149) Ocean Adventures issues bonds due in 10 years with a stated interest rate of 6% and a face
value of $500,000. Interest payments are made semi-annually. The market rate for this type of
bond is 7%. Using a financial calculator or Excel, calculate the issue price of the bonds.
A) $537,194.
B) $464,469.
C) $359,528.
D) $500,000.
150) Ocean Adventures issues bonds due in 10 years with a stated interest rate of 6% and a face
value of $500,000. Interest payments are made semi-annually. The market rate for this type of
bond is 5%. Using a financial calculator or Excel, what is the issue price of the bonds?
A) $537,194.
B) $464,469.
C) $538,973.
D) $500,000.
151) Mountain Excursions issues bonds due in 10 years with a stated interest rate of 7% and a
face value of $200,000. Interest payments are made semi-annually. The market rate for this type
of bond is 8%. Using a financial calculator or Excel, calculate the issue price of the bonds.
A) $139,609.
B) $186,410.
C) $214,877.
D) $200,000.
152) Hillside Excursions issues bonds due in 10 years with a stated interest rate of 7% and a face
value of $200,000. Interest payments are made semi-annually. The market rate for this type of
bond is 6%. Using a financial calculator or Excel, calculate the issue price of the bonds.
A) $163,200.
B) $186,410.
C) $214,877.
D) $200,000.
153) Air Destinations issues bonds due in 10 years with a stated interest rate of 6% and a face
value of $500,000. Interest payments are made semi-annually. The market rate for this type of
bond is 7%. Using present value tables, calculate the issue price of the bonds.
A) $537,194.
B) $464,471.
C) $359,528.
D) $500,000.
154) Roman Destinations issues bonds due in 10 years with a stated interest rate of 6% and a
face value of $500,000. Interest payments are made semi-annually. The market rate for this type
of bond is 5%. Using present value tables, calculate the issue price of the bonds.
A) $537,194.
B) $464,469.
C) $538,972.
D) $500,000.
155) Sand Explorers issues bonds due in 10 years with a stated interest rate of 7% and a face
value of $200,000. Interest payments are made semi-annually. The market rate for this type of
bond is 8%. Using present value tables, calculate the issue price of the bonds.
A) $139,609.
B) $186,410.
C) $214,877.
D) $200,000.
156) Mind Explorers issues bonds with a stated interest rate of 7%, face value of $200,000, and
due in 10 years. Interest payments are made semi-annually. The market rate for this type of bond
is 6%. Using present value tables, calculate the issue price of the bonds.
A) $163,200.
B) $186,410.
C) $214,878.
D) $200,000.
Listed below are 5 terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the most correct term.
A) Conceptually equal to effective rate times balance.
B) Used when the rate is not stated or is materially different from the market rate.
C) Used by a trustee to repurchase bonds in the open market.
D) Promises made to bondholders.
E) Secured by real property.
157) Interest expense
158) Mortgage bond
159) Bond indenture
160) Sinking fund
161) Implicit rate of interest
Difficulty: 2 Medium
Topic: Determining interest and amortization; Bond indenture
Learning Objective: 14-01 Identify the underlying characteristics of debt instruments and describe the basic approach to
accounting for debt.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessible/AICPA: BB Legal
Listed below are 4 terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the most correct term.
A) Gain or loss reported in the statement of comprehensive income.
B) Protects the debt issuer if rates fall.
C) The amount by which the reacquisition price of debt exceeds book value.
D) Right of an investor to purchase a specific number shares at a fixed price.
162) Loss on extinguishment
163) Call feature
164) Fair value option
165) Stock warrant
89
Listed below are 5 terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the most correct term.
A) May become stock.
B) Measures default risk.
C) Name of owner not registered.
D) Measures ability to service debt.
E) No specific assets pledged.
166) Times interest earned ratio
167) Debenture bonds
168) Debt to equity ratio
169) Coupon bonds
170) Convertible bonds
Listed below are 5 terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the most correct term.
A) Market rate higher than stated rate.
B) Market rate less than stated rate.
C) Legal, accounting, printing.
D) No maturity payment.
E) Many separate maturity dates.
171) Premium on bonds
172) Discount on bonds
173) Serial bonds
174) Installment notes
175) Debt issue costs
93
Listed below are 5 terms followed by a list of phrases that describe or characterize each of the
terms. Match each phrase with the correct term.
A) No gain or loss recorded when convertible bond option is exercised.
B) Requires(s) no cash outflow before maturity.
C) Often traded separately from associated bonds.
D) A practical expediency when not misleading.
E) Additional consideration is recorded as an expense.
176) Induced conversion
177) Book value method
178) Warrants
179) Zero-coupon bonds
180) Straight-line method
Listed below are several terms and phrases associated with long-term debt. Pair each item from
List A (by letter) with the item from List B that is most appropriately associated with it.
A) No specific assets pledged
B) Legal, accounting, printing
C) Protection against falling rates
D) Bond price
E) Backed by a lien
F) May become stock
G) Interest expense
H) Checks are mailed directly
I) Name of owner not registered
J) Premium
K) Discount
L) Periodic cash payments
M) Straight-line method
N) Liquidation payments after other claims satisfied
O) Bond indenture
181) Materiality concept
182) Convertible bonds
183) Present value of interest plus present value of principal
184) Call feature
185) Debt issue costs
186) Market rate higher than stated rate
187) Coupon bonds
188) Promises made to bondholders
189) Stated rate higher than market rate
190) Face amount times stated rate
191) Registered bonds
192) Debenture bond
193) Mortgage bond
194) Balance times effective rate
195) Subordinated debenture
196) On May 1, 2018, Joe purchased $200,000 in zero-coupon bonds that mature on May 1,
2038. The bonds pay no interest during the period of time they are outstanding. The interest rate
for such borrowings is at 9%. Interest compounds annually.
Required: Calculate the price Joe paid for the bonds.
197) On February 1, 2018, Nell purchased $600,000 in zero-coupon bonds that mature on
February 1, 2038. The bonds pay no interest during the period of time they are outstanding. The
interest rate for such borrowings is at 12%.
Required: Calculate the price Nell paid for the bonds.
Use the following to answer the question(s) below:
On January 1, 2018, Morton Sales Co. issued zero-coupon bonds with a face value of $6 million
for cash. The bonds mature in 10 years and were issued at a price of $3,050,100.
198) Required: How much interest will Morton Sales Co. pay on these bonds in 2018?
199) Required: What was the annual effective interest rate in the market when the bonds were
issued?
200) Required: What amount of interest expense on these bonds would Morton Sales Co. report
in its 2018 income statement?
201) Required: What will Morton Sales Co. report on these bonds in its December 31, 2018,
balance sheet?
202) Required: What total interest expense will Morton Sales Co. report over the 10-year life of
these bonds?