Total liabilities (end of year) 24,000 131) Tony Hawk's Adventure (THA) issued callable bonds on January 1, 2021. 31. The bonds pay interest annually on December 31 each year. Explanation: Carrying value, $18 million, less cash paid to retire the bonds of $23 million = $5 million loss. 12/31/2022 7,000 7,889 889 198,114 n = 5 years 2 periods each year = 10 periods. The company's tax rate is 40% and the bond sells for $9. 12/31/2021 250,000 218,800 31,200 5,438,800 *Table 2: The bonds were issued at: The following independent situations require professional judgment for determining when to recognize revenue from the transactions. 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. ^$200,000 7% 1/2 year = $7,000. 68) Which of the following represents an advantage of leasing rather than buying an asset with an installment note? 156) The Raptor retires a $20 million bond issue when the carrying value of the bonds is $18 million, but the market value of the bonds is $15 million. B) Secured and serial. A) 10% A) $102,323. The basic features of a bondcredit quality and durationare the principal determinants of a bond's interest rate. . D) Sold at a discount because the market interest rate was higher than the stated rate. d. bond coupon. These bonds will sell at a price that is: A company can obtain debt financing from a bank in the form of a loan, or else issue bonds to investors. Preferred stock refers to a class of ownership that has a higher claim on assets and earnings than common stock has. It was Rs 84.12 crore in Q3 FY 2021-22. I = 7%/2 semiannual periods = 3.5%. 95) For a bond issue that sells for less than the bond face amount, the stated interest rate is: D) $5,438,800. More than the rate stated on the face of the bond. C) $8,734,070. B) Its stated rate was higher than the prevailing market rate of interest on similar bonds. D) The return on assets ratio. A) $1,791.60 A discount bond is a bond that is issued for less than its paror facevalue. D) The issuing company may report a non-operating gain or loss. Total assets (end of year) 820,000 A) Provide potential benefits only to the issuer. In exchange, the investor receives periodic interest payments. Most bonds have five features when they are issued: issue size, issue date, maturity date, maturity value, and coupon. Total assets (beginning of year) 54,000 If interest rates decrease, the company can redeem the outstanding bonds and reissue the debt at a lower rate. 74) Before signing a lease, a company reports total assets of $500,000 and total liabilities of $300,000. A quick look at some of the variations highlights this flexibility. As noted above, this bottle was sent to me, free of charge, by Dad's Hat. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. Issuing bonds is one way for companies to raise money. 01/01/2021 $ 8,800,000 D) The second year's interest expense would have been less. Interest payments are made semi-annually. A) GAAP has been violated. A) 3%. 06/30/2022 300,000 349,363 49,363 8,783,433 A) 11.7%. A) Secured and term. Commercial paper is a short-term, unsecured debt instrument issued by corporations typically for the financing of short-term liabilities. B) 4%. 13. C) 5%. The actual yield rate. The company then signs a 30-month lease for equipment with payments of $922.21 each month. For a bond issue which sells for less than its face amount, the market rate of interest is higher than the rate stated on the bond.. Bonds can be sold for more and less than their par values because their interest rates change depending upon the market conditions. B) A credit of $5 million to a gain account. While the bonds themselves are not issued by the government, they are typically backed by the full faith of that government. D) The carrying value of bonds will never decrease. 144) Bronco High School issues $10 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. 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 B) $2,387.66 Stock issuance, on the other hand, puts additional stock shares in circulation. 06/30/2022 7,000 7,855 855 197,225 I = 6%/2 semiannual periods = 3%. Total liabilities = $300,000 (beginning) + $25,000 (PV of lease payments = $325,000). 182) Which of the following is not a true statement? 2. Answer: D 12/31/2025 7,000 6,057 943 100,000 130) Tony Hawk's Adventure (THA) issued callable bonds on January 1, 2021. This was the second year in a row that the company earned this honor. Credit quality stems from a combination of the issuing companys fiscal health and the length of the loan. 161) In calculating the issue price of a bond, the portion associated with the periodic interest payments is calculated using which time value factor? If the monthly payment is $3,220.99, by how much will the carrying value decrease when the first month's payment is made on January 31, 2021? Companies with sufficient credit quality that need long-term funding can stretch their loans to 30 years or even longer. If the note had instead been an installment note to be paid in four equal payments at the end of each year beginning December 31, 2021, which of the following would be true? 01/01/2021 $ 5,500,000 market value of share is the value at which share is currently The option to "Transfer securities" allows you to sell your Treasury bonds. The market rate for this type of bond is 5%. Interest expense 3,000 172) Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. What is the issue price of the bond (rounded to nearest whole dollar)? The money market is a component of the economy that provides short-term funds. D) The answer cannot be determined from the information provided. What is the issue price of the bond? B) 10%. B) $8,686,606. The U.S. Treasury issues bonds, collectively known as "Treasuries," in a range of maturities to pay for the costs of the . This is a more complex bond pricing theory, known as 'dirty' pricing. d. no necessary relationship exists between the two rates, the amortization of discount on bonds payable D) Both bonds will sell at a premium. For a bond issue that sells for more than the bond face amount, the effective interest rate is: Multiple Choice The rate printed on the face of the bond. B) $370 gain. 12/31/2021 7,000 7,822 822 196,370 What is the annual stated interest rate on the bonds? 147) Tomkin Library System issues $5 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. Experts are tested by Chegg as specialists in their subject area. D) A credit to cash for $42 million. That is one of the reasons why healthy companies that dont seem to need the money often issue bonds. Tax expense 2,000 C) $214,877. C) Bondholders must hold their bonds until maturity to receive cash for their investment. n = 10 years 2 periods each year = 20 periods I think you mean "Mark to Market" which is an accounting D) Leasing transfers the title to the lessee at the beginning of the lease. Explanation: $7,000/[($52,000 + $60,000)/2] = 12.5%. A) Future value of $1. Approach to the operation. More than the effective interest. Calling a bond is similar to a mortgage borrower refinancing at a lower rate. C) Issuing bonds. B) 4 years. d. income bonds, Bond issue costs should be i = 5%/2 semi-annual periods = 2.5% B) $1,000,000 What amount will be recorded for interest expense for the first month's payment on January 31, 2021? James Bond has been censored, not stirred . B) Sold for the $500,000 face amount plus $10,000 of accrued interest. A company or government may declare bankruptcy, but that doesn't make its bonds worthless. A) Bond 1. What was the BONUS ROUND answer last night? 105) Which of the following is true for bonds issued at a discount? This site is using cookies under cookie policy . D) 7%. A Look at National Debt and Government Bonds. Examples of supranational entities that issue bonds are the World Bank or the European Investment Bank. For Example: d. Less than the market rate. 84) Serial bonds are: Sales $ 940,000 The bond proceeds are then used to finance that project, and the coupon payments and principal are paid out through the projects revenue. C-Bond's windshield strengthener, C-Bond nanoShield, is a first of its kind solution that protects and strengthens windshields by permeating the glass surface and repairing the microscopic flaws . A portion of the bond amortization schedule appears below: More than the rate stated on the face of the bond, Less than the rate . Below is a partial bond amortization schedule for the bonds: 141) Bronco High School issues $10 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. D) Carrying value increases and interest expense decreases. Firms issue bonds when they require funds to finance projects or working capital. A) $139,609. 12/31/2021 250,000 218,800 31,200 5,438,800 75) On April 1, 2021, a company signs a 20-month lease for equipment. B) $45,000. ($ in millions) Total liabilities (end of year) 600,000 C) $1,000,000 12/31/2024 7,000 6,110 890 100,943 C) $196,779.01 B) 0.73. C) $104,376. An Anytime Fitness franchisee could record several types of revenue. 06/30/2021 $ 400,000 $ 440,000 $ 40,000 8,840,000 D) $8,783,433. Bond 1 Bond 2 Bond 3 Bond 4 Answer: D A) Both bonds will sell for the same amount. B) $440,463. $100,000 0.70892* = $ 70,892 01/01/2021 $ 8,640,967 $ 464,471 D) Total assets of $525,000.00, and total liabilities of $325,000.00. Total assets (beginning of year) 54,000 Explanation: $7,000/$100,000 = 7%. A) Bonds involve less surrendering of ownership control. Bond X pays 8% interest while Bond Y pays 7% interest. D) $8,840,000. 06/30/2023 7,000 7,925 925 199,039 A) Face amount times the stated interest rate. 136) X2 issued callable bonds on January 1, 2021. Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. *Table 2: The ratio of the current net market value of open positions held C) 1.50. 12/31/2021 7,000 7,822 822 196,370 At which of the following dates would the carrying value be the lowest? B) November 30, 2023 C) The bonds were issued at a price greater than their face value. b. 06/30/2022 7,000 7,855 855 197,225 B) $194,758. Total assets (beginning of year) 900,000 Skip to main content LinkedIn. 06/30/2022 300,000 349,363 49,363 8,783,433 The Wall Street Journal prime rate. We also reference original research from other reputable publishers where appropriate. Answer: A B) Bond 2. For what amount would the company record the lease on January 1, 2021 (rounded to nearest whole dollar)? Like people, companies can borrow from banks, but issuing bonds is often a more attractive proposition. A) Face amount. N = 5 years 2 periods each year = 10 periods. School De La Salle Araneta University; Course Title CBM 4A; Type. Total assets (end of year) 820,000 D) Unsecured and serial. Entrepreneur magazine recently named Anytime Fitness the number one top global franchise. c. the yield and nominal rates coincide **Table 4: The present value of the principal amount due at the end of the life of the . 12/31/2021 7,000 7,822 822 196,370 B) Carrying value and interest expense decrease. 06/30/2023 7,000 7,925 925 199,039 A) $537,194. 70) Which of the following is not a reason why some companies lease rather than buy? C) 12.5%. PMT = $500,000 6% 1/2 year = $15,000. 127) Discount-Mart issues $10 million in bonds on January 1, 2021. The reverse is also true. n = 10 years 2 periods each year = 20 periods. (Use Table 2 and Table 4, contained within a separate file.) Which of the following is correct? Supranational entities refer to global entities that are not based in a specific nation. B) $3,000 gain. C) Sold at a discount because the stated interest rate was higher than the market rate. 01/01/2021 $ 5,500,000 D) The future value of the face amount plus the future value of the periodic interest payments. n = 5 years 2 periods each year = 10 periods Total liabilities (end of year) 24,000 The market rate of interest for a bond . 169) Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. Suzanne is a content marketer, writer, and fact-checker. 06/30/2021 $ 400,000 $ 440,000 $ 40,000 8,840,000 103) The rate quoted in the bond contract used to calculate the cash payments for interest is called the: c. decreases the carrying amount of bonds payable C) $104,376. A) Face rate. C) 4.0 times. 76) On January 1, 2021, a company signs a 25-year lease for land. They can also give an overview of the risks that come with investing in bonds. Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value d. serial bonds, Bonds that pay no interest unless the issuer is profitable or known as i = 5%/2 semi-annual periods = 2.5% B) Yield rate. n = 10 years 2 periods each year = 20 periods. 99) Given the information below, which bond(s) will be issued at a discount? Watch the full video for more on this. 12/31/2021 $ 7,000 $ 6,253 $ 747 103,465 i = 5%/2 semi-annual periods = 2.5% C) Sold at a premium because the stated interest rate was higher than the market rate. For any given bond, they all have the same interest rate and maturity date. C) 2.73. d. increases the carrying amount of bonds payable, which of the following statements is true for a bond maturing on a single date when the Investopedia requires writers to use primary sources to support their work. A) Leasing may offer protection against the risk of declining asset values. C) Bond Y will sell for more than Bond X. Total stockholders' equity (end of year) 220,000 150) Tomkin Library System issues $5 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. View more property details, sales history and Zestimate data on Zillow. The current market rate of interest is also 10%. Explanation: Recorded at the present value of the lease payments. 01/01/2021 $ 8,800,000 A) 4%. ^$500,000 6% 1/2 year = $15,000. Total assets (end of year) 60,000 166) Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. The Indore government's green bonds come with an interest rate of about 8.25%reasonably high for a government bond at this time. If the monthly payment is $2,416.60, by how much will the carrying value decrease when the first payment is made on January 31, 2021? X2 issued the bonds for: 12/31/2021 300,000 347,464 47,464 8,734,070 What is the times interest earned ratio for Company Surfer Co.? The annual membership fees are collected in advance, so when these fees are received, Anytime Fitness cannot record the entire amount as current revenue. Therefore, the bonds: D) The answer cannot be determined from the information provided. 12/31/2023 7,000 7,961 961 200,000 You receive and pay the Sears bill in October. C) Carrying value times the market interest rate. 167) Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. c. Not dependent on the rate of the bond. A) A debit of $3 million to a loss account. Firm bonds can range between the whole spectrum of bond ratings, as provided by the S&P ratings board, for example. D) All of the other answer choices are correct. A) 3%. A bond issued by a developing countrys government will naturally be riskier and lower rated than a bond issued by a developed country. C) (Net income + interest expense + tax expense)/Interest expense. i = 8%/2 semi-annual periods = 4% B) 11% C) $3,220.99 A) $83,920. X2's accountant has projected the following amortization schedule from issuance until maturity: 77) On July 1, 2021, a company signs a 30-month lease for an office building. 01/01/2021 $ 8,640,967 12/31/2024 7,000 6,110 890 100,943 A) Equal to $500,000. What is the issue price of the bond (rounded to nearest whole dollar)? Explanation: X2 buys back the bonds for $103,000 immediately after the interest payment on 12/31/2022 and retires them. 145) Tomkin Library System issues $5 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. B) Leasing may offer protection against risk of declining asset values. A) $693,103. THA's accountant has projected the following amortization schedule from issuance until maturity: **Table 4: What is the market annual rate of interest on the bonds? 86) A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics? A) $104,625. 12/31/2024 7,000 6,110 890 100,943 B) $107,000. Date Cash Paid Interest Expense Decrease in Carrying Value Carrying Value What is the issue price of the bond (rounded to nearest whole dollar? B) $320,000 Answer: C 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. THA issued the bonds: The market rate for this type of bond is 8%. Like most fixed-income securities, bonds are highly correlated to interest rates.Thus, when interest rates go up, a bond's market . These bonds will sell at a price that is: If you want to work out at 2 A.M., you can do that too, because members have secure access to their gym 24 hours a day, seven days a week. Tax expense 21,000 A) Less than the interest expense. i = 8%/2 semi-annual periods = 4% X2's accountant has projected the following amortization schedule from issuance until maturity: For what amount would the company record the lease on April 1, 2021 (rounded to nearest whole dollar)? B) $186,410. **Table 4: A) $42,500. D) The carrying value of bonds will never increase. 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Is 5 % times interest earned ratio for company Surfer Co. 105 ) Which of following! $ 3,220.99 a ) Both bonds will never increase is also 10 % ) unsecured and serial from the below!