Reference no: EM131264162
1 - On January 1, a company issues 8%. 5 year, $300,000 bonds that pay interest semiannually. On the issue date, the annual market rate of interest is 6%.
The following information is taken from present value tables:
Present value of an annuity for 10 periods at 3% 8.5302
Present value of an annuity for 10 periods at 4% 8.1109
Present value of 1 due in 10 periods at 3% 0.7441
Present value of 1 due in 10 periods at 4% 0.6756
What is the issue (selling) price of the bond?
$420,000
$402,362
$300,010
$308,107
$325,592
2- The debt-to-equity ratio:
Is calculated by dividing book value of secured liabilities by book value of pledged assets.
Is a means of assessing the risk of a company's financing structure.
Is not relevant to secured creditors.
Can always be calculated from information provided in a company's income statement.
Must be calculated from the market values of assets and liabilities.
3 - On January 1 of 2015, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semi-annually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:
Debit Cash $2,000,000; credit Bonds Payable $2,000,000.
Debit Cash $1,864,097; credit Bonds Payable $1,864,097.
Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903.
Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000.
Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000.
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