M5 - M4 - Bonds: Part 1

Question 1

____________ are long-term debt instruments issued by an entity.

Answer 1

Bonds (payable)

Question 2

________ are unsecured bonds.

Answer 2

Debentures

Question 3

_________ are bonds sold with no stated interest but rather at a deep discount and redeemed at the face value without periodic interest payments.

Answer 3

Zero coupon bond

Question 4

Typically, the face value of individual bonds is ___________

Answer 4

$1,000.

Question 5

The market will adjust the price paid for the bonds to reflect the ____or _____ interest rate.

Answer 5

market or effective

Question 6

A bond selling price is the sum of ________ of the bond plus the _____________, both discounted at the effective _________interest rate.

Answer 6

present value of the total face value of the bond; present value of future interest payments; market

Question 7

When the bond coupon rate exceeds the market rate, the bond will sell at a _______.

Answer 7

premium.

Question 8

If the bond coupon rate is below the market, the market will adjust and the bond will sell at a _______.

Answer 8

discount.

Question 9

What is the JE to record a bond issued at a discount

Answer 9

Dr Cash, Dr Discount. CR. Bonds payable

Question 10

What is the JE to record a bond issued at a premium

Answer 10

Dr Cash, Cr Premium . CR. Bonds payable

Question 11

_____________ is a component of the carrying value of a bond.

Answer 11

Unamortized discount or premium

Question 12

Carrying value is face value at the maturity of the bond, and it is used to calculate the interest expense when using the ________method of premium/discount amortization.

Answer 12

effective interest method

Question 13

Under U.S. GAAP and IFRS, bond issue costs are ______ from the ______________ and amortized using the effective interest method.

Answer 13

deducted; carrying value of the liability