Chapter 14

A bond traded at 97.5 means that

• the bond pays 97.5% interest.

• the bond trades at $975 per $1,000 bond.

• the market rate of interest is below the stated contract rate of interest for the bond.

• the bond’s interest rate is 2.5%.

The amount the borrower must pay back to the bondholders on the maturity date is known as _____.

• face value

• market value

• future value

• present value

Rosewood issued $200,000 of its 10%, five-year bonds at 97.45% of face value. Which of the following journal entries should be recorded at the time of issuance of the bonds?

• Dr. Cash $194,900

  Dr. Discount on BP $5,100

  Cr. BP $200 K

• Dr. Cash $200 K

  Cr. Discount on BP $5,100

  Cr. BP $194,900

• Dr. Cash $197,600

  Dr. Discount on BP $2,400

  Cr. BP $200 K

• Dr. Cash $200 K

  Dr. Discount on BP $2,400

  Cr. BP $197,600

A company issues 8%, 20-year bonds with a par value of $500,000. The current market rate for the bonds is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is

• $20,000

• $40,000

• $400,000

• $800,000

A company issued 5 year, 5% bonds with a par value of $100,000. They received $95,735 for the bonds. Using the straight-lined method, the company's interest expense for the first semiannual interest period is

• $2,926.50

• $2,500

• $5,853

• $9,573.50

What is the correct formula to calculate the debt to equity ratio?

• Total liabilities/Total equity

• Total equity/Total liabilities

• Total liabilities - Total equity

• Total equity - Total liabilities

A company issued eight-year, 5% bonds with a par value of $350,000. The company received proceeds of $373,745. Interest is payable semiannually. The amount of premium amortized for the first semiannual interest period, assuming straight-line bond amortization is

• $2,698

• $23,745

• $1,484

• $8,750

Green Power Inc. issued 10%, five year bonds with a face value of $200,000. The company pays interest semiannually. The bonds are trading in the market at 12%. Calculate the present value (PV) of the bonds. Round PV table amounts to three decimals.

• $200,000

• $188,897

• $199,997

• $185,200

Green Power, Inc. issued 10%, five year bonds with a face value of $200,000. The company pays interest semiannually. The bonds are trading in the market at 8%. Calculate the present value (PV) of the bonds payable issued and whether they are issued at a discount or premium. Round PV table amounts to three decimals.

• Discount $196,209

• Premium $216,310

• Premium $200,087

• Premium $212,317

Daniels’s bonds payable carry a stated interest rate of 5%, and market interest rate is 7%. The issue price of the bonds will be at

• Par value

• A premium

• Face value

• A discount