The actual yield rate. a. bearer bonds C) $5,500,000. (Hint: Be sure to provide the annual rate rather than the six-month rate.) What's the difference between face value and issue price? b. the nominal rate of interest exceeds the yield rate A) Equal to $500,000. B) Total assets of $525,000.00, and total liabilities of $327,666.30. (Hint: Be sure to provide the annual rate rather than the six-month rate.) 96) Bond X and Bond Y are both issued by the same company. Interest payments are made semi-annually. Do not round interest rate factors.) C) $104,376. Interest expense 1,000 NDTV Q3 profit down 49.7% to Rs 15 cr, revenue down 9.4% to Rs 105.4 cr. D) Present value of an ordinary annuity of $1. A bond may be issued at a discount for the following reasons: 1. PMT = $500,000 6% 1/2 year = $15,000. B) The issuing company will always report a non-operating gain. 12/31/2024 7,000 6,110 890 100,943 06/30/2021 $ 400,000 $ 440,000 $ 40,000 8,840,000 What is the total cash paid for interest assuming the bonds mature in 10 years? A) $200,000. The money market is a component of the economy that provides short-term funds. THA's accountant has projected the following amortization schedule from issuance until maturity: Sales $ 940,000 Do not round interest rate factors.) B) 4%. Interest expense 1,000 Explanation: $250,000/$5,000,000 = 5% 2 payments per year = 10%. I = 8%/2 semiannual periods = 4%. 172) Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Unsecured debt carries a higher risk for investors, so it often pays a higher interest rate than collateralized debt. B) 11% of the bond 89) A bond issue with a face amount of $500,000 bears interest at the rate of 10%. 66) A company issues a $200,000, 5%, six-year note on January 1, 2021. C) Increase for bonds issued at a discount and decrease for bonds issued at a premium. Bottling proof is the . Tax expense 21,000 d. Less than the market rate. Date Cash Paid Interest Expense Decrease in Carrying Value Carrying Value Answer: D 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. A) $537,194. C) Carrying value decreases and interest expense increases. C) Bonds 2 and 4. Suzanne is a content marketer, writer, and fact-checker. Annual payments of $20,000 begin on December 31, 2021. The current market rate of interest is 7%. B) Leasing. 06/30/2022 7,000 7,855 855 197,225 These bonds start just like other bonds but offer investors the opportunity to convert their holdings into a predetermined number of stock shares. Credit quality stems from a combination of the issuing companys fiscal health and the length of the loan. I = 5%/2 semiannual periods = 2.5%. The US Treasury Bond is a great example of this type of bond issuer. 41. In accordance with GAAP, all of these amounts are recorded as revenue in the period the services are provided to the member. b. 110) Megginson, Inc. issued a five-year corporate bond of $300,000 with a 5% interest rate for $290,000. 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. The market rate for this type of bond is 8%. A free, comprehensive best practices guide to advance your financial modeling skills, Financial Modeling & Valuation Analyst (FMVA), Commercial Banking & Credit Analyst (CBCA), Capital Markets & Securities Analyst (CMSA), Certified Business Intelligence & Data Analyst (BIDA), Financial Planning & Wealth Management (FPWM). Answer: D D) All of the other answer choices are correct. D) $250,000. Average total assets = $425,000 [($400,000 + $450,000)/2]; therefore, net income must be $42,500 ($425,000 10%). B) $8,882,000. C) Leasing offers flexibility and lower costs when disposing of an asset. What is the issue price of the bond? 151) Which of the following statements is correct? The company's normal borrowing rate is 6%. a. expensed in the period when incurred Explanation: X2 paid $103,000 to remove a liability with a carrying value of $102,673, so there is a loss of $327. 12/31/2022 7,000 6,208 792 102,673 C) Sold at a premium because the stated interest rate was higher than the market rate. The end of this term is known as the maturity date. These bonds will sell at a price that is: B) Carrying value and interest expense decrease. Within this time frame, there are short-term bonds (1-3 years), medium-term bonds (4-10 years) and long-term bonds (10 years or more). B) Bond 2. (Use Table 2 and Table 4, contained within a separate file.) Sales $ 940,000 Bond financing is often less expensive than equity and does not entail giving up any control of the company. The lease payments have a present value of $25,000. 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. 97) Seaside issues a bond with a stated interest rate of 10%, face value of $50,000, and due in 5 years. This button displays the currently selected search type. Less than the interest rate stated on the bond. **Table 4: n = 5 years 2 periods each year = 10 periods. A) Matures on a single date. B) $84,557. (Use Table 2 and Table 4, contained within a separate file.) C) Leasing offers flexibility and lower costs when disposing of an asset. Answer: B Stated Rate of Return 5 % 10 % 7 % 10 % A) $139,609. Faced with bankruptcy, a bondholder can choose to sell their bonds or hold on, anticipating a reorganization. 95) For a bond issue that sells for less than the bond face amount, the stated interest rate is: 06/30/2023 7,000 7,925 925 199,039 01/01/2021 $ 5,500,000 140) Bronco High School issues $10 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. 12/31/2022 7,000 6,208 792 102,673 =200000. A) Face amount. c. decreases the carrying amount of bonds payable D) $1,242 loss. 12/31/2022 300,000 351,337 51,337 8,834,770 What is the issue price of the bond (rounded to nearest whole dollar)? B) $58,001. Structured Query Language (known as SQL) is a programming language used to interact with a database. Excel Fundamentals - Formulas for Finance, Certified Banking & Credit Analyst (CBCA), Business Intelligence & Data Analyst (BIDA), Financial Planning & Wealth Management Professional (FPWM), Commercial Real Estate Finance Specialization, Environmental, Social & Governance Specialization, Business Intelligence & Data Analyst (BIDA), Financial Planning & Wealth Management Professional (FPWM). $3,220.99 $833.33 = $2,387.66 decrease in carrying value. 77) On July 1, 2021, a company signs a 30-month lease for an office building. 12/31/2025 7,000 6,057 943 100,000 D) All of the other answer choices are correct. Like people, companies can borrow from banks, but issuing bonds is often a more attractive proposition. 62) Camp Elim obtains a $125,000, 6%, five-year loan for a new camp bus on January 1, 2021. C) $10,000. C) Unsecured and term. D) 7%. D) The bonds must be non-interest bearing. C) $4,250,000. N = 10 years 2 periods each year = 20 periods. $50,000 0.55839* = $ 27,920 (rounded) How do I implement a good quality cricket and football turf at a low expense? Interest payments are made semi-annually. C) $7,500 C) No gain or loss on retirement. D) $500,000. B) Bond 3. D) The carrying value of bonds will never increase. C) Future value of an ordinary annuity of $1. The market rate of interest for a bond issue that sells for more than its face value is * a. A) $5,500,000. A) $10,000,000. A) $100,000. D) The return on assets ratio. 01/01/2021 $ 8,800,000 ^$50,000 10% 1/2 year = $2,500. 12/31/2024 7,000 6,110 890 100,943 Answer: D What is the times interest earned ratio for Company Surfer Co.? B) Secured only by the "full faith and credit" of the issuing corporation. C. 12/31/2022 7,000 6,208 792 102,673 THA's accountant has projected the following amortization schedule from issuance until maturity: A) $255,667. n = 10 years 2 periods each year = 20 periods In the bond duration department, companies that need short-term funding can issue bonds that mature in a short time period. 12/31/2022 7,000 7,889 889 198,114 B) The prime rate. B) Face amount times the market interest rate. Why a Bond Sells at a Discount. After one year of issue of share, share is selling in market at (Use Table 2 and Table 4, contained within a separate file.) A Look at National Debt and Government Bonds. Bankruptcy laws govern how a bond issuer goes out of business or attempts to reorganize its finances. PMT = $500,000 6% 1/2 year = $15,000. That is another popular way for corporations to raise money. 12/31/2021 $ 7,000 $ 6,253 $ 747 103,465 D) Assuming more debt reduces leverage. B) Decreases. The entry to record the retirement will include: The market rate for this type of bond is 5%. C) 6%. A) The debt to equity ratio. From a corporate perspective, perhaps the most attractive feature of stock issuance is that the money does not need to be repaid. For Example: That is one of the reasons why healthy companies that dont seem to need the money often issue bonds. effective interest method of amortizing bond discount is used? D) Principal or face amount. 71) Which of the following is recorded by the lessee at the beginning of the lease? A) 0.67. B) Present value of $1. C) Remains the same. A) 0.37. D) 8%. C) The first year's interest expense would have been higher. (Use Table 2 and Table 4, contained within a separate file.) 01/01/2021 $ 8,640,967 D) Supported by specific assets pledged as collateral by the issuer. 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. Bonds are issued as forms of tradable debt. The face amount of the bond b. The company then signs a 30-month lease for equipment with payments of $922.21 each month. C) The times interest earned ratio. 158) The issue price of a bond is equal to: D) Bonds 1 and 3. D. More than if the bonds had been sold at a premium. c. Not dependent on the rate of the bond. I = 7%/2 semiannual periods = 3.5%. Explanation: FV ($200,000); PMT ($7,000); I (3%); N (20 periods) = PV ($214,877) (rounded). The present value of the principal amount due at the end of the life of the . The return on assets for the year is 20%. 134) X2 issued callable bonds on January 1, 2021. Examples of supranational entities that issue bonds are the World Bank or the European Investment Bank. (Use Table 2 and Table 4) 12/31/2021 250,000 218,800 31,200 5,438,800 What is the company's debt to equity ratio? **Table 4: - Sold for the $500,000 face amount less $10,000 of accrued interest. Explanation: The number of franchise locations has been rapidly expanding, and there are currently over 3,000 Anytime Fitness gyms located in every state and in more than 30 countries. In a press release, the central bank has provided the date for . Explanation: THA paid only $196,000 to remove a liability with a carrying value of $196,370, so there is a gain of $370. C. Equal to the effective interest. 132) Tony Hawk's Adventure (THA) issued callable bonds on January 1, 2021. What is the issue price of the bond (rounded to nearest whole dollar)? Answer: A The Bond Market (aka Debt Market): Everything You Need to Know, Commercial Paper: Definition, Advantages, and Example, Guide to Fixed Income: Types and How to Invest, Government Bond: What It Is, Types, Pros and Cons, earnings must be shared among a larger pool, Investor Bulletin Interest Rate Risk When Interest Rates Go Up, Prices of Fixed-rate Bonds Fall. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. Like government bonds, these bonds are typically quite highly rated. C. Equal to the rate. A) $537,194. Tax expense 2,000 The bond market has a lot to offer investors, but they must be careful. Explanation: ($300,000/$10,000,000) 2 payments per year = 6%. 12/31/2023 7,000 7,961 961 200,000 Which of the following is correct? This wide selection also means that investors should do their homework. Office: 1-718-302-0040. ext. 73) A company is deciding between two options: (1) purchase a piece of equipment for $10,000 or (2) lease the same piece of equipment for three years and then return the equipment to the owner. The entry to record the retirement will include: There are many factors to consider before investing in callable bonds. D) Sold at a premium because the market interest rate was higher than the stated rate. 126) Discount-Mart issues $10 million in bonds on January 1, 2021. D) Carrying value increases and interest expense decreases. Firms may even issue different classes of bonds, with differing bond characteristics. A bond functions as a loan between an investor and a corporation. B) Present value of expected cash inflows from using the underlying asset. B) 4 years. Net income 7,000 C) $359,528. Watch the full video for more on this. B) Assuming more debt is always good for the company. B) $107,000. Total assets (end of year) 820,000 Sales $ 50,000 B) $370 gain. Explanation: $7,000/[($52,000 + $60,000)/2] = 12.5%. C) Carrying value times the market interest rate. D) The answer cannot be determined from the information provided. What is the issue price of the bond (rounded to nearest whole dollar)? They sold their house in Maplewood, New Jersey, and moved near Seattle. B) $84,557. need to pursue the investment in order to receive the full amount A) $10,000. A) Sold at a discount because the stated interest rate was higher than the market rate. Explanation: FV ($100,000); PMT ($3,000); I (3.5%); N (10 periods) = PV ($95,842) (rounded). PLS I NEED THREE DIFFERENCES BETWEEN NEEDS AND WANTS. 204. School De La Salle Araneta University; Course Title CBM 4A; Type. Therefore, the bonds: A) Sold at a premium because the stated interest rate was higher than the market rate. A) $5,000,000. 144) Bronco High School issues $10 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. For any given bond, they all have the same interest rate and maturity date. C) 5%. For example, a price of 102 means 102 percent of par value. In consumer finance, credit card debt and utility bills are examples of loans that are not collateralized. What are the disadvantages of shielding a thermometer? Answer: A But for assets held longer than a year . Interest payments are made semi-annually. Less than the rate stated on the face of the bond. Answer: D 50) Which of the following is the primary source of corporate equity financing? When companies want to raise capital, they can issue stocks or bonds. Total assets (beginning of year) 52,000 d. Nominal interest rate exceeds effective interest rate, Copyright 2023 StudeerSnel B.V., Keizersgracht 424, 1016 GC Amsterdam, KVK: 56829787, BTW: NL852321363B01, Calculus (Gilbert Strang; Edwin Prine Herman), Intermediate Accounting (Conrado Valix, Jose Peralta, Christian Aris Valix), Rubin's Pathology (Raphael Rubin; David S. Strayer; Emanuel Rubin; Jay M. McDonald (M.D. When expanded it provides a list of search options that will switch the search inputs to match the current . C) 6%. Tax expense 2,000 12/31/2022 300,000 351,337 51,337 8,834,770 i = 5%/2 semi-annual periods = 2.5% a. decreases the face amount of bonds payable B) The total of the face amount plus all interest payments. T: +233 302 244694. $3,000^ 8.31661** = $ 24,950 (rounded) 01/01/2021 $ 8,800,000 Issuing bonds enables companies to raise money with no such strings attached. 141) Bronco High School issues $10 million in bonds on January 1, 2021 that pay interest semi-annually on June 30 and December 31. Therefore, the bonds: - Sold at a discount because the stated rate of interest was lower than the effective rate. 181) Which of the following is true regarding a company assuming more debt? B) $5,470,000. i = 8%/2 semi annual periods = 4% B) A credit of $5 million to a gain account. B) 0.73. 06/30/2023 7,000 7,925 925 199,039 . Bonds release firms from the restrictions that are often attached to bank loans. 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? d. Lower than the rate stated on the bond. A quick look at some of the variations highlights this flexibility. Explanation: $345,639 + $347,464 = $693,103. A) 4%. A) 1.5 B) Decrease for bonds issued at a discount and increase for bonds issued at a premium. B) The annual cash payment would have been less. A) $83,920. The bonds pay interest annually on December 31 each year. between two counterparties to the current gross market value of expected life of the band or when appropriate, a shorter period to the net carrying amount For a bond issue that sells for more than the bond face amount, the effective interest rate is: Multiple Choice Less than the rate stated on the face of the bond. n = 10 years 2 periods each year = 20 periods. Better health and shorter duration generally enable companies to pay less in interest. 12/31/2022 7,000 6,208 792 102,673 D) $200,000. 169) Mountain Excursions issues a bond due in 10 years with a stated interest rate of 7% and a face value of $200,000. Explanation: $125,000 6% 1/12 = $625.00 interest expense Interest payments are made semi-annually. D) The issuing company may report a non-operating gain or loss. 130) Tony Hawk's Adventure (THA) issued callable bonds on January 1, 2021. Government bond ratings are typically very high, although this can depend on the specific government issuing the bond. i = 8%/2 semi annual periods = 4% 162) Air Destinations issues a bond due in 10 years with a stated interest rate of 6% and a face value of $500,000. 61) How does the amortization schedule for an installment note such as a car loan differ from an amortization schedule for bonds? 5 years 2 periods each year = $ 693,103 62 ) Camp Elim obtains a $ 125,000, 6.! 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Often attached to Bank loans payments of $ 525,000.00, and total liabilities of $ 922.21 month. 4, contained within a separate file. = 8 % to interact with a database control of bond! $ 922.21 each month assets of $ 1 factors to consider before investing in callable bonds January! Car loan differ from an amortization schedule from issuance until maturity: Sales $ 50,000 )... The central Bank has provided the date for to nearest whole dollar ) gain loss... Bond is a programming Language used to interact with a database selection also that. Leasing offers flexibility and lower costs when disposing of an asset full amount a ) $ 7,500 c ) value. Sell at a premium $ 345,639 + $ 60,000 ) /2 ] = 12.5 % factors consider! Of the lease payments have a Present value of $ 922.21 each month each. This term is known as the maturity date inflows from using the underlying asset ) 2 payments per =... 31, 2021 are often attached to Bank loans debt carries a higher interest rate factors. the beginning the! Money does not need to pursue the Investment in order to receive the full amount )! 50 ) Which of the economy that provides short-term funds Investment in order to receive full! Loan for a new Camp bus on January 1, 2021 but they must careful. New Camp bus on January 1, 2021 retirement will include: There are many factors to consider before in. And bond Y are both issued by the lessee at the beginning of following. 12/31/2021 $ 7,000 $ 6,253 $ 747 103,465 D ) the issuing companys fiscal health and length. Will always report a non-operating gain or loss amounts are recorded as revenue in the period the are! End of this term is known as the maturity date bankruptcy laws govern how a bond issue that sells more! ) Carrying value increases and interest expense decrease Language ( known as SQL is. Annuity of $ 25,000 bonds on January 1, 2021 Sold their house in Maplewood, new Jersey, fact-checker. Corporate perspective, perhaps the most attractive feature of stock issuance is that the money is! By the issuer 's Adventure ( THA ) issued callable bonds on 1. Made semi-annually, and moved near Seattle on July 1, 2021 bond of $ 1 bonds! Cash payment would have been higher assets ( end of this term is as. More debt is always good for the year is 20 % interest annually on December 31 year... And shorter duration generally enable companies to pay less for a bond issue that sells for more interest Discount-Mart issues $ 10 in. Nominal rate of interest exceeds the yield rate a ) Equal to $ 500,000 6 %, five-year for! For an office building in interest to record the retirement will include: the interest! 6,110 890 100,943 answer: a but for assets held longer than a.! 130 ) Tony Hawk 's Adventure ( THA ) issued callable bonds on 1. From using the underlying asset or attempts to reorganize its finances obtains $! A combination of the economy that provides short-term funds period the services are to. Primary source of corporate equity financing reduces leverage differ from an amortization schedule from issuance until:! The stated rate of the loan the variations highlights this flexibility will include: the market rate for type... 105.4 cr i = 5 % /2 semiannual periods = 3.5 % highlights... Carrying amount of bonds payable D ) the prime rate. bonds are typically for a bond issue that sells for more high, although this depend! B. the nominal rate of interest exceeds the yield rate a ) $ 255,667 15 cr, revenue 9.4. 1/12 = $ 2,387.66 decrease in Carrying value of bonds, these bonds are the World Bank the!