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If the borrower fails to pay a mortgage, most mortgage contracts grant the lender the right to foreclose on the property that is identified as security in the contract.

A) True
B) False

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The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ____________________________________.

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Bonds that give the issuer an option of retiring them prior to the date of maturity are:


A) Debentures
B) Serial bonds
C) Sinking fund bonds
D) Registered bonds
E) Callable bonds

F) D) and E)
G) A) and C)

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A company can reserve the right to retire bonds before their maturity date by issuing _______________ bonds.

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A company has $200,000 par value, 10% bonds outstanding. Prepare the company's journal entry to retire the bonds at the date of maturity.

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Installment notes payable that require periodic payments of accrued interest plus equal amounts of principal result in:


A) Periodic total payments that gradually decrease in amount.
B) Periodic total payments that are equal.
C) Periodic total payments that gradually increase in amount.
D) Increasing amounts of interest each period.
E) Increasing amounts of principal each period.

F) A) and B)
G) None of the above

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On January 1, 2013, Lane issues $700,000 of 7%, 15-year bonds at a price of 106 3/4. The interest payments are made on June 30 and December 31. The straight-line method is used to amortize any bond discount or premium. Lane elects a fiscal year ending September 30. What is the appropriate adjusting journal entry required for September 30, 2013?


A)  Interest Expense 22,925 Cash 22,925\begin{array}{|c|r|r|}\hline \text { Interest Expense } & 22,925 & \\\hline \text { Cash } & & 22,925 \\\hline\end{array}
B)  Interest Expense 22,925 Premium on Bonds Payable 1,575 Cash 24,500\begin{array}{|l|r|l|}\hline \text { Interest Expense } & 22,925 & \\\hline \text { Premium on Bonds Payable } & 1,575 & \\\hline \text { Cash } & & 24,500 \\\hline\end{array}
C)  Interest Expense 11,462.50 Premium on Bonds Payable 787.50 Interest Payable 12,250\begin{array}{|l|r|l|}\hline \text { Interest Expense } & 11,462.50 & \\\hline \text { Premium on Bonds Payable } & 787.50 & \\\hline \text { Interest Payable } & & 12,250 \\\hline\end{array}
D)  Interest Payable 11,462.50 Premium on Bonds Payable 787.50 Cash 12,250\begin{array}{|l|r|l|}\hline \text { Interest Payable } & 11,462.50 & \\\hline \text { Premium on Bonds Payable } & 787.50 & \\\hline \text { Cash } & & 12,250 \\\hline\end{array}
E)  Interest Payable 11,462.50 Discount on Bond Payable 787.50 Interest Expense 12,250\begin{array}{|l|r|l|}\hline \text { Interest Payable } & 11,462.50 & \\\hline \text { Discount on Bond Payable } & 787.50 & \\\hline \text { Interest Expense } & & 12,250 \\\hline\end{array}

F) C) and D)
G) A) and C)

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_____________________ bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

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Amortizing a bond discount:


A) Allocates a part of the total discount to each interest period.
B) Increases the market value of the Bonds Payable.
C) Decreases the Bonds Payable account.
D) Decreases interest expense each period.
E) Increases cash flows from the bond.

F) A) and C)
G) C) and D)

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A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000 premium. On the interest date five years later, after the bond interest was paid and after 40% of the premium had been written off, the corporation purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is:


A) $0
B) $10,000 gain
C) $10,000 loss
D) $22,000 gain
E) $22,000 loss

F) B) and D)
G) C) and E)

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Sinking fund bonds:


A) Require the issuer to set aside assets in order to retire the bonds at maturity.
B) Require equal payments of both principal and interest over the life of the bond issue.
C) Decline in value over time.
D) Are registered bonds.
E) Are bearer bonds.

F) D) and E)
G) C) and D)

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Explain how to record the issuance and sale of a bond between interest payment dates.

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If a bond is issued at a date other than...

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A company retires its bonds at 105. The carrying value of the bonds at the date of is $103,745. The issuer's journal entry to record the retirement will include a:


A) Debit to Premium on Bonds.
B) Credit to Premium on Bonds.
C) Debit to Discount on Bonds.
D) Credit to Gain on Bond Retirement.
E) Credit to Bonds Payable.

F) All of the above
G) C) and D)

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The process of systematically reducing a bond discount to zero over the life of the bond is called ______________________________.

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amortizing...

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The market value of a bond is equal to:


A) The present value of all future cash payments provided by a bond.
B) The present value of all future interest payments provided by a bond.
C) The present value of the principal for an interest-bearing bond.
D) The future value of all future cash payments provided by a bond.
E) The future value of all future interest payments provided by a bond.

F) D) and E)
G) B) and C)

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A company has bonds outstanding with a par value of $400,000. The unamortized premium on these bonds is $2,000. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?


A) $0 gain or loss
B) $10,000 gain
C) $10,000 loss
D) $14,000 gain
E) $14,000 loss

F) C) and D)
G) A) and B)

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Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.

A) True
B) False

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When a bond sells at a premium:


A) The contract rate is above the market rate.
B) The contract rate is equal to the market rate.
C) The contract rate is below the market rate.
D) It means that the bond is a zero coupon bond.
E) The bond pays no interest.

F) A) and B)
G) A) and C)

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Operating leases are long-term or noncancelable leases in which the lessor transfers all the risks and rewards of ownership to the lessee.

A) True
B) False

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A company issued 9.2%, 10-year bonds with a par value of $100,000. Interest is paid semiannually. The market interest rate on the issue date was 10% and the issuer received $95,016 cash for the bonds. The issuer uses the effective interest method for amortization. On the first semiannual interest date, what amount of discount should issuer amortize?

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Showing 101 - 120 of 189

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