MBA 500 Ch 14

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is thata. income to stockholders may increase as a result of trading on the equityb. bond interest is deductible for tax purposesc. interest must be paid on a periodic basis regardless of earnings d. the bondholders do not have voting rights c
Secured bonds are bonds thata. are in the possession of a bankb. are registered in the name of the ownerc. have detachable interest couponsd. have specific assets of the issuer pledged as collateral d
A legal document which summarizes the rights and privileged of bondholders as well as the obligations and commitments of the issuing company is calleda. trading on the equityb. a bond indenture c. a bond debentured. a term bond b
Stockholders of a company may be reluctant to finance expansion through issuing more equity becauseSelect one:a. dividends must be paid on a periodic basisb. their earnings per share may decrease c. the price of the stock will automatically decreased. leveraging with debt is always a better idea b
A $1,000 face value bond with a quoted price of 96 is selling fora. $96b. $1,000c. $960 d. $906 c
If the market rate of interest is greater than the contractual rate of interest, bonds will sella. at a premiumb. at face valuec. at a discount d. only after the stated rate of interest is increased c
On April 1, 2013, Timi Corporation issued $4,000,000, 10-year, 8% bonds, dated January 1, 2013 at 100 plus accrued interest. Interest is payable semiannually on January 1 and July 1. The journal entry to record this transaction on April 1, 2013 isa. Debit Cash $4,080,000; Credit Bonds Payable $4,080,000b. Debit Cash $4,080,000; Credit Bonds Payable $4,000,000 and Bond Interest Payable $80,000 c. Debit Cash $4,000,000; Credit Bonds Payable $4,000,000d. Debit Interest Expense $80,000 and Cash $4,000,000; Credit Bonds Payable $4,080,000 b
The market rate of interest is often called thea. contractual rateb. effective rate c. stated rated. coupon rate b
Bonds that mature at a single specified future date are calleda. serial bondsb. term bonds c. debenturesd. coupon bonds b
The contractual rate of interest is usually stated asa. an annual rate b. a semiannual ratec. a daily rated. a monthly rate a
If debts will not be repaid within one year, they are classified on the balance sheet as noncurrent liabilities.True or False True
Weaker companies have the ability to borrow at a lower rate of interest than stronger companies.True or False False
Companies not able to pay their liabilities as they come due can be forced into legal bankruptcy.True or False True
Face value and maturity value have different meaningsTrue or False False
Debts requiring serial payments (for example, home mortgages) allocate a portion of the payment to interest and a portion of the payment to reduce the face value of the obligation.True or False True
A debenture is a debt contract that contains some additional security for the creditor.True or False False

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