Question 1

Use the following information taken from a financial website to answer the following question(s):

-Refer to the information above.Is IBM's coupon rate higher or lower than the market rate of interest for bonds with an A rating?

Accepted Answer

The answer of Use the following information taken from a...

Question 2

Use the following information taken from a financial website to answer the following question(s):

-Refer to the information above.Is Ford MTR's coupon rate higher or lower than the market rate of interest for bonds with a CCC rating?

Accepted Answer

The answer of Use the following information taken from a...

Question 3

Use the following information taken from a financial website to answer the following question(s):

-Refer to the information above.Is the carrying value of IBM's bonds higher or lower than the face value of its bonds?

Accepted Answer

The carrying value of IBM's bonds is higher than the face value of its bonds because the bonds are being sold at a premium.

Question 4

On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest SEMIANNUALLY  on December 31 and June 30.How much cash did Ace receive when the bonds were issued?

Accepted Answer

The bonds were issued at 102, which means they were sold for 102% of their face value. The face value of the bonds is $10 million, so 102% of $10 million is $10.2 million. Therefore, Ace received $10.2 million in cash when the bonds were issued.

Question 5

Use the following information taken from a financial website to answer the following question(s):

-Refer to the information above.Will the carrying value of Ford MTR's bonds increase or decrease with each interest payment?

Accepted Answer

The carrying value of bonds issued at a discount increases with each interest payment as the discount is amortized over the life of the bond.

Question 6

Amortizing a bond discount will ________.

Accepted Answer

Amortizing a bond discount decreases the unamortized bond discount over time as the discount is gradually expensed and the carrying value of the bond increases to its face value at maturity.

Question 7

On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest semiannually on December 31 and June 30.How much cash will Ace pay when the bonds mature? Assume that the final interest payment is made separately.

Accepted Answer

At maturity, Ace Electronics will pay back the principal amount of the bonds, which is $10,000,000, regardless of the issue price.

Question 8

On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest semiannually on December 31 and June 30.How much cash will Ace pay on December 31,2011,the first interest payment date?

Accepted Answer

The interest payment is calculated as 8% of $10 million, which equals $800,000 annually. Since interest is paid semiannually, the payment on December 31, 2011, would be half of the annual interest, which is $400,000.

Question 9

Z Biz sold a 5-year,$1,000,zero-interest bond for $497.18 when the market rate of interest was 15%.The annual interest payment is ________.

Accepted Answer

Zero-interest bonds, also known as zero-coupon bonds, do not have annual interest payments. Instead, they are sold at a discount to their face value, and the interest is effectively paid at maturity when the bond is redeemed for its full face value.

Question 10

On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest semiannually on December 31 and June 30.The bonds sold at 102 because ________.

Accepted Answer

The bonds sold at a premium (102% of face value) because the coupon rate (8%) was higher than the market rate of interest at the time of issuance, indicating that investors were willing to pay more for a higher return.

Question 11

On June 30,2011,Xanadu Corporation issued $200,000 of 10-year,8% bonds at 99.The bonds pay interest semi-annually on June 30 and December 31.These bonds sold at 99 because the ________.

Accepted Answer

Bonds sold at a discount (less than par value) when the stated interest rate is less than the market rate. In this case, the bonds were sold at 99, which is less than the face value of $200,000, indicating that the market interest rate is higher than the stated 8% rate.

Question 12

On June 30,2011,Xanadu Corporation issued $200,000 of 10-year,8% bonds at 99.The bonds pay interest semi-annually on June 30 and December 31.How much cash did Xanadu receive when the bonds were issued?

Accepted Answer

Xanadu received 99% of $200,000, which is $198,000 ($200,000 x 0.99 = $198,000).

Question 13

Use the following information taken from a financial website to answer the following question(s):

-Refer to the information above.Will the carrying value of IBM's bonds increase or decrease with each interest payment?

Accepted Answer

The carrying value of bonds decreases with each interest payment if the bonds were issued at a premium, as the premium is amortized over the life of the bond. Conversely, for bonds issued at a discount, the carrying value increases as the discount is amortized until it reaches the face value at maturity. However, without specific information about whether the bonds were issued at a premium, discount, or par, the general principle is that the carrying value adjusts towards the face value over time through interest payments.

Question 14

Use the following information taken from a financial website to answer the following question(s):

-Refer to the information above.Will Ford MTR's annual interest expense be higher or lower than the amount of cash paid to investors for interest?

Accepted Answer

Ford MTR's annual interest expense will be higher than the amount of cash paid to investors for interest because the interest expense includes the amortization of bond issuance costs.

Question 15

Use the following information taken from a financial website to answer the following question(s):

-Refer to the information above.Will IBM's annual interest expense be higher or lower than the amount of cash paid to investors for interest?

Accepted Answer

The information provided shows that IBM has reported $1,332 million in interest expense and $938 million in cash paid to investors for interest. Since cash paid to investors is lower than the reported interest expense, the answer is B: lower.

Question 16

On January 1,2011,Alpha Company issued $1,000,000 of 5%,20-year bonds to buy a new computerized accounting system.The market rate of interest was 6%.The bonds pay interest annually on December 31.Alpha uses the effective interest method of amortization.With each annual interest payment the unamortized ________ will grow ________.

Accepted Answer

When using the effective interest method of amortization with bonds issued at a discount (as indicated by the market rate of interest being higher than the bond's coupon rate), the unamortized discount decreases over time because the interest expense recognized each period is higher than the cash paid for interest, reducing the discount.

Question 17

Use the following information taken from a financial website to answer the following question(s):

-Refer to the information above.Is the carrying value of Ford MTR's bonds higher or lower than the face value of its bonds?

Accepted Answer

The carrying value of Ford MTR's bonds is listed as $87,421 million, while the face value is listed as $89,415 million. Therefore, the carrying value is lower than the face value.

Question 18

Amortizing a bond premium will ________.

Accepted Answer

Amortizing a bond premium decreases the unamortized bond premium and also decreases the carrying value of the bond over time, as the premium is expensed.

Question 19

On June 30,2011,Xanadu Corporation issued $200,000 of 10-year,8% bonds at 99.The bonds pay interest semi-annually on June 30 and December 31.How much cash will bondholders receive on December 31,2011,the first interest payment date?

Accepted Answer

The answer of On June 30,2011,Xanadu Corporation issued $200,000 of...

Question 20

Amortization is the process of ________.

Accepted Answer

Amortization is the process of gradually adjusting the carrying value of a bond over its life to reflect the interest expense and the premium or discount at issuance. It is not related to depreciating tangible long-term assets. Therefore, options A, B, and D are incorrect.

Quiz 7: Accounting for Liabilities

Use the following information taken from a financial website to answer the following question(s) : -Refer to the information above.Is IBM's coupon rate higher or lower than the market rate of interest for bonds with an A rating?

Use the following information taken from a financial website to answer the following question(s) : -Refer to the information above.Is Ford MTR's coupon rate higher or lower than the market rate of interest for bonds with a CCC rating?

Use the following information taken from a financial website to answer the following question(s) : -Refer to the information above.Is the carrying value of IBM's bonds higher or lower than the face value of its bonds?

On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest SEMIANNUALLY on December 31 and June 30.How much cash did Ace receive when the bonds were issued?

Use the following information taken from a financial website to answer the following question(s) : -Refer to the information above.Will the carrying value of Ford MTR's bonds increase or decrease with each interest payment?

Amortizing a bond discount will ________.

On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest semiannually on December 31 and June 30.How much cash will Ace pay when the bonds mature? Assume that the final interest payment is made separately.

On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest semiannually on December 31 and June 30.How much cash will Ace pay on December 31,2011,the first interest payment date?

Z Biz sold a 5-year,$1,000,zero-interest bond for $497.18 when the market rate of interest was 15%.The annual interest payment is ________.

On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest semiannually on December 31 and June 30.The bonds sold at 102 because ________.

On June 30,2011,Xanadu Corporation issued $200,000 of 10-year,8% bonds at 99.The bonds pay interest semi-annually on June 30 and December 31.These bonds sold at 99 because the ________.

On June 30,2011,Xanadu Corporation issued $200,000 of 10-year,8% bonds at 99.The bonds pay interest semi-annually on June 30 and December 31.How much cash did Xanadu receive when the bonds were issued?

Use the following information taken from a financial website to answer the following question(s) : -Refer to the information above.Will the carrying value of IBM's bonds increase or decrease with each interest payment?

Use the following information taken from a financial website to answer the following question(s) : -Refer to the information above.Will Ford MTR's annual interest expense be higher or lower than the amount of cash paid to investors for interest?

Use the following information taken from a financial website to answer the following question(s) : -Refer to the information above.Will IBM's annual interest expense be higher or lower than the amount of cash paid to investors for interest?

Use the following information taken from a financial website to answer the following question(s) : -Refer to the information above.Is the carrying value of Ford MTR's bonds higher or lower than the face value of its bonds?

Amortizing a bond premium will ________.

On June 30,2011,Xanadu Corporation issued $200,000 of 10-year,8% bonds at 99.The bonds pay interest semi-annually on June 30 and December 31.How much cash will bondholders receive on December 31,2011,the first interest payment date?

Amortization is the process of ________.