Question 1

What are the potential risks and rewards of carrying additional debt? How does additional debt affect a company's return to investors?

Accepted Answer

Additional debt increases risk.Failure t...

Question 2

Why do some companies issue bonds rather than borrow money directly from a bank?

Accepted Answer

A company that borrows by issuing bonds ...

Question 3

For a bond issue that sells for more 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 D)
F) A) and C)

Question 4

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) None of the above
F) C) and D)

Question 5

Which of the following is not true regarding callable bonds?

Accepted Answer

A)  This feature allows the borrower to repay the bonds before their scheduled maturity date.
B)  This feature helps protect the borrower against future decreases in interest rates.
C)  Callable bonds benefit the bond investor.
D)  A bond can be both callable and convertible.E) A) and B)
F) B) and D)

Question 6

When bonds are retired before their maturity date:

Accepted Answer

A)  GAAP has been violated.
B)  The issuing company will always report a non-operating gain.
C)  The issuing company will always report a non-operating loss.
D)  The issuing company will report a non-operating gain or loss.E) C) and D)
F) All of the above

Question 7

A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?

Accepted Answer

A)  Secured and term.
B)  Secured and serial.
C)  Unsecured and term.
D)  Unsecured and serial.E) B) and D)
F) None of the above

Question 8

An amortization schedule provides a summary of the cash interest payments,interest expense,and changes in carrying value for each period.

Accepted Answer

A) True 
 B)False

Question 9

Use the following information to answer the next 6 questions:
X2 issued callable bonds on January 1,2015.The bonds pay interest annually on December 31 each year.X2's accountant has projected the following amortization schedule from issuance until maturity:
 
-X2 buys back the bonds for $103,000 immediately after the interest payment on 12/31/2016 and retires them.What gain or loss,if any,would X2 record on this date?

Accepted Answer

A)  No gain or loss.
B)  $3,000 gain.
C)  $1,202 loss.
D)  $327 loss.E) A) and B)
F) None of the above

Question 10

Contrast the following types of bonds:
(a)Secured and unsecured.
(b)Term and serial.
(c)Callable and convertible.

Accepted Answer

(a)Secured bonds are supported by assets...

Question 11

Term bonds are:

Accepted Answer

A)  Bonds issued below the face amount.
B)  Bonds that mature in installments.
C)  Bonds that mature all at once.
D)  Bonds issued below the face amountE) A) and B)
F) A) and C)

Question 12

Which of the following is true regarding a company assuming more debt?

Accepted Answer

A)  Assuming more debt is always bad for the company.
B)  Assuming more debt is always good for the company.
C)  Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds.
D)  Assuming more debt reduces leverage.E) C) and D)
F) B) and D)

Question 13

Use the following information to answer the next 6 questions:
X2 issued callable bonds on January 1,2015.The bonds pay interest annually on December 31 each year.X2's accountant has projected the following amortization schedule from issuance until maturity:
 
-X2 issued the bonds:

Accepted Answer

A)  At par.
B)  At a premium.
C)  At a discount.
D)  Cannot be determined from the given information.E) A) and D)
F) C) and D)

Question 14

For bonds issued at a premium,the difference between interest expense and the cash paid increases the carrying value of the bonds.

Accepted Answer

A) True 
 B)False

Question 15

Listed below are four bond terms followed by a list of definitions.Match (by letter)the bond terms with their definitions.Each letter is used only once.
 
a.Matures on a single date.
b.Secured only by the "full faith and credit" of the issuing corporation.
c.Matures in installments.
d.Supported by specific assets pledged as collateral by the issuer.

Accepted Answer

The answer of Listed below are four bond terms followed...

Question 16

Listed below are four bond terms followed by a list of definitions.Match (by letter)the bond terms with their definitions.Each letter is used only once.
 
a.Allows the issuer to pay off the bonds early at a fixed price.
b.Allows the investor to transfer each bond into shares of common stock.
c.Sale of debt securities directly to a single investor.
d.Includes underwriting,legal,accounting,registration,and printing fees.

Accepted Answer

The answer of Listed below are four bond terms followed...

Question 17

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) C) and D)
F) None of the above

Question 18

What is the annual stated interest rate on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate. )

Accepted Answer

A)  3%.
B)  3.5%.
C)  6%.
D)  7%.E) B) and D)
F) None of the above

Question 19

Use the following information to answer the next 6 questions:
X2 issued callable bonds on January 1,2015.The bonds pay interest annually on December 31 each year.X2's accountant has projected the following amortization schedule from issuance until maturity:
 
-X2 issued the bonds for:

Accepted Answer

A)  $100,000.
B)  $107,000.
C)  $104,212.
D)  Cannot be determined from the given information.E) B) and C)
F) None of the above

Question 20

An amortization schedule for a bond issued at a discount:

Accepted Answer

A)  Has a carrying value that decreases over time.
B)  Is contained in the balance sheet.
C)  Is a schedule that reflects the changes in bonds payable over its term to maturity.
D)  All of the other answers are correct.E) B) and D)
F) C) and D)

Exam 9: Long-Term Liabilities

What is the annual stated interest rate on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate. )

Correct Answer
verified

Why do some companies issue bonds rather than borrow money directly from a bank?

Correct Answer
verified
A company that borrows by issuing bonds ...
View Answer

Contrast the following types of bonds: (a)Secured and unsecured. (b)Term and serial. (c)Callable and convertible.

Correct Answer
verified
(a)Secured bonds are supported by assets...
View Answer

Use the following information to answer the next 6 questions: X2 issued callable bonds on January 1,2015.The bonds pay interest annually on December 31 each year.X2's accountant has projected the following amortization schedule from issuance until maturity: -X2 issued the bonds:

Correct Answer
verified

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

Correct Answer
verified

Which of the following is true regarding a company assuming more debt?

Correct Answer
verified

Correct Answer
verified

When bonds are retired before their maturity date:

Correct Answer
verified

A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?

Correct Answer
verified

What are the potential risks and rewards of carrying additional debt? How does additional debt affect a company's return to investors?

Correct Answer
verified
Additional debt increases risk.Failure t...
View Answer

For bonds issued at a premium,the difference between interest expense and the cash paid increases the carrying value of the bonds.

Correct Answer
verified

Use the following information to answer the next 6 questions: X2 issued callable bonds on January 1,2015.The bonds pay interest annually on December 31 each year.X2's accountant has projected the following amortization schedule from issuance until maturity: -X2 issued the bonds for:

Correct Answer
verified

Which of the following is not true regarding callable bonds?

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

Correct Answer
verified

Term bonds are:

Correct Answer
verified

Which of the following is not a true statement?

Correct Answer
verified

An amortization schedule provides a summary of the cash interest payments,interest expense,and changes in carrying value for each period.

Correct Answer
verified

An amortization schedule for a bond issued at a discount:

Correct Answer
verified

Correct Answer
verified

Exam 9: Long-Term Liabilities

What is the annual stated interest rate on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate. )

Correct AnswerverifiedShow Answer

Why do some companies issue bonds rather than borrow money directly from a bank?

Correct AnswerverifiedA company that borrows by issuing bonds ...View AnswerShow Answer

Contrast the following types of bonds: (a)Secured and unsecured. (b)Term and serial. (c)Callable and convertible.

Correct Answerverified(a)Secured bonds are supported by assets...View AnswerShow Answer

Use the following information to answer the next 6 questions: X2 issued callable bonds on January 1,2015.The bonds pay interest annually on December 31 each year.X2's accountant has projected the following amortization schedule from issuance until maturity: -X2 issued the bonds:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is true regarding a company assuming more debt?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When bonds are retired before their maturity date:

Correct AnswerverifiedShow Answer

A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?

Correct AnswerverifiedShow Answer

What are the potential risks and rewards of carrying additional debt? How does additional debt affect a company's return to investors?

Correct AnswerverifiedAdditional debt increases risk.Failure t...View AnswerShow Answer

For bonds issued at a premium,the difference between interest expense and the cash paid increases the carrying value of the bonds.

Correct AnswerverifiedShow Answer

Use the following information to answer the next 6 questions: X2 issued callable bonds on January 1,2015.The bonds pay interest annually on December 31 each year.X2's accountant has projected the following amortization schedule from issuance until maturity: -X2 issued the bonds for:

Correct AnswerverifiedShow Answer

Which of the following is not true regarding callable bonds?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Term bonds are:

Correct AnswerverifiedShow Answer

Which of the following is not a true statement?

Correct AnswerverifiedShow Answer

An amortization schedule provides a summary of the cash interest payments,interest expense,and changes in carrying value for each period.

Correct AnswerverifiedShow Answer

An amortization schedule for a bond issued at a discount:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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A company that borrows by issuing bonds ...
View Answer

Correct Answer
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(a)Secured bonds are supported by assets...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Additional debt increases risk.Failure t...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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