Question 1

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The effective interest rate on bonds is lower than the stated rate when bonds sell

Accepted Answer

When bonds sell above face value, the effective interest rate is lower than the stated rate because the premium received reduces the overall cost of borrowing.

Question 2

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The issuance price of a bond does NOT depend on the

Accepted Answer

The issuance price of a bond does not depend on the method used to amortize the bond discount or premium. It is determined by the face value of the bond, riskiness of the bond, and effective interest rate.

Question 3

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Bonds that have a pledge of company assets are called

Accepted Answer

Secured bonds are backed by company assets, which provide a level of security for the bondholder. This reduces the risk of default and hence, secured bonds are considered as the safer option compared to debenture bonds, registered bonds or convertible bonds. Therefore, the best choice is A) Secured bonds.

Question 4

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Bonds usually sell at a discount when

Accepted Answer

Bonds sell at a discount when the market interest rate is higher than the bond's stated interest rate, making the bond less attractive unless sold for less than its face value.

Question 5

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Callable bonds

Accepted Answer

Callable bonds can be redeemed by the issuer at any time at a specified price. This makes them different from non-callable bonds, which cannot be redeemed by the issuer until the maturity date.

Question 6

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Which of the following is one of the ways bonds can be categorized?

Accepted Answer

Bonds can be categorized based on all of the factors listed in the options. The extent to which bondholders are protected is determined by the bond's credit rating and the presence of collateral or other security measures. How bond interest is paid can be either through periodic payments, known as coupon payments, or an accumulated lump sum at maturity. The maturity of bonds can also vary, with some having short-term maturities of a year or less and others having long-term maturities of 20 or 30 years.

Question 7

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Debentures are

Accepted Answer

Debentures are unsecured bonds, which means they are not backed by any collateral or assets. Therefore, the present value and future value tables can be used to calculate the value of a debenture without considering any security or collateral.

Question 8

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-A 10-year capital lease requiring payments of $25,000 per year is signed. The entry to record the first payment would probably include a

Accepted Answer

The answer of Use the present value and future value...

Question 9

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, Cromwell Corp. leased a mainframe computer from Fairview Company for $42,000 per year (payable on each December 31) for 10 years. The lease is a capital lease, and the current market rate of interest is 12 percent. The market value of the computer is $237,300, which is equal to its discounted present value at 12 percent. Given this data, interest expense on the lease for the first year is

Accepted Answer

To calculate the interest expense on the lease for the first year, we need to find the interest portion of the yearly lease payment. Using the present value table, we can find the present value of the lease payments, which is $237,300. Therefore, the interest portion of the first lease payment can be calculated as follows:

Interest expense = Present value of lease payments x Interest rate
Interest expense = $237,300 x 0.12
Interest expense = $28,476

Therefore, the correct answer is choice B.

Question 10

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-To compute the price to pay for a bond, you use

Accepted Answer

To compute the price to pay for a bond, we need to use both the present value of $1 concept and the present value of an annuity of $1 concept. The present value of $1 is used to calculate the value of the principal amount, and the present value of an annuity of $1 is used to calculate the value of the interest payments. Therefore, we need both concepts to calculate the total value of the bond.

Question 11

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
- The amount of a company's future operating lease payments must be disclosed in the

Accepted Answer

According to the Generally Accepted Accounting Principles (GAAP), the amount of a company's future operating lease payments must be disclosed in the notes to the financial statements. This requirement underlines the importance of providing transparency to the financial statements, allowing users to make informed financial decisions based on the information presented. The present value and future value tables can be used to calculate the value of future lease payments for disclosure purposes.

Question 12

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-When a company issues bonds that promise only to pay the face amount at the maturity date, the bonds issued are called

Accepted Answer

Zero coupon bonds are issued at a discount and do not pay periodic interest, only the face value at maturity.

Question 13

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-On January 1, Cromwell Corp. leased a mainframe computer from Fairview Company for $42,000 per year (payable on each December 31) for 10 years. The lease is a capital lease, and the current market rate of interest is 12 percent. The market value of the computer is $237,300, which is equal to its discounted present value at 12 percent. Given this data, the amount of the lease obligation at the end of the first year is

Accepted Answer

The lease obligation at the end of the first year is the present value of the remaining lease payments. The initial lease obligation is $237,300, which is the present value of all lease payments. After the first payment of $42,000, the remaining obligation is the present value of the remaining 9 payments, which is $223,776.

Question 14

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Which of the following is NOT a synonymous term to the others?

Accepted Answer

Principal, face value and maturity value are all terms that refer to the amount of money that is borrowed or invested initially, whereas future value refers to the value at a future point in time after compound interest has been applied. Thus, it is not synonymous with the other terms.

Question 15

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-High-risk bonds issued by companies in weak financial condition are called

Accepted Answer

High-risk bonds issued by companies in weak financial condition are called junk bonds.

Question 16

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-If the effective interest rate equals the stated interest rate, a bond will sell at

Accepted Answer

If the effective interest rate equals the stated interest rate, then the present value of the bond's future cash flows will be equal to the bond's face value. Therefore, the bond will sell at face value.

Question 17

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Bonds usually sell at a premium when

Accepted Answer

Bonds sell at a premium when the market interest rate is lower than the bond's stated interest rate, making the bond more attractive to investors.

Question 18

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-When do bonds usually sell at a premium?

Accepted Answer

Bonds usually sell at a premium when the stated rate of interest on the bonds is greater than the market rate of interest. This is because investors are willing to pay a higher price for the higher interest payments that the bond will provide. When the market rate of interest is lower than the stated rate of interest on the bond, the bond will sell at a discount since investors can earn a higher return on their money elsewhere.

Question 19

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The effective interest rate on bonds is higher than the stated rate when bonds sell

Accepted Answer

When bonds sell below face value, it means they are sold at a discount, and the effective interest rate on bonds will be higher than the stated rate. This is because the bondholder is paying less than the face value but will still receive the full face value upon maturity, which means they are earning additional interest on the investment. Therefore, the effective interest rate will be higher than the stated rate.

Question 20

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-The effective interest rate on bonds is also called

Accepted Answer

The effective interest rate on bonds is also known as the yield rate, which is the rate of return that investors earn by holding a bond until maturity. It takes into account the coupon rate and any premium or discount on the bond's selling price. The other options (A and C) may also refer to different types of interest rates, but they are not synonymous with the effective interest rate or yield rate on bonds.

Quiz 10: Financing: Long-Term Liabilities

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The effective interest rate on bonds is lower than the stated rate when bonds sell

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The issuance price of a bond does NOT depend on the

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Bonds that have a pledge of company assets are called

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Bonds usually sell at a discount when

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Callable bonds

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Which of the following is one of the ways bonds can be categorized?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Debentures are

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -A 10-year capital lease requiring payments of $25,000 per year is signed. The entry to record the first payment would probably include a

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -To compute the price to pay for a bond, you use

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. - The amount of a company's future operating lease payments must be disclosed in the

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -When a company issues bonds that promise only to pay the face amount at the maturity date, the bonds issued are called

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Which of the following is NOT a synonymous term to the others?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -High-risk bonds issued by companies in weak financial condition are called

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -If the effective interest rate equals the stated interest rate, a bond will sell at

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Bonds usually sell at a premium when

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -When do bonds usually sell at a premium?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The effective interest rate on bonds is higher than the stated rate when bonds sell

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The effective interest rate on bonds is also called