The par value of the bond is the amount to be paid at maturity, but the face amount of the bond is the current issue price of the bond.
True / False
False
Unlike installment notes or notes payable which involve a single lender, bonds offer companies the opportunity to borrow money from several lenders, rather than one.
True / False
True
A company can increase its rate of return on common shareholders' equity through issuing bonds rather than selling more shares of common stock.
True / False
True
An advantage of issuing bonds over stock, as a means of financing, is that bond interest is a deductible expense but dividends to shareholders are not.
True / False
True
When the bonds in a bond issue have different maturity dates, the bonds are known as serial bonds.
True / False
True
Registered bonds provide more security than bearer bonds, should the bondholder lose the bonds by accident or theft.
True / False
True
One reason why coupon bonds are seldom issued anymore by corporations is that there is no readily available record of who actually receives the interest.
True / False
True
Convertible bonds contain an exercisable option for the issuer.
True / False
False
The formal name of the contract between the issuing company and its bondholders is called a debenture.
True / False
False
It is the responsibility of the underwriter for a bond issue to monitor the corporation's actions to ensure that the corporation fulfills its obligations as stated in the bond indenture.
True / False
False
Market rate tends to go up when the demand for bonds decreases or the supply increases.
True / False
True
When the market rate of interest is greater than the contract rate of bond interest, the bonds will sell for an amount in excess of the bond par value.
True / False
False
The Discount on Bonds Payable will appear as a contra-liability account in the long-term liability section of the balance sheet.
True / False
True
When a bond with a contract rate of bond interest of 10% is sold at a discount, the bondholder's rate of return will be greater than 10%.
True / False
True
Straight-line amortization is an acceptable method for amortizing bond discounts when the term of the bonds is less than five years.
True / False
False
The effective-interest method (or interest method) of amortizing bond discount yields a constant rate of interest.
True / False
True
When bonds are sold at a premium, the carrying amount of the bonds payable will become progressively larger as the bonds near the maturity date.
True / False
False
When five-year bonds are sold with an 8% contract rate of interest, with interest payments made semi-annually, the present value factor that is used to determine the present value of the bonds would be at 10 time periods for one-half the market rate of interest on the date of the bond issue.
True / False
True
When a bond with a contract rate of bond interest of 10% is sold at a premium, the corporation's cost to borrow is less than 10%.
True / False
True
When bonds are sold between interest dates, the purchaser pays the accrued interest to the bond issuer.
True / False
True
When bonds are redeemed at a price below the carrying amount of the bonds, the gain is credited to contributed capital.
True / False
False
A non-interest-bearing note is desired by issuers who wish to avoid periodic interest payments.
True / False
True
When an installment note of equal payments includes interest, the unpaid principal is reduced at a faster rate than if the installment note required equal payments on principal plus interest.
True / False
False
To determine the amount of equal payments which would include principal and interest on an installment note, divide the face value of the note (the original principal) by the appropriate present value factor from a present value table for a single amount.
True / False
False
The mortgage and the mortgage contract are not the same document.
True / False
True
A series of annual payments at equal time intervals is called an _______________.
ANNUITY
A written promise to pay an amount identified as par value, along with interest at a stated annual amount, and usually issued in denominations of $1,000, is called a _______________.
BOND
A document containing bond specifics such as the issuer's name, the bonds' par value, the contract interest rate, and the maturity date is called the bond _______________.
CERTIFICATE
The contract between the bond issuer and the bondholders is called the bond _______________.
INDENTURE
The amount that the bond issuer agrees to pay at maturity and the amount on which interest payments are based is called the face amount, face value, or _______________ value
PAR
The interest rate specified in the bond indenture is called the coupon rate, stated rate, nominal rate, or the _______________ rate.
CONTRACT
Another term for unregistered bonds is _______________ bonds.
BEARER
Bonds owned by investors whose names and addresses are recorded by the issuing company are called _______________ bonds.
REGISTERED
Bonds that can be exchanged by the bondholders for a fixed number of shares of the issuing company's common shares are called _______________ bonds.
CONVERTIBLE
Bonds that give the issuer an option of retiring them at a stated dollar amount prior to maturity are called _______________ bonds.
CALLABLE
Bonds that have interest coupons attached to their certificates are called _______________ bonds.
COUPON
Bonds that have specific assets of the issuing company pledged as collateral are called _______________ bonds.
SECURED
Bonds that mature at different dates with the result that the entire debt is repaid gradually over a number of years are called _______________ bonds.
SERIAL
Bonds that require the issuing company to make deposits to a separate pool of assets are called _______________ bonds.
SINKING FUND
Bonds that are backed only by the issuer's general credit standing are called _______________ bonds.
UNSECURED
Bonds that are scheduled for payment (mature) at a single specified date are called _______________ bonds
TERM
The interest rate that borrowers are willing to pay and that lenders are willing to earn for a particular bond at its risk level is called the _______________ rate.
MARKET
The difference between the par value of a bond and its lower issue price, and which arises when the contract rate is lower than the market rate, is called the _______________ on bonds payable.
DISCOUNT
The difference between the par value of a bond and its higher issue price, which arises when the contract rate is higher than the market rate, is called the on _______________ bonds.
PREMIUM
Bonds with a face value of $1,000,000 which were issued at a bond discount of $13,000 have a bond _______________ amount of $987,000.
CARRYING
The _______________ interest method is a method that allocates interest expense over the life of a bond in a way that yields a constant rate of interest.
EFFECTIVE
The _______________ method of interest allocation is a method that allocates an equal amount of interest to each accounting period in the life of bonds.
STRAIGHT-LINE
An _______________ note is an obligation requiring a series of periodic payments to the lender.
INSTALLMENT
A _______________ is a legal agreement that protects a lender by giving the lender the right to be paid out of the cash proceeds from the sale of the borrower's specific assets identified in the agreement.
MORTGAGE
A series of annual payments at equal time intervals.
Annuity
A written promise to pay an amount identified as the par value of the bond, along with interest at a stated annual amount; usually issued in denominations of $1,000.
Bond
The contract between the bond issuer and the bondholders; it identifies the rights and obligations of the parties.
Bond indenture
A lease that gives the lessee the risks and benefits normally associated with ownership.
Capital lease
The net amount at which bonds are reflected on the balance sheet; equals the par value of the bonds less any unamortized discount or plus any unamortized premium; also called the book value of the bonds.
Carrying amount
Bonds that can be exchanged by the bondholders for a fixed number of shares of the issuing company's common shares.
Convertible bonds
The difference between the par value of a bond and its lower issue price that arises when the contract rate is lower than the market rate.
Discount on bonds payable
An obligation requiring a series of periodic payments to the lender.
Installment note
A legal agreement that protects a lender by giving the lender the right to be paid out of the cash proceeds from the sale of the borrower's specific assets identified in the agreement.
Mortgage
The difference between the par value of a bond and its higher issue price that arises when the contract rate is higher than the market rate.
Premium on bonds
Bonds that have specific assets of the issuing company pledged as collateral.
Secured bonds
Bonds that require the issuing company to make deposits to a separate pool of assets; the bondholders are repaid at maturity from the assets in this pool.
Sinking fund bonds
Bonds that are scheduled for payment (mature) at a single specified date.
Term bonds
Bonds that are made payable to whoever holds them (called the bearer); also called unregistered bonds.
Bearer bonds
A document containing bond specifics such as the issuer's name, the bonds' par value, the contract interest rate, and the maturity date.
Bond certificate
Bonds that give the issuer an option of retiring them at a stated dollar amount prior to maturity; also called redeemable bonds.
Callable bonds
A lease that is not a capital lease.
Operating lease
The interest rate specified in the bond indenture; it is multiplied by the par value of the bonds to determine the amount of interest to be paid each year; also called the coupon rate, the stated rate, or the nominal rate.
Contract rate
Bonds that have interest coupons attached to their certificates; the bondholders detach the coupons when they mature and present them to a bank or broker for collection.
Coupon bonds
Allocates interest expense over the life of the bonds in a way that yields a constant rate of interest. Interest expense for a period is found by multiplying the balance of the liability at the beginning of the period by the bonds' original market rate; also called interest method.
Effective interest method
The interest rate that borrowers are willing to pay and that lenders are willing to earn for a particular bond at its risk level.
Market rate
The amount that the bond issuer agrees to pay at maturity and the amount on which interest payments are based; also called the face amount or face value.
Par value of a bond
Bonds owned by investors whose names and addresses are recorded by the issuing company; the interest payments are made with cheques to the registerd owners.
Registered bonds
Bonds that mature at different dates with the result that the entire debt is repaid gradually over a number of years.
Serial bonds
A method that allocates an equal amount of interest to each accounting period in the life of bonds.
Straight-line method (interest allocation)
Bonds that are backed by the issuer's general credit standing. These bonds are almost always more risky than secured bonds; also called debentures.
Unsecured bonds
