A) Increases. Total stockholders' equity (end of year) 36,000 D) 1.0, Answer: A 12/31/2022 7,000 6,208 792 102,673 166) Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. Answer: C The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year. C) Bonds with greater risk. Explanation: $125,000 6% 1/12 = $625.00 interest expense Accordingly, a firm with a specific credit rating may have bond issues that are not necessarily in line with that credit rating. Answer: D Total liabilities (end of year) 600,000 n = 10 years 2 periods each year = 20 periods. A) Bonds involve less surrendering of ownership control. (Gerard J. Tortora), Auditing and Assurance Services: an Applied Approach (Iris Stuart), Principles of Managerial Finance (Lawrence J. Gitman; Chad J. Zutter), Theories of Personality (Gregory J. Feist), Science Explorer Physical Science (Michael J. 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The Wall Street Journal prime rate. Issuing more shares also means that ownership is now spread across a larger number of investors. $7,000^ 13.59033** = $ 95,132 (rounded) When a bond is trading at less than face value than the coupon rate (stated rate) of the bond will be lower than market rate of interest. Answer: D Higher than the interest rate stated on the bond. 82) Which of the following definitions describes a secured bond? market. Assume, for instance, that the contract rate for a bond issue is set at 12%. While the bonds themselves are not issued by the government, they are typically backed by the full faith of that government. 12/31/2023 7,000 7,961 961 200,000 B) The final carrying value is zero in an amortization schedule for bonds. c. More than the market rate. C) Carrying value times the market interest rate. Total liabilities (end of year) 600,000 . The offers that appear in this table are from partnerships from which Investopedia receives compensation. A) 3%. D) The answer cannot be determined from the information provided. Answer: B Coupon payments from firm bonds may be paid through regular operations, or other indirect sources, such as lines of credit, revolving debt, or even more bonds. The company's normal borrowing rate is 6%. The bonds were issued at: Mark to Market is also known as "Fair Value" accounting. 01/01/2021 $ 8,640,967 Uploaded By joannaaaabanana. a. bond indenture (Hint: Be sure to provide the annual rate rather than the six-month rate.) #3 - Bond Accounting - Discount Bonds Payable. 87) Which of the following is not true regarding callable bonds? Face Value. B) Its stated rate was higher than the prevailing market rate of interest on similar bonds. It helps to explain why companies often issue bonds when they need to finance corporate activities. What is the annual market interest rate on the bonds? What is the face amount of the bonds? A) Matures on a single date. ASK AN EXPERT. What's the difference between face value and issue price? What gain or loss, if any, would X2 record on this date? What is the issue price of the bond (rounded to nearest whole dollar)? C) $538,973. Why Companies Issue Bonds. For investors unfamiliar with the bond market, financial advisors can provide insight and guidance as well as specific investment recommendations and advice. A) At par. D) Increase for bonds issued at a discount and increase for bonds issued at a premium. 5824 12th Avenue. C) 4.0 times. Most bonds have five features when they are issued: issue size, issue date, maturity date, maturity value, and coupon. $2,500^ 8.11090** = $ 20,277 (rounded) She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands. The bonds have an interest of 16 percent. Once bonds are issued, the sixth feature appears, which is yield to maturity. 83) Term bonds are: 183) The times interest earned ratio is calculated as Why did the population expert feel like he was going crazy punchline answer key? C) $7,500 01/01/2021 $ 5,500,000 186) Selected financial data for Channel Co. is provided below: 12/31/2023 7,000 6,160 840 101,833 Explanation: The initial carrying amount of $5,500,000 is greater than the face amount of $5,000,000. The market rate for this type of bond is 6%. C) 6%. D) A credit to cash for $18 million. D) All of the other answer choices are correct. D) $2,000,000. between two counterparties to the current gross market value of Explanation: $600,000/$220,000 = 2.73 (rounded). What is the return on assets for Channel Co.? C) If the bonds were sold at either a discount or a premium. 12/31/2022 7,000 7,889 889 198,114 c. independent of the interest rate stated on the bond. B) Is contained in the balance sheet. a. bond indenture b. bond debenture c. registered bond d. bond coupon. A portion of the bond amortization schedule appears below: B. Explanation: ($7,000/$200,000) 2 payments per year = 7%. Similarly, rising interest rates will result in more bonds trading at a discount of par value. They should also know how much it will earn and when they can expect to get it back. Higher than the rate stated on the bond. $ 214,878 B) At a premium. A) 4%. B) A premium. For example, banks often make companies agree not to issue more debt or make corporate acquisitions until their loans are repaid in full. Record keeping is simple because all bondholders get the same deal. 12/31/2024 7,000 6,110 890 100,943 Perpetual bonds have no maturity date and pay interest forever. Interest payments are made semi-annually. 163) Air Destinations issues a bond due in 10 years with a stated interest rate of 6% and a face value of $500,000. Interest payments are made semi-annually. Answer: D Annual payments of $20,000 begin on December 31, 2021. D) $347,464. For a bond issue which sells for less than its face amount, the market rate of interest is higher than the rate stated on the bond.. Bonds can be sold for more and less than their par values because their interest rates change depending upon the market conditions. A) Fair value of the underlying asset. They may not be appropriate for risk-averse investors seeking a steady stream of income. c. Interest expense remains constant each six months period D) Cannot be determined from the given information. b. bond debenture 81) Which of the following definitions describes a serial bond? 158) The issue price of a bond is equal to: 66) A company issues a $200,000, 5%, six-year note on January 1, 2021. 179) A company's balance sheet reports total liabilities of $2,000,000. A) $4,054.32 A supranational entity may issue bonds to fund its operations, and pay out coupon payments through operational revenue. Explanation: [$100,000/($900,000 + $1,100,000)/2] = 10%, 176) A company reports net income of $250,000. The current market rate of interest is also 10%. Explanation: ($345,639/$8,640,967) 2 payments per year = 8%. B) 7.0 times. Learn more about corporate, government, and municipal bonds. D) Increases expenses, increases liabilities, and decreases assets. 103) The rate quoted in the bond contract used to calculate the cash payments for interest is called the: a. dependent on rates stated on the bond 12/31/2025 7,000 6,057 943 100,000 C) A discount. 06/30/2022 300,000 349,363 49,363 8,783,433 Answer: D 12/31/2021 250,000 218,800 31,200 5,438,800 They function like other bonds, but the issuer can choose to pay them off before the official maturity date. *Table 2: C) 12.5%. 112) Interest expense on bonds payable is calculated as the: D) $1,000, Answer: A C) $359,528. A) $139,609. Bonds have several advantages over bank loans and can be structured in many ways with different maturities. "Investor Bulletin Interest Rate Risk When Interest Rates Go Up, Prices of Fixed-rate Bonds Fall," Page 1. D) 7%. *Table 2: The prior mortgage with the higher interest rate is paid off, and the borrower obtains a new mortgage at the lower rate. If the company issues a $100000 12% 10-year bond that pays interest semiannually when market interest rate is 10% the bond would sell at an amount A) Note. Special services are a pay-as-you-go revenue, with payment made each time the service is provided. C) No gain or loss on retirement. D) Carrying value times the stated interest rate. 14 Quiz. A) $255,667. Like government bonds, these bonds are typically quite highly rated. ^$500,000 6% 1/2 year = $15,000. As short-term securities became a commodity, the money market became a component of the financial market for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less. 12/31/2023 7,000 6,160 840 101,833 D) The return on assets ratio. A) Face amount. A bond functions as a loan between an investor and a corporation. B) Increase in expenses. Explanation: Net income divided by average total assets = 10%. C) The times interest earned ratio. Market Rate of Return 7 % 8 % 7 % 9 % A) Total assets of $527,666.30, and total liabilities of $325,000.00. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. Siemens (SIE), Germany's third-largest publicly traded company by market cap, issued its first digital bond as it looks to reduce paperwork and reach out to potential . 06/30/2021 $ 7,000 $ 7,790 $ 790 195,548 120) 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: D) $833.33. Therefore, the bonds: A) Sold at a premium because the stated interest rate was higher than the market rate. What is the original issue price of the bonds? The district's . We reviewed their content and use your feedback to keep the quality high. A) If the bonds were sold at a discount. 104) The true interest rate used by investors to value a bond is called the: (Use a financial calculator or Excel) Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value **Table 4: 155) The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million, but the market value of the bonds is $36 million. 06/30/2021 $ 400,000 $ 440,000 $ 40,000 8,840,000 D) More than if the bonds had been sold at a premium. Bond financing is often less expensive than equity and does not entail giving up any control of the company. The current market rate of interest is 8%. B) 10%. Explanation: FV ($200,000); PMT ($7,000); I (3%); N (20 periods) = PV ($214,877) (rounded). B) Yield rate. B. C) 18.0 times. 127) Discount-Mart issues $10 million in bonds on January 1, 2021. Interest payments are made semi-annually. A) Matures on a single date. 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