:

Accepted Answer

A)   A debit of $5 million to a loss account.
B)   A credit of $5 million to a gain account.
C)   No gain or loss on retirement.
D)   A debit to cash for $18 million.E) B) and D)
F) All of the above

Question 5

Which of the following is not a true statement?

Accepted Answer

A)   Companies that are believed to have high bankruptcy risk generally receive low credit ratings and must pay a higher interest rate for borrowing.
B)   As a company's level of debt increases, the risk of bankruptcy increases.
C)   Interest expense incurred when borrowing money, as well as dividends paid to stockholders, are both tax-deductible.
D)   The mixture of liabilities and stockholders' equity a business uses is called its capital structure.E) B) and C)
F) A) and D)

Question 6

Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct?

Accepted Answer

A)   Both bonds will sell for the same amount.
B)   Bond X will sell for more than Bond Y.
C)   Bond Y will sell for more than Bond X.
D)   Both bonds will sell at a premium.E) None of the above
F) A) and B)

Question 7

When bonds are issued at a discount and the effective interest method is used for amortization, at each interest payment date, the interest expense:

Accepted Answer

A)   Increases.
B)   Decreases.
C)   Remains the same.
D)   Is equal to the change in book value.E) A) and B)
F) A) and C)

Question 8

When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

Accepted Answer

A)   Less than the interest expense.
B)   Equal to the interest expense.
C)   Greater than the interest expense.
D)   More than if the bonds had been sold at a discount.E) None of the above
F) All of the above

Question 9

The rate of interest expense incurred on a bond payable for bonds of similar risk is called the:

Accepted Answer

A)   Face rate.
B)   Yield rate.
C)   Market rate.
D)   Stated rate.E) B) and C)
F) C) and D)

Question 10

Given the information below, which bond(s)  will be issued at a discount?   Bond 1  Bond 2 ‾ Bond 3‾ Bond 4 ‾ Stated Rate of Return 5%7%12%10% Market Rate of Return 7%8%12%9%\begin{array} { | l | c | c | c | c | } \hline & 	ext { Bond 1 } & \underline { 	ext { Bond 2 } } & \underline { 	ext { Bond } \mathbf { 3 } } & \underline { 	ext { Bond 4 } } \\hline 	ext { Stated Rate of Return } & 5 \% & 7 \% & 12 \% & 10 \% \\hline 	ext { Market Rate of Return } & 7 \% & 8 \% & 12 \% & 9 \% \\hline\end{array} Stated Rate of Return  Market Rate of Return ​ Bond 1 5%7%​ Bond 2 ​7%8%​ Bond 3​12%12%​ Bond 4 ​10%9%​​

Accepted Answer

A)   Bond 1
B)   Bond 2
C)   Bond 4
D)   Bonds 1 and 2 E) C) and D)
F) A) and C)

Question 11

As a company's default risk increases, investors demand a higher market interest rate on their bond investments.

Accepted Answer

A) True 
 B)False

Question 12

Losses have the effect of reducing net income, while gains increase net income.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following leases is essentially the purchase of an asset with debt financing?

Accepted Answer

A)   an operating lease.
B)   a capital lease.
C)   both an operating and a capital lease.
D)   neither an operating lease nor a capital lease.E) C) and D)
F) All of the above

Question 14

Raiders Company issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond?

Accepted Answer

A)   $83,920
B)   $46,320
C)   $54,055
D)   $50,000E) A) and C)
F) B) and C)

Question 15

A private placement is when a company chooses to sell the debt securities directly to a single investor.

Accepted Answer

A) True 
 B)False

Question 16

The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, include which of the following?

Accepted Answer

A)   Interest payments are tax deductible to the company, while dividends are not.
B)   The risk of going bankrupt decreases.
C)   Expansion is achieved without surrendering ownership control.
D)   a. and c.E) A) and D)
F) A) and B)

Question 17

Term bonds are:

Accepted Answer

A)   bonds issued above the face amount.
B)   bonds that mature in installments.
C)   bonds that mature all at once.
D)   bonds issued below the face amount.E) None of the above
F) C) and D)

Question 18

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 8%. These bonds will sell at a price that is:

Accepted Answer

A)   Equal to $500,000.
B)   More than $500,000.
C)   Less than $500,000.
D)   The answer cannot be determined from the information provided.E) A) and C)
F) None of the above

Question 19

A bond issued at a discount indicates that at the date of issue:

Accepted Answer

A)   Its stated rate was lower than the prevailing market rate of interest on similar bonds.
B)   Its stated rate was higher than the prevailing market rate of interest on similar bonds.
C)   The bonds were issued at a price greater than their face value.
D)   The bonds must be non-interest bearing.E) C) and D)
F) None of the above

Question 20

Match between columns
                        Premises:    Callable bond. 
   Convertible bond. 
   Unsecured bond. 
   Term bond. 
   Bond indenture. 
   Secured bond. 
   Serial bond. 
   Bond issue costs.

Accepted Answer

The Answer of  A contract between the issuer and is...

Exam 9: Long-Term Liabilities

Correct Answer
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Term bonds are:

Correct Answer
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A bond issued at a discount indicates that at the date of issue:

Correct Answer
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The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, include which of the following?

Correct Answer
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Which of the following leases is essentially the purchase of an asset with debt financing?

Correct Answer
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As a company's default risk increases, investors demand a higher market interest rate on their bond investments.

Correct Answer
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Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct?

Correct Answer
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A private placement is when a company chooses to sell the debt securities directly to a single investor.

Correct Answer
verified

When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

Correct Answer
verified

The rate of interest expense incurred on a bond payable for bonds of similar risk is called the:

Correct Answer
verified

Listed below are eight bond terms followed by a list of definitions. Match the bond terms with their definitions. Each letter is used only once.

When bonds are issued at a discount and the effective interest method is used for amortization, at each interest payment date, the interest expense:

Correct Answer
verified

For a bond issue that sells for less than the bond face amount, the stated interest rate is:

Correct Answer
verified

Raiders Company issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond?

Correct Answer
verified

The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.

Correct Answer
verified

Listed below are four bond terms followed by a list of definitions. Match the bond terms with their definitions. Each letter is used only once.

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 8%. These bonds will sell at a price that is:

Correct Answer
verified

Losses have the effect of reducing net income, while gains increase net income.

Correct Answer
verified

Which of the following is not a true statement?

Correct Answer
verified

The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the market value of the bonds is $23 million. The entry to record the retirement will include:

Correct Answer
verified

Exam 9: Long-Term Liabilities

Correct AnswerverifiedShow Answer

Term bonds are:

Correct AnswerverifiedShow Answer

A bond issued at a discount indicates that at the date of issue:

Correct AnswerverifiedShow Answer

The advantages of obtaining long-term funds by issuing bonds, rather than issuing additional common stock, include which of the following?

Correct AnswerverifiedShow Answer

Which of the following leases is essentially the purchase of an asset with debt financing?

Correct AnswerverifiedShow Answer

As a company's default risk increases, investors demand a higher market interest rate on their bond investments.

Correct AnswerverifiedShow Answer

Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7% interest. The current market rate of interest is 7%. Which of the following is correct?

Correct AnswerverifiedShow Answer

A private placement is when a company chooses to sell the debt securities directly to a single investor.

Correct AnswerverifiedShow Answer

When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is:

Correct AnswerverifiedShow Answer

The rate of interest expense incurred on a bond payable for bonds of similar risk is called the:

Correct AnswerverifiedShow Answer

Listed below are eight bond terms followed by a list of definitions. Match the bond terms with their definitions. Each letter is used only once.

When bonds are issued at a discount and the effective interest method is used for amortization, at each interest payment date, the interest expense:

Correct AnswerverifiedShow Answer

For a bond issue that sells for less than the bond face amount, the stated interest rate is:

Correct AnswerverifiedShow Answer

Raiders Company issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. Interest payments are made semi-annually. The market rate for this type of bond is 8%. What is the issue price of the bond?

Correct AnswerverifiedShow Answer

The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.

Correct AnswerverifiedShow Answer

Listed below are four bond terms followed by a list of definitions. Match the bond terms with their definitions. Each letter is used only once.

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 8%. These bonds will sell at a price that is:

Correct AnswerverifiedShow Answer

Losses have the effect of reducing net income, while gains increase net income.

Correct AnswerverifiedShow Answer

Which of the following is not a true statement?

Correct AnswerverifiedShow Answer

The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the market value of the bonds is $23 million. The entry to record the retirement will include:

Correct AnswerverifiedShow Answer

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