Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Chapter 7, Problem 7MCQ
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Identify the correct answer related to market interest rate and stated rate.
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Which of the following is true for bonds issued at a discount? a. The stated interest rate is greater than the market interest rate.b. The market interest rate is greater than the stated interest rate.c. The stated interest rate and the market interest rate are equal.d. The stated interest rate and the market interest rate are unrelated.
Refer to Chapter 10, page 567: Stated rate of interest versus the market rate of interest
Required
Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions:
____ The stated rate of interest is higher than the market rate.
____ The market rate of interest is equal to the stated rate.
____ The market rate of interest is less than the stated rate.
____ The stated rate of interest is less than the market rate.
____ The market rate of interest is higher than the stated rate
Which of the following is correct?
a. The terms, “yield rate”, “ stated rate”, and “market rate” are generally interchangeable when referring to interest on bonds.
b. The yield or effective interest rate on a bond is equal to the stated rate if the bond premium or discount is amortized by using the straight-line method.
c. Interest revenue and expense related to bonds are always computed using the stated rate of interest.
d. If a bond is sold at its face amount, the stated and effective interest rates are the same.
Chapter 7 Solutions
Financial Accounting
Ch. 7 - Prob. 1YTCh. 7 - Prob. 2YTCh. 7 - Prob. 3YTCh. 7 - If a 1,000 bond is selling for 95.5, how much cash...Ch. 7 - Prob. 5YTCh. 7 - Prob. 6YTCh. 7 - Prob. 7YTCh. 7 - Prob. 1QCh. 7 - Prob. 2QCh. 7 - What is a mortgage?
Ch. 7 - Prob. 4QCh. 7 - Prob. 5QCh. 7 - Prob. 6QCh. 7 - Prob. 7QCh. 7 - Prob. 8QCh. 7 - Prob. 9QCh. 7 - Prob. 10QCh. 7 - Prob. 11QCh. 7 - Prob. 12QCh. 7 - Prob. 13QCh. 7 - Prob. 1MCQCh. 7 - All of the following are current liabilities...Ch. 7 - Prob. 3MCQCh. 7 - Prob. 4MCQCh. 7 - Prob. 5MCQCh. 7 - Prob. 6MCQCh. 7 - Prob. 7MCQCh. 7 - Prob. 8MCQCh. 7 - A 1,000 bond with a stated rate of 8% is issued...Ch. 7 - Prob. 10MCQCh. 7 - Prob. 1SEACh. 7 - Prob. 2SEACh. 7 - Prob. 3SEACh. 7 - Prob. 4SEACh. 7 - Account for mortgages. (LO 3). Nunez Company has...Ch. 7 - Prob. 6SEACh. 7 - Account for bonds. (LO 4). If a 1,000 bound is...Ch. 7 - Prob. 8SEACh. 7 - Prob. 9SEACh. 7 - Prob. 10SEACh. 7 - Prob. 11SEACh. 7 - Prob. 12SEBCh. 7 - Prob. 13SEBCh. 7 - Prob. 14SEBCh. 7 - Prob. 15SEBCh. 7 - Account for mortgages. (LO 3). Curtain Company...Ch. 7 - Prob. 17SEBCh. 7 - Prob. 18SEBCh. 7 - Prob. 19SEBCh. 7 - Prob. 20SEBCh. 7 - Prob. 21SEBCh. 7 - Prob. 22SEBCh. 7 - Prob. 23EACh. 7 - Prob. 24EACh. 7 - Prob. 25EACh. 7 - Prob. 26EACh. 7 - Account for long-term liabilities. (LO 3, 5)....Ch. 7 - Prob. 28EACh. 7 - Prob. 29EACh. 7 - Prob. 30EACh. 7 - Prob. 31EACh. 7 - Prob. 32EACh. 7 - Prob. 33EACh. 7 - Prob. 34EACh. 7 - Prob. 35EACh. 7 - Prob. 36EACh. 7 - Prob. 37EACh. 7 - Prob. 38EACh. 7 - Prob. 39EACh. 7 - Prob. 40EACh. 7 - Prob. 41EACh. 7 - Prob. 42EBCh. 7 - Prob. 43EBCh. 7 - Prob. 44EBCh. 7 - Prob. 45EBCh. 7 - Prob. 46EBCh. 7 - Prob. 47EBCh. 7 - Prob. 48EBCh. 7 - Account for long-term liabilities. (LO 3, 5). On...Ch. 7 - Prob. 50EBCh. 7 - Prob. 51EBCh. 7 - Prob. 52EBCh. 7 - Prob. 53EBCh. 7 - Prob. 54EBCh. 7 - Prob. 55EBCh. 7 - Prob. 56EBCh. 7 - Prob. 57EBCh. 7 - Prob. 58EBCh. 7 - Prepare an amortization schedule for a bond issued...Ch. 7 - Prob. 60EBCh. 7 - Account for current liabilities. (LO 1, 5). On...Ch. 7 - Prob. 62PACh. 7 - Prob. 63PACh. 7 - Prob. 64PACh. 7 - Prob. 65PACh. 7 - Prob. 66PACh. 7 - Prob. 67PBCh. 7 - Prob. 68PBCh. 7 - Prob. 69PBCh. 7 - Prob. 70PBCh. 7 - Prob. 71PBCh. 7 - Prob. 72PBCh. 7 - Prob. 1FSACh. 7 - Prob. 2FSACh. 7 - Prob. 3FSACh. 7 - Prob. 1IECh. 7 - Prob. 2IECh. 7 - Do owners or creditors have more claims on the...Ch. 7 - Prob. 4IE
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- When bonds are redeemed before maturity, how is the gain or loss on redemption determined? Why does the calculation differ for bonds issued at face value, at a premium, and at a discount?arrow_forwardWhich one of the following is the reason that bonds may sell at a discount or premium? Select one: a. Market conditions caused the coupon rate of interest to change between the time the bond agreement was written and the date the bonds were actually issued to investors b. The bond issuer failed to consider the market yield rate when the bond agreement was created c. The bond issuer adjusted the coupon rate to match that of other bond issues d. The market yield rate fluctuated between the time the bond agreement was written and the date the bonds were actually issued to investorsarrow_forwardWhich of the following statements is not correct? a) The export value of the bond; the value the investor pays when buying bonds b) Nominal value of the bond; is the value written on the bond c) Another reason for the difference in bond market prices is the dividend paid to bonds. d) Periodic interest amounts on bonds are calculated at nominal value. e) Market value of a bond is equal to the present value of the interest to be paid by the bond and the principal amount to be paid at the end of maturity. ------------------ What is the market value of İdil Gıda's bond with a nominal value of 15000 USD, maturity of 3 years and 30% annual interest payment, assuming that the desired yield rate is 36%? a) 12500b) 13494c) 9000d) 5456e) 7594 ============ What is the market value of Beril Gıda A.Ş.'s bond with a nominal value of USD 12,000, maturity of 5 years and an annual interest payment of 25%, when the desired rate of return is 25%? a) 18000b) 15000c) 12000d) 16000e)…arrow_forward
- Which of the following apply to bonds? Select all the apply a. Earns gains from dividends b. Earns gains from interest c. Prices are determined by present value d. Prices are determined by supply and demand e. Have primary and secondary markets f. Have primary markets onlyarrow_forwardThe prices of bonds are quoted as a percentage of the bonds' face value. Group of answer choices This statement is true. This statement is false. There is not enough information to determine if the statement is true or false. This is an ambiguous statement.arrow_forward1. To calculate a gain or loss on redemption of a bond, you compare a. The market interest rate to the contract rate b. The carrying value value of the bond to the proceeds received from the sale of the bond c. The income for the period d. The proceeds to the unamortized premium or discount 2. If the proceeds are greater than the carrying value, you will have a a. gain with a credit balance b. gain with a debit balance c. loss with a debit balance d. loss with a credit balancearrow_forward
- Which of the following does not impact the calculation ofthe cash interest payments to be made to bondholders?a. Face value of the bond.b. Stated interest rate.c. Market interest rate.d. The length of time between payments.arrow_forwardWhich of the following statements is true? Select one:a)Short-term bonds have greater interest rate risk than do long-term bonds.b)Interest rate risk is highest during periods of high interest rates.c)Long-term bonds have greater interest rate risk than do short-term bonds.d)All bonds have equal interest rate risk.arrow_forwardCan you verify the formula in step 1 is correct? I am questioning the 0.05 figure in the market value of bonds formulaarrow_forward
- 1. Under what conditions would the yield-to-maturity and current yield of a bond be equal? Group of answer choices a. The bond is priced at par b. The bond is priced at a discount c. Insufficient information d. The bond is priced at a premium 2. Which of the following is correct about the risk-free rate as used in valuing equity instruments? Group of answer choices a. The risk-free rate accounts for the rate of return or yield of a government instrument which does not carry any risk. b. The risk-free rate used for valuing equity instruments is normally the yield of a long-term government security. c. The risk-free rate used for valuing equity instruments is the same as that used for valuing short-term debt instruments. d. The risk-free rate accounts for the risks related to government securities which is composed of credit-spread, maturity risk premium and the real risk-free rate. 3. Berg Inc. has just paid a dividend of P2.00. Its stock is now selling…arrow_forward1. You are comparing the two bonds below. Please note differences and what impact each would have on how the bonds should trade relative to each other in the secondary market. Bond A: Home Depot Bond B: Lowesarrow_forward1) Were the bonds in the entry on Dec 31. of year 2 redeemed at Maturity? 2) You suspect there is an error in one of the bond redemption entries. Assumimg the the amounts are correct, which entry is questionable? Why? 3) Why do some bonds sell below face value? 4) Which of the following items are ammortized? A. bonds B. Discounts C. Future cash receipts D. Redemption amount F. Contract rate of interest G. It depends on the face value of the bond H. Interest Expensearrow_forward
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