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Questions and Answers
Bonds that are secured by real estate are termed?
Bonds that are secured by real estate are termed?
- serial bonds
- mortgage bonds (correct)
- debentures
- bearer bonds
Bonds issued against the general credit of the borrower are called?
Bonds issued against the general credit of the borrower are called?
- mortgage bonds
- sinking fund bonds
- callable bonds
- debenture bonds (correct)
Bonds that may be exchanged for ordinary shares at the option of the bondholders are called?
Bonds that may be exchanged for ordinary shares at the option of the bondholders are called?
- convertible bonds (correct)
- callable bonds
- share bonds
- options
Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called?
Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called?
Bonds that have specific assets of the issuer pledged as collateral are?
Bonds that have specific assets of the issuer pledged as collateral are?
A bond secured by specific assets set aside to redeem the bonds is called?
A bond secured by specific assets set aside to redeem the bonds is called?
The interest rate investors demand for loaning funds is the?
The interest rate investors demand for loaning funds is the?
Companies with good credit ratings use ___________________ bonds extensively?
Companies with good credit ratings use ___________________ bonds extensively?
What is the selling price of a bond with a face value of HK $200,000 and a quoted price of 102â…›?
What is the selling price of a bond with a face value of HK $200,000 and a quoted price of 102â…›?
If a bond has a face value of €1,000 and a quoted price of 98, what amount is it selling for?
If a bond has a face value of €1,000 and a quoted price of 98, what amount is it selling for?
When the market interest rate is higher than the contractual interest rate, how will the bonds sell?
When the market interest rate is higher than the contractual interest rate, how will the bonds sell?
What will happen to the total cost of borrowing if bonds are issued at a discount?
What will happen to the total cost of borrowing if bonds are issued at a discount?
A €10,000, 6%, 10-year bond pays interest annually and the market interest rate is 5%. How will this bond sell?
A €10,000, 6%, 10-year bond pays interest annually and the market interest rate is 5%. How will this bond sell?
What is the gain on redemption for a bond with a carrying value of HK $590,000 and a redemption price of HK $600,000?
What is the gain on redemption for a bond with a carrying value of HK $590,000 and a redemption price of HK $600,000?
If the face value of a bond is HK $200,000 and the bonds are sold at a premium, how does it affect the overall borrowing cost?
If the face value of a bond is HK $200,000 and the bonds are sold at a premium, how does it affect the overall borrowing cost?
The selling price of a €10,000, 5-year bond will be less than €10,000 if:
The selling price of a €10,000, 5-year bond will be less than €10,000 if:
What type of financial outcome is realized when bonds are redeemed at a higher price than their carrying value?
What type of financial outcome is realized when bonds are redeemed at a higher price than their carrying value?
What is the correct method to calculate the gain or loss on bond redemption?
What is the correct method to calculate the gain or loss on bond redemption?
What loss would Brooks Company report on its 2020 income statement after redeeming the bonds?
What loss would Brooks Company report on its 2020 income statement after redeeming the bonds?
If Choe Company redeems its bonds at 101, what is the resulting gain?
If Choe Company redeems its bonds at 101, what is the resulting gain?
What is the cash amount Lane would pay its bondholders if the bonds are retired at 103?
What is the cash amount Lane would pay its bondholders if the bonds are retired at 103?
How is the carrying value of bonds typically calculated?
How is the carrying value of bonds typically calculated?
What does a loss on bond redemption indicate?
What does a loss on bond redemption indicate?
What factor influences the gain or loss on bond redemption?
What factor influences the gain or loss on bond redemption?
What is the redemption loss incurred by Robin Corporation when retiring its bonds?
What is the redemption loss incurred by Robin Corporation when retiring its bonds?
What happens to the principal balance of a long-term note payable over time?
What happens to the principal balance of a long-term note payable over time?
How are mortgage notes payable classified in the statement of financial position?
How are mortgage notes payable classified in the statement of financial position?
What component of an installment payment increases over the term of a mortgage note payable?
What component of an installment payment increases over the term of a mortgage note payable?
What is the process to determine the total amount payable when redeeming bonds at a premium?
What is the process to determine the total amount payable when redeeming bonds at a premium?
Which financial statement section reports liabilities like mortgage notes payable?
Which financial statement section reports liabilities like mortgage notes payable?
What effect does the issuance of bonds at a premium have on loss during redemption?
What effect does the issuance of bonds at a premium have on loss during redemption?
What is included in the interest expense of each installment payment for a fixed interest rate mortgage?
What is included in the interest expense of each installment payment for a fixed interest rate mortgage?
What is the total amount of noncurrent liabilities reported for Otam Corp. at the end of 2020?
What is the total amount of noncurrent liabilities reported for Otam Corp. at the end of 2020?
How is the debt to assets ratio for Barker Co. calculated?
How is the debt to assets ratio for Barker Co. calculated?
What signifies a lease term of less than one year on the statement of financial position?
What signifies a lease term of less than one year on the statement of financial position?
Which statement is true regarding the recording of leases?
Which statement is true regarding the recording of leases?
If Otam Corp. has €1,650,000 in Bonds Payable, what is the primary component of its noncurrent liabilities?
If Otam Corp. has €1,650,000 in Bonds Payable, what is the primary component of its noncurrent liabilities?
Which amount corresponds to the current liabilities of Barker Co.?
Which amount corresponds to the current liabilities of Barker Co.?
What is the correct total of current and noncurrent liabilities for Otam Corp. based on the provided information?
What is the correct total of current and noncurrent liabilities for Otam Corp. based on the provided information?
To calculate the debt to assets ratio, which values are required?
To calculate the debt to assets ratio, which values are required?
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Study Notes
Bond Types
- Bonds secured by real estate are called mortgage bonds.
- Bonds issued against the general credit of the borrower are called debenture bonds.
- Bonds that can be exchanged for ordinary shares at the bondholder's option are called convertible bonds.
- Bonds that can be retired at a stated dollar amount before maturity at the issuer's option are called callable bonds.
- Bonds with specific assets pledged as collateral are called secured bonds.
- Bonds secured by specific assets set aside to redeem the bonds are called sinking fund bonds.
Bond Pricing
- The interest rate investors demand for loaning funds is the market interest rate.
- Bonds sell at a discount when the market interest rate is greater than the contractual interest rate.
- The total cost of borrowing is increased when bonds are issued at a discount.
- Bonds sell at a premium when the market interest rate is less than the contractual interest rate.
Bond Redemption
- Bond redemption occurs when a company buys back its bonds before maturity.
- A gain on bond redemption occurs when the carrying value of the bond is less than the redemption price.
- A loss on bond redemption occurs when the carrying value of the bond is greater than the redemption price.
Notes Payable
- Long-term notes payable are reported as both current and noncurrent liabilities.
- The portion of a note payable expected to be paid in the next year is reported as a current liability.
- Each installment payment on a mortgage note payable includes interest and a payment on the principal.
- With each installment payment, the portion allocated to interest expense decreases and the portion allocated to principal increases.
Leverage and Debt Ratios
- Companies use leverage to increase their return on equity.
- The debt to assets ratio is calculated by dividing total liabilities by total assets.
Lease Accounting
- The appearance of a Leased Liability account on the statement of financial position indicates a lease term of more than one year.
- The portion of a lease liability expected to be paid in the next year is reported as a current liability.
Financial Statement Presentation
- Noncurrent liabilities are reported on the statement of financial position after current liabilities.
- Current liabilities are obligations that are expected to be paid within one year.
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