Acct 328 Exam 1 || Answers 100% Rated Correct.
long-term debt correct answers consists of probable future sacrifices of economic benefits arising
from present obligations that are not payable within a year or the operating cycle of the company,
whichever is longer. Ex: bonds payable, long-term notes payable, mortgages payable, pension
liabilities, and lease liabilities
covenants and restrictions correct answers Generally, long-term debt has various __ that protect
both lenders and borrowers. The indenture or agreement often includes the amounts authorized to
be issued, interest rate, due date(s), call provisions, property pledged as security, sinking fund
requirements, working capital and dividend restrictions, and limitations concerning the
assumption of additional debt. Companies should describe these features in the body of the
financial statements or the notes if important for a complete understanding of the financial
position and the results of operations.
bond indenture correct answers A bond arises from a contract known as a __. A bond represents a
promise to pay: (1) a sum of money at a designated maturity date, plus (2) periodic interest at a
specified rate on the maturity amount (face value). Individual bonds are evidenced by a paper
certificate and typically have a $1,000 face value. Companies usually make bond interest
payments semiannually, although the interest rate is generally expressed as an annual rate. The
main purpose of bonds is to borrow for the long term when the amount of capital needed is too
large for one lender to supply. By issuing bonds in $100, $1,000, or $10,000 denominations, a
company can divide a large amount of long-term indebtedness into many small investing units,
thus enabling more than one lender to participate in the loan.
investment bank correct answers A company may sell an entire bond issue to an __ which acts as
a selling agent in the process of marketing the bonds. In such arrangements, investment banks
may either underwrite the entire issue by guaranteeing a certain sum to the company, thus taking
the risk of selling the bonds for whatever price they can get (firm underwriting). Or they may sell
the bond issue for a commission on the proceeds of the sale (best-efforts underwriting).
Alternatively, the issuing company may sell the bonds directly to a large institution, financial or
otherwise, without the aid of an underwriter (private placement).
secured bonds correct answers (type of bond) are backed by a pledge of some sort of collateral.
Mortgage bonds are secured by a claim on real estate. Collateral trust bonds are secured by
stocks and bonds of other corporations
, debenture bonds correct answers (type of bond) bonds not backed by collateral, unsecured. A
"junk bond" is unsecured and also very risky, and therefore pays a high interest rate. Companies
often use these bonds to finance leveraged buyouts
term bonds correct answers (type of bond) bond issues that mature on a single date are called __
serial bonds correct answers (type of bond) issues that mature in installments are called __.
These bonds are frequently used by school or sanitary districts, municipalities, or other local
taxing bodies that receive money through a special levy
callable bonds correct answers (type of bond) give the issuer the right to call and retire the bonds
prior to maturity
convertible bonds correct answers (type of bond) if bonds are convertible into other securities of
the corporation for a specified time after issuance, they are __.
Two types: commodity-backed bonds and deep-discount bonds
registered and bearer bonds correct answers (type of bond) Bonds issued in the name of the
owner are __ and require surrender of the certificate and issuance of a new certificate to
complete a sale. A __, however, is not recorded in the name of the owner and may be transferred
from one owner to another by mere delivery.
income and revenue bonds correct answers (type of bond) __ pay no interest unless the issuing
company is profitable. __, so called because the interest on them is paid from specified revenue
sources, are most frequently issued by airports, school districts, counties, toll-road authorities,
and governmental bodies.
bond valuation correct answers The selling price of a bond issue is set by the supply and demand
of buyers and sellers, relative risk, market conditions, and the state of the economy. The
investment community values a bond at the present value of its expected future cash flows,
which consist of (1) interest and (2) principal. The rate used to compute the present value of
long-term debt correct answers consists of probable future sacrifices of economic benefits arising
from present obligations that are not payable within a year or the operating cycle of the company,
whichever is longer. Ex: bonds payable, long-term notes payable, mortgages payable, pension
liabilities, and lease liabilities
covenants and restrictions correct answers Generally, long-term debt has various __ that protect
both lenders and borrowers. The indenture or agreement often includes the amounts authorized to
be issued, interest rate, due date(s), call provisions, property pledged as security, sinking fund
requirements, working capital and dividend restrictions, and limitations concerning the
assumption of additional debt. Companies should describe these features in the body of the
financial statements or the notes if important for a complete understanding of the financial
position and the results of operations.
bond indenture correct answers A bond arises from a contract known as a __. A bond represents a
promise to pay: (1) a sum of money at a designated maturity date, plus (2) periodic interest at a
specified rate on the maturity amount (face value). Individual bonds are evidenced by a paper
certificate and typically have a $1,000 face value. Companies usually make bond interest
payments semiannually, although the interest rate is generally expressed as an annual rate. The
main purpose of bonds is to borrow for the long term when the amount of capital needed is too
large for one lender to supply. By issuing bonds in $100, $1,000, or $10,000 denominations, a
company can divide a large amount of long-term indebtedness into many small investing units,
thus enabling more than one lender to participate in the loan.
investment bank correct answers A company may sell an entire bond issue to an __ which acts as
a selling agent in the process of marketing the bonds. In such arrangements, investment banks
may either underwrite the entire issue by guaranteeing a certain sum to the company, thus taking
the risk of selling the bonds for whatever price they can get (firm underwriting). Or they may sell
the bond issue for a commission on the proceeds of the sale (best-efforts underwriting).
Alternatively, the issuing company may sell the bonds directly to a large institution, financial or
otherwise, without the aid of an underwriter (private placement).
secured bonds correct answers (type of bond) are backed by a pledge of some sort of collateral.
Mortgage bonds are secured by a claim on real estate. Collateral trust bonds are secured by
stocks and bonds of other corporations
, debenture bonds correct answers (type of bond) bonds not backed by collateral, unsecured. A
"junk bond" is unsecured and also very risky, and therefore pays a high interest rate. Companies
often use these bonds to finance leveraged buyouts
term bonds correct answers (type of bond) bond issues that mature on a single date are called __
serial bonds correct answers (type of bond) issues that mature in installments are called __.
These bonds are frequently used by school or sanitary districts, municipalities, or other local
taxing bodies that receive money through a special levy
callable bonds correct answers (type of bond) give the issuer the right to call and retire the bonds
prior to maturity
convertible bonds correct answers (type of bond) if bonds are convertible into other securities of
the corporation for a specified time after issuance, they are __.
Two types: commodity-backed bonds and deep-discount bonds
registered and bearer bonds correct answers (type of bond) Bonds issued in the name of the
owner are __ and require surrender of the certificate and issuance of a new certificate to
complete a sale. A __, however, is not recorded in the name of the owner and may be transferred
from one owner to another by mere delivery.
income and revenue bonds correct answers (type of bond) __ pay no interest unless the issuing
company is profitable. __, so called because the interest on them is paid from specified revenue
sources, are most frequently issued by airports, school districts, counties, toll-road authorities,
and governmental bodies.
bond valuation correct answers The selling price of a bond issue is set by the supply and demand
of buyers and sellers, relative risk, market conditions, and the state of the economy. The
investment community values a bond at the present value of its expected future cash flows,
which consist of (1) interest and (2) principal. The rate used to compute the present value of
