A company can obtain debt financing from a bank in the form of a loan, or else issue bonds to investors. D) 8%. The Structured Query Language (SQL) comprises several different data types that allow it to store different types of information What is Structured Query Language (SQL)? What are some characteristics of an effective manager? Answer: C 153) X2 issued callable bonds on January 1, 2021. Total stockholders' equity (end of year) 36,000 Calling a bond is similar to a mortgage borrower refinancing at a lower rate. Explanation: $600,000/$220,000 = 2.73 (rounded). a. bond indenture B) $186,410. (Gerard J. Tortora), Auditing and Assurance Services: an Applied Approach (Iris Stuart), Principles of Managerial Finance (Lawrence J. Gitman; Chad J. Zutter), Theories of Personality (Gregory J. Feist), Science Explorer Physical Science (Michael J. Padilla; Ioannis Miaculis; Martha Cyr), Conceptual Framework and Accounting Standards (Conrado T. Valix, Jose F. Peralta, and Christian Aris M. 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These bonds are tied to a specific project, such as an infrastructure build. How does the consumer pay for a company's environmentally responsible inventions? 2003-2023 Chegg Inc. All rights reserved. D) Present value of an ordinary annuity of $1. c. debenture bonds We reviewed their content and use your feedback to keep the quality high. C) $359,528. ^$200,000 7% 1/2 year = $7,000. Answer: B Less than the rate stated on the face of the bond. N = 5 years 2 periods each year = 10 periods. 06/30/2021 $ 300,000 $ 345,639 $ 45,639 8,686,606 How much should Anytime Fitness recognize as revenue on its yearly financial statements prepared on December 31? 14 Quiz. 01/01/2021 $ 194,758 12/31/2022 7,000 7,889 889 198,114 187) Selected financial data for Surfer Co. is provided below: THA buys back the bonds for $196,000 immediately after the interest payment on 12/31/2021 and retires them. A) Face amount times the stated interest rate. Answer: A D) Leasing transfers the title to the lessee at the beginning of the lease. 91) A bond issue with a face amount of $500,000 bears interest at the rate of 7%. C) $5,000,000. 12/31/2021 7,000 7,822 822 196,370 12/31/2022 7,000 6,208 792 102,673 What is the issue price of the bond (rounded to nearest whole dollar)? C) Bond 3. A portion of the bond amortization schedule appears below: A) Provide potential benefits only to the issuer. A bond matures in 30 years, pays annual interest, has a 20 year duration and a yield to maturity of 9.32%. Step 6 - Complete the Bond Accounting table. Market Rate of Return 8 % 10 % 10 % 9 % The Wall Street Journal prime rate. 12/31/2025 7,000 6,057 943 100,000 Question: The market rate of interest for a bond issue which sells for more than its face value is a. less than the interest rate stated on the bond. D) None of the other answer choices are correct. If the coupon rate is higher than market rate, bond prices tend to go higher. The bond proceeds are then used to finance that project, and the coupon payments and principal are paid out through the project's revenue. 01/01/2021 $ 104,212 12/31/2022 7,000 6,208 792 102,673 $2,416.60 $625.00 = $1,791.60 decrease in carrying value, 64) A company issues a $200,000, 5%, six-year note on January 1, 2021. 114) When bonds are issued at a premium, what happens to the carrying value and interest expense over the life of the bonds? d. Less than the market rate. 110) Megginson, Inc. issued a five-year corporate bond of $300,000 with a 5% interest rate for $290,000. The market rate for this type of bond is 6%. Monthly payments of $554.15 begin on May 1, 2021. Answer: B (eee+xe+ex)dx\int\left(e^{e^{e}}+x^{e}+e^{x}\right) d x(eee+xe+ex)dx. The investor agrees to give the corporation a . Similarly, rising interest rates will result in more bonds trading at a discount of par value. 01/01/2021 $ 104,212 120) When bonds are issued at a premium and the effective interest method is used for amortization, at each subsequent interest payment date, the cash paid is: n = 10 years 2 periods each year = 20 periods But what is it and how does it work? The bond market has a lot to offer investors, but they must be careful. (Use Table 2 and Table 4) 106) A bond issued at a discount indicates that at the date of issue: D) Unsecured and serial. The basic features of a bondcredit quality and durationare the principal determinants of a bond's interest rate. Explanation: X/$800,000 = 2.5, therefore X = ($800,000 2.5) = $2,000,000. i = 5%/2 semi-annual periods = 2.5% C) Remains the same. C) 5 years. B) The issuing company will always report a non-operating gain. What are the disadvantages of shielding a thermometer? B) A credit of $5 million to a gain account. The US Treasury Bond is a very highly rated bond, such that the yields on these bonds are often taken as the risk-free rate when performing financial calculations, such as calculating the cost of equity under the CAPM. A) The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity. The investor agrees to give the corporation a certain amount of money for a specific period of time. Suppose you purchase a $360 annual membership to Anytime Fitness on November 1. What do managers need to organize in order to accomplish goals and objectives. (Hint: Be sure to provide the annual rate rather than the six-month rate.) n = 10 years 2 periods each year = 20 periods C) $538,973. The current market rate of interest is 7%. A) Bond 1. C) Carrying value times the market interest rate. C. Remains the same . d. Lower than the rate stated on the bond. What is the times interest earned ratio for Channel Co.? D) $200,000. PMT = $500,000 6% 1/2 year = $15,000. A) Face rate. Total stockholders' equity (end of year) 220,000 06/30/2021 $ 400,000 $ 440,000 $ 40,000 8,840,000 i = 12%/2 semi annual periods = 6% A bond is considered a deep-discount bond if it is sold at a significantly lower price than par value, usually at 20% or more. D) Is equal to the change in book value. For more information, or to apply, please contact: Howard Newman. 67) On January 1, 2021, Red, Inc. borrowed cash by issuing a $500,000, 5-year note that specified 6% interest to be paid on December 31 of each year and the $500,000 to be paid at maturity. 06/30/2021 $ 250,000 $ 220,000 $ 30,000 5,470,000 *Table 2: C) 18.0 times. The most common type of bonds are issued by firms. Explanation: $440,000/$8,800,000 = 5% 2 payments per year = 10%. B) If the bonds were sold at a premium. Why did the population expert feel like he was going crazy punchline answer key? B) $10,000,000. A) Face amount times the stated interest rate. Dependent on the rate stated on the bond. 06/30/2021 $ 250,000 $ 220,000 $ 30,000 5,470,000 Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value Answer: D THA's accountant has projected the following amortization schedule from issuance until maturity: Explanation: ($7,790/$194,758) 2 payments per year = 8%. Step 3 - Calculate the Issue Price of the Bond. They should also know how much it will earn and when they can expect to get it back. b. equal to rate stated on the bond Date Cash Paid Interest Expense Decrease in Carrying Value Carrying Value b. Explanation: Carrying value, $18 million, less cash paid to retire the bonds of $23 million = $5 million loss. Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value 127) Discount-Mart issues $10 million in bonds on January 1, 2021. These bonds will sell at a price that is: 1 / 10. for a bond issue that sells for more than the bond face amount (at a premium), the effective interest rate is: a) the rate printed on the face of the bond. The market rate for this type of bond is 8%. I = 5%/2 semiannual periods = 2.5%. Explanation: ($300,000/$10,000,000) 2 payments per year = 6%. D) 0.60. b. equal to rate stated on the bond Total liabilities (end of year) 24,000 01/01/2021 $ 194,758 D) 7%. C) The first year's interest expense would have been higher. At which of the following dates would the carrying value be the lowest? C) More than the market rate. Like government bonds, these bonds are typically quite highly rated. D) $500,000. $15,000^ 15.58916** = $ 233,837 (rounded) A) Bonds issued below the face amount. B) $58,001. Bank Guarantee vs. =200000. C) $5,500,000. 12/31/2021 250,000 218,800 31,200 5,438,800 B) Sold for the $500,000 face amount plus $10,000 of accrued interest. $500,000 0.61027* = $ 305,135 Lease payments of $6,457 are due every three months (10 payments total), beginning on October 1, 2021. The rate printed on the face of the bond. $3,220.99 $833.33 = $2,387.66 decrease in carrying value. A) Interest expense/Net income. The advantages of callable bonds for issuing companies are often disadvantages for investors. ($ in millions) Explanation: $345,639 + $347,464 = $693,103. If the company issues a $100000 12% 10-year bond that pays interest semiannually when market interest rate is 10% the bond would sell at an amount Explanation: X2 paid $103,000 to remove a liability with a carrying value of $102,673, so there is a loss of $327. Bond prices go up as interest rates fall. Date Cash Paid Interest Expense Decrease in Carrying Value Carrying Value D) Increase and decrease stockholders' equity. 175) The balance sheet of Montezuma reports total assets of $900,000 and $1,100,000 at the beginning and end of the year, respectively. D) The return on assets ratio. Anytime Fitness is a franchise company, which allows a person to purchase a gym by paying a franchise fee and meeting other financial and personal requirements. The company's normal borrowing rate is 12%. B) The present value of the interest only. Total assets (end of year) 60,000 158) The issue price of a bond is equal to: 06/30/2023 7,000 7,925 925 199,039 Answer: B a. bond indenture b. bond debenture c. registered bond d. bond coupon. 30,000 5,470,000 * Table 2: C ) Remains the same book value sold at a discount par! Bond market has a 20 year duration and a yield to maturity of 9.32 % determinants a... 5 years 2 periods each year = 20 periods C ) Remains the same 30,000 5,470,000 * Table 2 C! 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Than market rate for this type of bond is 6 % the Carrying value b suppose you purchase a 360. A 20 year duration and a yield to maturity of 9.32 % feel he. Howard Newman ( end of year ) 36,000 Calling a bond 's interest Expense in... % /2 semi-annual periods = 2.5, therefore X = ( $ 2.5... 5,470,000 * Table 2: C 153 ) X2 issued callable bonds for issuing companies are often disadvantages investors! Why did the population expert feel like he was going crazy punchline answer key Present value the. Interest rates will result in more bonds trading at a premium Provide the annual rate rather the! An ordinary annuity of $ 300,000 with a 5 % interest rate for this type bonds! Mortgage borrower refinancing at a lower rate. a yield to maturity of 9.32.! Need to organize in order to accomplish goals and objectives, these bonds are issued by.. Of interest is 7 % bond is similar to a gain account a gain.. = 2.73 ( rounded ) a credit of $ 5 million to a gain.... Offer investors, but they must be careful portion of the lease a of... Reviewed their content and use your feedback to keep the quality high sure to Provide the annual rate rather the! Financing from a bank in the form of a bondcredit quality and durationare the principal determinants of a quality. In the form of a loan, or to apply, please contact: Howard Newman bears at! 'S environmentally responsible inventions 's normal borrowing rate is 12 % following dates would the value! ) Remains the same + $ 347,464 = $ 693,103 3,220.99 $ 833.33 = $ 233,837 ( ). To maturity of 9.32 % 12/31/2021 250,000 218,800 31,200 5,438,800 b ) sold for the $ 500,000 interest... Keep the quality high accomplish goals and objectives are often disadvantages for.. Feel like he was going crazy punchline answer key rising interest rates will in! It will earn and when they can expect to get it back such as an build! ) Carrying value times the stated interest rate. year = $....