general business data bank

1. Each bondholder may vote for the board of directors in proportion to the number of bonds held.

2. Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

3. tered bonds are bonds that are delivered to owners by U.S. registered mail service.

4. A debenture bond is an unsecured bond which is issued against the general credit of the borrower.

5. Bonds are a form of interest-bearing notes payable.

6. Neither corporate bond interest nor dividends are deductible for tax purposes.

7. A 10% stock dividend is the equivalent of a $1,000 par value bond paying annual interest of 10%.

8. The holder of a convertible bond can convert an interest payment received into a cash dividend paid on common stock if the dividend is greater than the interest payment.

9. The board of directors may authorize more bonds than are issued.

10. The contractual interest rate is always equal to the market interest rate on the date that bonds are issued.

11. If $150,000 face value bonds are issued at 103, the proceeds received will be $103,000.

12. Discount on bonds is an additional cost of borrowing and should be recorded as interest expense over the life of the bonds.

13. If a corporation issued bonds at an amount less than face value, it indicates that the corporation has a weak credit rating.

14. A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market interest rate.

15. If bonds are issued at a discount, the issuing corporation will pay a principal amount less than the face amount of the bonds on the maturity date.

16. If bonds are issued at a premium, the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date.

17. If the market interest rate is greater than the contractual interest rate, bonds will sell at a discount.

18. If $800,000, 6% bonds are issued on January 1, and pay interest semiannually, the amount of interest paid on July 1 will be $24,000.

19. If bonds sell at a premium, the interest expense recognized each year will be greater than the contractual interest rate.

20. The carrying value of bonds is calculated by adding the balance of the Discount on Bonds Payable account to the balance in the Bonds Payable account.

21. The loss on bond redemption is the difference between the cash paid and the carrying value of the bonds.

22. If $500,000 par value bonds with a carrying value of $476,000 are redeemed at 97, a loss on redemption will be recorded.

23. Gains and losses are not recognized when convertible bonds are converted into common stock.

24. Generally, convertible bonds do not pay interest.

,

25. Each payment on a mortgage note payable consists of interest on the original balance of the loan and a reduction of the loan principal.

,

26. A long-term note that pledges title to specific property as security for a loan is known as a mortgage payable.

27. A capital lease requires the lessee to record the lease as a purchase of an asset.

28. The times interest earned ratio is computed by dividing net income by interest expense.

^a29. The present value of a bond is a function of two variables: (1) the payment amounts and (2) the interest (discount) rate.

^a30. The effective-interest method of amortization results in varying amounts of amortization and interest expense per period but a constant interest rate.

31. Bonds that mature at a single specified future date are called term bonds.

32. The terms of the bond issue are set forth in a formal legal document called a bond indenture.

Ans: T,

33. The carrying value of bonds at maturity should be equal to the face value of the bonds.

34. Premium on Bonds Payable is a contra account to Bonds Payable.

35. When bonds are converted into common stock, the carrying value of the bonds is transferred to paid-in capital accounts.

36. Operating leases are leases that the lessee must capitalize on its balance sheet as an asset.

37. Under a capital lease, the lease/asset is reported on the balance sheet under plant assets.

38. Long-term liabilities are reported in a separate section of the balance sheet immediately following current liabilities.