Question 1

When an issuer retires debt of any type before its scheduled maturity date,the transaction is an early extinguishment of debt.

Accepted Answer

A) True 
 B)False

Question 2

Selected financial data for Company A is provided below:  What is the times interest earned ratio for Company A?

Accepted Answer

A)  6.9 times.
B)  3.9 times.
C)  0.3 times.
D)  97.9 times.

Question 3

Which of the following is true for bonds issued at a discount?

Accepted Answer

A)  The stated interest rate is greater than the market interest rate.
B)  The market interest rate is greater than the stated interest rate.
C)  The stated interest rate and the market interest rate are equal.
D)  The stated interest rate and the market interest rate are unrelated.

Question 4

Listed below are five terms followed by a list of phrases that describe or characterize the terms.Match each phrase with the best term placing the letter designating the term in the space provided.
a.Bonds issued at face value
b.Bonds issued at a discount
c.Bonds issued at a premium
d.Stated interest rate
e.Market interest rate
Phrases:
_____ The true interest rate used by investors to value a bond.
_____ The stated interest rate is more than the market interest rate.
_____ The stated interest rate equals the market interest rate.
_____ The stated interest rate is less than the market interest rate.
_____ The rate quoted in the bond contract used to calculate the cash payments for interest.

Accepted Answer

The answer of Listed below are five terms followed by...

Question 5

The price of a bond is equal to:

Accepted Answer

A)  The future value of the face amount only.
B)  The present value of the interest only.
C)  The present value of the face amount plus the present value of the stated interest payments.
D)  The future value of the face amount plus the future value of the stated interest payments.

Question 6

A bond issue with a face amount of $500,000 bears interest at the rate of 7%.The current market rate of interest is 8%.These bonds will sell at a price that is:

Accepted Answer

A)  Equal to $500,000.
B)  More than $500,000.
C)  Less than $500,000.
D)  The answer cannot be determined from the information provided.

Question 7

Ordinarily,the proceeds from the sale of a bond issue will be equal to:

Accepted Answer

A)  The face amount of the bond.
B)  The total of the face amount plus all interest payments.
C)  The present value of the face amount plus the present value of the stream of interest payments.
D)  The face amount of the bond plus the present value of the stream of interest payments.

Question 8

The stated interest rate is the rate quoted in the bond contract used to calculate the cash payments for interest.

Accepted Answer

A) True 
 B)False

Question 9

The times interest earned ratio is calculated as

Accepted Answer

A)  Interest expense / Net income.
B)  Net income / Interest expense.
C)  (Net income + interest expense + tax expense) / Interest expense.
D)  Interest expense / (Net income + interest expense + tax expense) .

Question 10

Which of the following leases is essentially the purchase of an asset with debt financing?

Accepted Answer

A)  An operating lease.
B)  A capital lease.
C)  Both an operating and a capital lease.
D)  Neither an operating lease nor a capital lease.

Question 11

A callable bond allows the borrower to repay the bonds before their scheduled maturity date at a specified call price.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  4%.
B)  3.5%.
C)  7%.
D)  8%.

Question 13

In each succeeding payment on an installment note:

Accepted Answer

A)  The amount that goes to decreasing the carrying value of the note increases.
B)  The amount that goes to decreasing the carrying value of the note decreases.
C)  The amount that goes to decreasing the carrying value of the note is unchanged.
D)  The amounts paid for both interest and principal increase proportionately.

Question 14

At the maturity date,the carrying value will equal the face amount of the bond.

Accepted Answer

A) True 
 B)False

Question 15

THA buys back the bonds for $196,000 immediately after the interest payment on 12/31/2015 and retires them.What gain or loss,if any,would THA record on this date?

Accepted Answer

A)  No gain or loss.
B)  $370 gain.
C)  $4,000 gain.
D)  $1,242 loss.

Question 16

Bonds are the most common form of corporate debt.

Accepted Answer

A) True 
 B)False

Question 17

In each succeeding payment on an installment note:

Accepted Answer

A)  The amount of interest expense increases.
B)  The amount of interest expense decreases.
C)  The amount of interest expense is unchanged.
D)  The amounts paid for both interest and principal increase proportionately.

Question 18

When bonds are issued at a premium (above face amount),the carrying value and the corresponding interest expense increase over time.

Accepted Answer

A) True 
 B)False

Question 19

Losses have the effect of reducing net income,while gains increase net income.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is true for bonds issued at a premium?

Accepted Answer

A)  The stated interest rate is less than the market interest rate.
B)  The market interest rate is less than the stated interest rate.
C)  The stated interest rate and the market interest rate are equal.
D)  The stated interest rate and the market interest rate are unrelated.

Exam 9: Long-Term Liabilities

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

Correct Answer
verified

The times interest earned ratio is calculated as

Correct Answer
verified

Which of the following is true for bonds issued at a discount?

Correct Answer
verified

A bond issue with a face amount of $500,000 bears interest at the rate of 7%.The current market rate of interest is 8%.These bonds will sell at a price that is:

Correct Answer
verified

When bonds are issued at a premium (above face amount),the carrying value and the corresponding interest expense increase over time.

Correct Answer
verified

Which of the following is true for bonds issued at a premium?

Correct Answer
verified

Correct Answer
verified

Losses have the effect of reducing net income,while gains increase net income.

Correct Answer
verified

The price of a bond is equal to:

Correct Answer
verified

Which of the following leases is essentially the purchase of an asset with debt financing?

Correct Answer
verified

When an issuer retires debt of any type before its scheduled maturity date,the transaction is an early extinguishment of debt.

Correct Answer
verified

THA buys back the bonds for $196,000 immediately after the interest payment on 12/31/2015 and retires them.What gain or loss,if any,would THA record on this date?

Correct Answer
verified

In each succeeding payment on an installment note:

Correct Answer
verified

Selected financial data for Company A is provided below: What is the times interest earned ratio for Company A?

Correct Answer
verified

Ordinarily,the proceeds from the sale of a bond issue will be equal to:

Correct Answer
verified

Bonds are the most common form of corporate debt.

Correct Answer
verified

In each succeeding payment on an installment note:

Correct Answer
verified

The stated interest rate is the rate quoted in the bond contract used to calculate the cash payments for interest.

Correct Answer
verified

A callable bond allows the borrower to repay the bonds before their scheduled maturity date at a specified call price.

Correct Answer
verified

At the maturity date,the carrying value will equal the face amount of the bond.

Correct Answer
verified

Exam 9: Long-Term Liabilities

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

Correct AnswerverifiedShow Answer

The times interest earned ratio is calculated as

Correct AnswerverifiedShow Answer

Which of the following is true for bonds issued at a discount?

Correct AnswerverifiedShow Answer

A bond issue with a face amount of $500,000 bears interest at the rate of 7%.The current market rate of interest is 8%.These bonds will sell at a price that is:

Correct AnswerverifiedShow Answer

When bonds are issued at a premium (above face amount),the carrying value and the corresponding interest expense increase over time.

Correct AnswerverifiedShow Answer

Which of the following is true for bonds issued at a premium?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Losses have the effect of reducing net income,while gains increase net income.

Correct AnswerverifiedShow Answer

The price of a bond is equal to:

Correct AnswerverifiedShow Answer

Which of the following leases is essentially the purchase of an asset with debt financing?

Correct AnswerverifiedShow Answer

When an issuer retires debt of any type before its scheduled maturity date,the transaction is an early extinguishment of debt.

Correct AnswerverifiedShow Answer

THA buys back the bonds for $196,000 immediately after the interest payment on 12/31/2015 and retires them.What gain or loss,if any,would THA record on this date?

Correct AnswerverifiedShow Answer

In each succeeding payment on an installment note:

Correct AnswerverifiedShow Answer

Selected financial data for Company A is provided below: What is the times interest earned ratio for Company A?

Correct AnswerverifiedShow Answer

Ordinarily,the proceeds from the sale of a bond issue will be equal to:

Correct AnswerverifiedShow Answer

Bonds are the most common form of corporate debt.

Correct AnswerverifiedShow Answer

In each succeeding payment on an installment note:

Correct AnswerverifiedShow Answer

The stated interest rate is the rate quoted in the bond contract used to calculate the cash payments for interest.

Correct AnswerverifiedShow Answer

A callable bond allows the borrower to repay the bonds before their scheduled maturity date at a specified call price.

Correct AnswerverifiedShow Answer

At the maturity date,the carrying value will equal the face amount of the bond.

Correct AnswerverifiedShow Answer

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