54. What is the stated annual rate of interest on the bonds? (Hint: Be sure to provide the
annual rate rather than the six month rate.)
55. What is the market annual rate of interest on the bonds? (Hint: Be sure to provide the
annual rate rather than the six month rate.)
56. What is the interest expense on the bonds in 2012?
57. What is the carrying value of the bonds as of December 31, 2013?
Tony Hawk’s Adventure (THA) issued callable bonds on January 1, 2012. THA’s accountant
has projected the following amortization schedule from issuance until maturity:
58. THA issued the bonds:
59. THA issued the bonds for:
60. The THA bonds have a life of:
61. What is the annual stated interest rate on the bonds? (Hint: Be sure to provide the annual
rate rather than the six month rate.)
62. What is the annual market interest rate on the bonds? (Hint: Be sure to provide the annual
rate rather than the six month rate.)
X2 issued callable bonds on January 1, 2012. The bonds pay interest annually on December
31 each year. X2’s accountant has projected the following amortization schedule from
issuance until maturity:
63. X2 issued the bonds:
64. X2 issued the bonds for:
65. The X2 bonds have a life of:
66. What is the annual stated interest rate on the bonds?
67. What is the annual market interest rate on the bonds?
68. Which of the following statements is correct?
69. THA buys back the bonds for $196,000 immediately after the interest payment on
12/31/12 and retires them. What gain or loss, if any, would THA record on this date?
70. X2 buys back the bonds for $103,000 immediately after the interest payment on 12/31/12
and retires them. What gain or loss, if any, would X2 record on this date?
71. When bonds are retired before their maturity date:
72. The Viper retires a $40 million bond issue when the carrying value of the bonds is $42
million, but the market value of the bonds is $36 million. The entry to record the retirement
will include:
73. The Titan retires a $20 million bond issue when the carrying value of the bonds is $18
million, but the market value of the bonds is $23 million. The entry to record the retirement
will include:
74. In each succeeding payment on an installment note:
75. The entry to record a monthly payment on an installment note such as a car loan:
76. How does the amortization schedule for an installment note such as a car loan differ from
an amortization schedule for bonds?
77. Which of the following leases is just like a rental?
78. Which of the following leases is essentially the purchase of an asset with debt financing?
79. Which of the following is not a reason why some companies lease rather than buy?
80. Financial leverage is best measured by which of the following ratios?
81. Which of the following is true regarding a company assuming more debt?
82. Which of the following is not a true statement?
83. The times interest earned ratio is calculated as
84. Selected financial data for Home Depot is provided below:
What is the times interest earned ratio for Home Depot?
85. Selected financial data for Lowes is provided below:
What is the times interest earned ratio for Lowes?
86. The mixture of liabilities and stockholders’ equity a business uses is called its capital
structure.
87. Interest expense incurred when borrowing money, as well as dividends paid to
stockholders, are tax-deductible.
88. As a company’s level of debt increases, bankruptcy risk increases.
89. Companies that are believed to have high bankruptcy risk generally receive higher credit
ratings and pay a lower interest rate for borrowing.
90. Bonds are the most common form of corporate debt.
91. A private placement is when a company chooses to sell the debt securities directly to a
single investor.
92. Secured bonds are backed by the federal government.
93. Unsecured bonds are not backed by a specific asset.
94. Term bonds require payments in installments over a series of years.
95. Serial bonds require payment of the full principal amount of the bond at a single maturity
date.
96. A callable bond allows the borrower to repay the bonds before their scheduled maturity
date at a specified call price.
97. Convertible bonds allow the investor to convert each bond into a specified number of
shares of common stock.
98. We can calculate the issue price of a bond as the face amount plus the total periodic
interest payments.
100. The stated interest rate is the rate quoted in the bond contract used to calculate the cash
payments for interest.
101. The market interest rate does not change over time.
102. The stated interest rate does not change over time.
103. As a company’s default risk increases, investors demand a higher market interest rate on
their bond investments.
104. The lower the market interest rate, the lower the bond issue price will be.
105. Bonds issued below face amount are said to be issued at a discount.
106. A premium occurs when the issue price of a bond is above its face amount.
107. The amount reported on the balance sheet for bonds payable is equal to the carrying
value at the balance sheet date.