A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?

A) Secured and term.

B) Secured and serial.

C) Unsecured and term.

D) Unsecured and serial.

Answer: B

Which of the following is not true regarding callable bonds?

A) This feature allows the issuer to repay the bonds before their scheduled maturity date.

B) This feature helps protect the issuer against future decreases in interest rates.

C) This feature usually allows the issuer to repay bonds just below face value.

D) This feature benefits the issuer more when the bond's stated rate is 8% and the market interest rate is 5%.

Answer: C

Bonds can be secured or unsecured. Likewise, bonds can be term or serial bonds. Which is more common?

A) Secured and term.

B) Secured and serial.

C) Unsecured and term.

D) Unsecured and serial.

Answer: C

Which of the following definitions describes a term bond?

A) Matures on a single date.

B) Secured only by the "full faith and credit" of the issuing corporation.

C) Matures in installments.

D) Supported by specific assets pledged as collateral by the issuer.

Answer: A

Which of the following definitions describes a secured bond?

A) Matures on a single date.

B) Secured only by the "full faith and credit" of the issuing corporation.

C) Matures in installments.

D) Supported by specific assets pledged as collateral by the issuer.

Answer: D

Which of the following definitions describes a serial bond?

A) Matures on a single date.

B) Secured only by the "full faith and credit" of the issuing corporation.

C) Matures in installments.

D) Supported by specific assets pledged as collateral by the issuer.

Answer: C

On January 1, 2021, a company signs a 25-year lease for land. Annual payments of $20,000 begin on December 31, 2021

On January 1, 2021, a company signs a 25-year lease for land. Annual payments of $20,000 begin on December 31, 2021. The company's normal borrowing rate is 6%. For what amount would the company record the lease on January 1, 2021 (rounded to nearest whole dollar)? Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

A) $255,667.

B) $440,463.

C) $500,000.

D) $244,333.

Answer: A

On July 1, 2021, a company signs a 30-month lease for an office building. Lease payments of $6,457 are due every three months (10 payments total), beginning on October 1, 2021. The company's normal borrowing rate is 8% (2% every three months). For what amount would the company record the lease on July 1, 2021 (rounded to nearest whole dollar)? Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

A) $62,000.

B) $58,001.

C) $64,570.

D) $43,327.

Answer: B

Term bonds are:

A) Bonds issued below the face amount.

B) Bonds that mature in installments.

C) Bonds that mature all at once.

D) Bonds issued above the face amount.

Answer: C

A bond is a formal debt instrument that obligates the borrower to repay a stated amount at the maturity date.

A bond is a formal debt instrument that obligates the borrower to repay a stated amount at the maturity date. This stated amount is referred to as the:

A) Note.

B) Interest.

C) Lease.

D) Principal or face amount.

Answer: D

At the beginning of the lease period, the lease is reported in the lessee's balance sheet for which amount?

A) Fair value of the underlying asset.

B) Present value of expected cash inflows from using the underlying asset.

C) Present value of lease payments over the lease period.

D) Leases are not reported in the balance sheet.

Answer: C

A common advantage of obtaining long-term funds by issuing bonds, rather than borrowing from the bank, includes which of the following?

A) Bonds involve less surrendering of ownership control.

B) Bonds usually have a lower interest rate.

C) Bonds are more likely to involve borrowing from a single lender.

D) Bond issue costs are usually lower than fees charged by the bank.

Answer: B

A company is deciding between two options: (1) purchase a piece of equipment for $10,000 or (2) lease the same piece of equipment for three years

A company is deciding between two options: (1) purchase a piece of equipment for $10,000 or (2) lease the same piece of equipment for three years and then return the equipment to the owner. The lease payments are $182.53 per month and have a present value of $6,000. If the company decides to lease, for what amount would the leased asset be recorded at the beginning of the lease?

A) $10,000.

B) $6,000.

C) $4,000.

D) $6,571.

Answer: B

Before signing a lease, a company reports total assets of $500,000 and total liabilities of $300,000. The company then signs a 30-month lease for equipment with payments of $922.21 each month. The lease payments have a present value of $25,000. After recording the inception of the lease, the company would report which of the following?

A) Total assets of $527,666.30, and total liabilities of $325,000.00.

B) Total assets of $525,000.00, and total liabilities of $327,666.30.

C) Total assets of $527,666.30, and total liabilities of $327,666.30.

D) Total assets of $525,000.00, and total liabilities of $325,000.00.

Answer: D

On April 1, 2021, a company signs a 20-month lease for equipment. Monthly payments of $554.15 begin on May 1, 2021.

On April 1, 2021, a company signs a 20-month lease for equipment. Monthly payments of $554.15 begin on May 1, 2021. The company's normal borrowing rate is 12%. For what amount would the company record the lease on April 1, 2021 (rounded to nearest whole dollar)? Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

A) $12,000.

B) $11,083.

C) $10,000.

D) $10,800.

Answer: C

Which of the following represents an advantage of leasing rather than buying an asset with an installment note?

A) Leasing may offer protection against the risk of declining asset values.

B) Lease payments often are lower than installment payments.

C) Leasing offers flexibility and lower costs when disposing of an asset.

D) All of the other answer choices are correct.

Answer: D

Which of the following is the number one method of external financing by U.S. companies?

A) Issuing installment notes.

B) Leasing.

C) Issuing bonds.

D) Borrowing from banks.

Answer: B

A company issues a $200,000, 5%, six-year note on January 1, 2021. If the monthly payment is $3,220.99, by how much will the carrying value decrease

A company issues a $200,000, 5%, six-year note on January 1, 2021. If the monthly payment is $3,220.99, by how much will the carrying value decrease when the first month's payment is made on January 31, 2021?

A) $4,054.32

B) $2,387.66

C) $3,220.99

D) $833.33

Answer: B

Which of the following is not a reason why some companies lease rather than buy?

A) Leasing may allow you to borrow with little or no down payment.

B) Leasing may offer protection against risk of declining asset values.

C) Leasing offers flexibility and lower costs when disposing of an asset.

D) Leasing transfers the title to the lessee at the beginning of the lease.

Answer: D

Which of the following is recorded by the lessee at the beginning of the lease?

A) Decrease in assets.

B) Increase in expenses.

C) Increase in revenues.

D) Increase in liabilities.

Answer: D