1. When a company purchases another company's bonds as an investment, an account called investments- XXXX is used. What type of an account and normal balance does this investment account have? a. Asset with a debit balance b. Asset with a credit balance c. liability with a debit balance d. liability with a credit balance 2.  What does the word accrued mean when talking about accrued interest? a. The interest has not been earned, but it has been received b. The interest has been earned, but it has not been received c. The interest has not been earned nor received d. The interest is being deferred

The bond trustee is usually a bank that is hired to represent the interests of the bondholders, making sure the terms of the bond indenture are carried out. True False

The printing costs and legal fees associated with the issuance of bonds should Select one: a. be expensed when incurred. O b. be reported as a deduction from the face amount of bonds payable. c. not be reported as an expense until the period the bonds mature or are retired. d. be recorded as a reduction of the bond issue amount and then amortized over the life of the bonds.

To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential. For example: • A bond’s    refers to the interest payment or payments paid by a bond. • A bond issuer is said to be in    if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issue’s restrictive covenants. • The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called    . • A bond’s    gives the issuer the right to call, or redeem, a bond at specific times and under specific conditions.   Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information: Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00   What is the issuing date of this bond? 7-15-2005   7-15-2055…

Debtholders receive note contracts, one for each note, that describe the payments promised by the issuer of the debt. In addition, the issuing corporation frequently enters a supplementary agreement, callcd a note indenture, with a trustee who represents the debtholders. The provisions or covenants of the indenture may place restrictions on the issuer for the benefit of the debtholders. For example, an indenture may require that the issuers debt to equity ratio never rise above a specified level or that periodic payments be made to the trustee who administers a sinking fund to provide for the retirement of debt. Consider Roswell Manufacturings debt indenture, which requires that Roswells debt to equity ratio never exceed 2:1. If Roswell violates this requirement, the debt indenture specifies very costly penalties, and if the violation continues, the entire debt issue must be retired at a disadvantageous price and refinanced. In recent years, Roswells ratio has averaged about 1.5:1 ($15 million in total liabilities and $10 million in total stockholders equity). However, Roswell has an opportunity to purchase one of its major competitors, Ashland Products. The acquisition will require $4.5 million in additional liabilities, but it will double Roswells net income. Roswell does not believe that a stock issue is feasible in the current environment. The Financial Accounting Standards Board issued a new standard concerning accounting for post employment benefits, which is strongly supported by the Securities and Exchange Commission. Implementation of the new standard will add about S2 million to Roswells long-term liabilities. Roswells CEO. Martha Cooper, has written a strong letter of objection to the FASB. The FASB received similar letters from over 300 companies. Required; 1. Write a paragraph presenting an analysis of the impact of the new standard on Roswell Manufacturing.

The indenture is a contract between the issuer and lenders that does all the following EXCEPT ______.   a. specify the manner in which the principal must be repaid   b. give management's expectations about return of the proceeds   c. list any restrictive covenants   d. detail the nature of the debt issue

match the correct term for each of the following descriptions. Descriptions Terms Examples of these instruments include trade credit, accruals, short-term bank loans, and commercial paper. Accruals    A document that provides evidence of the existence of a debt, and specifies the terms of the loan transaction. Blanket lien    The cost of accounts payable paid before the expiration of the discount period. Commercial paper    This financial instrument uses a borrowing firm’s entire inventory of low-priced, fast selling, and fungible products to secure a short-term loan, and allows the borrower to sell items from inventory without the lender’s permission. Commitment fee    A fee charged by a financial institution providing a guaranteed, or revolving, line of credit, on the unused balance of a revolving line of credit. Discount interest loan    A form of unsecured short-term financing used by large, extremely creditworthy business organizations. Factoring    A financial…

Multiple ChoiceIdentify the choice that best completes the statement or answers the question.      9.  For a liability to exist, a. a past transaction or event must have occurred. b. the exact amount must be known. c. the identity of the party owed must be known. d. an obligation to pay cash in the future must exist.      10.  The effective interest rate on bonds is higher than the stated rate when bonds sell a. at face value. b. above face value. c. below face value. d. at maturity value.      11.  The effective interest rate on bonds is lower than the stated rate when bonds sell a. at maturity value. b. above face value. c. below face value. d. at face value.      12.  When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the a. actual amount of interest paid. b. book value of the…

The journal entry to record the issuance of bonds at a premium consists of a debit to Cash, a debit to Premium on Bonds Payable, and a credit to the Bonds Payable account. True or False True False