Accounting 200 Exam 3 Study Guide University Of
Arizona Questions And Answers
Assume you borrow $5000 for 2 years at a simple interest rate of 12%. Calculate interest cost. ANS
interest cost = (P x I x N) = 5,000 x 0.12 x 2 = $1200
What is Compound interest? ANS The interest computed on the principal AND any interest earned
that has not been paid or withdrawn; Most business situations use compound interest
When solving FV of a single amount, what's necessary to know beforehand? ANS interest rate(%) , #
of compounding periods, and the amount of the payment or receipt
When solving FV of annuity, what's necessary to know beforehand? ANS interest rate(%), # of
compounding periods, and the amount of periodic payments or receipts
When solving PV of annuity, what's necessary to know beforehand? ANS discount rate, # of
payments, amount of periodic payments or receipts
Other words for "contract" rate? ANS Also called stated or coupon rate
Other words for "market" rate? ANS Also called effective or discount rate
Bonds are issued at a "discount" when... ANS contract rate < market rate
Bonds are issued at a "premium" when.. ANS contract rate > market rate
JE to issuing a bond at a discount ANS Dr. Cash , Dr. Discount on B/P | Cr. Bonds Payable( at face
value)
JE to issuing a bond at a premium ANS Dr. Cash | Cr. Premium on B/P , Cr. Bonds Payable( at face
value)
, Who is the "bond issuer" ? ANS is the one borrowing the money
Who is the "bondholder" ? ANS the investor that is providing money to the borrower
What are secured bonds? ANS have specific assets pledged as collateral
What are unsecured bonds? ANS bonds issued against the general credit of the borrower
What are convertible bonds? ANS Can be converted to common stock; at the option of the
bondholder
What are callable bonds? ANS bonds that can be redeemed(bought back) prior to the maturity at the
option of the bond issuer
What is a bond certificate? ANS certificate issued to the investor and provides the name of the
company issuing the bonds, face value, maturity date, and the contract (stated) interest rate
What is the maturity date? ANS date final payment is due
What is the face value? ANS the amount a borrower must pay back to the bondholders on the
maturity date
When the contract rate is 10% and the market rate is 8 %. Bonds sell at ... ANS a premium
When the contract rate is 10% and the market rate is 10 %. Bonds sell at... ANS face value
When the contract rate is 10% and the market rate is 12 %. Bonds sell at... ANS a discount
The "carrying value" of bonds is... ANS the face value of the bonds (-) the unamortized bond discount
balance or (+) the unamortized bond premium balance
Arizona Questions And Answers
Assume you borrow $5000 for 2 years at a simple interest rate of 12%. Calculate interest cost. ANS
interest cost = (P x I x N) = 5,000 x 0.12 x 2 = $1200
What is Compound interest? ANS The interest computed on the principal AND any interest earned
that has not been paid or withdrawn; Most business situations use compound interest
When solving FV of a single amount, what's necessary to know beforehand? ANS interest rate(%) , #
of compounding periods, and the amount of the payment or receipt
When solving FV of annuity, what's necessary to know beforehand? ANS interest rate(%), # of
compounding periods, and the amount of periodic payments or receipts
When solving PV of annuity, what's necessary to know beforehand? ANS discount rate, # of
payments, amount of periodic payments or receipts
Other words for "contract" rate? ANS Also called stated or coupon rate
Other words for "market" rate? ANS Also called effective or discount rate
Bonds are issued at a "discount" when... ANS contract rate < market rate
Bonds are issued at a "premium" when.. ANS contract rate > market rate
JE to issuing a bond at a discount ANS Dr. Cash , Dr. Discount on B/P | Cr. Bonds Payable( at face
value)
JE to issuing a bond at a premium ANS Dr. Cash | Cr. Premium on B/P , Cr. Bonds Payable( at face
value)
, Who is the "bond issuer" ? ANS is the one borrowing the money
Who is the "bondholder" ? ANS the investor that is providing money to the borrower
What are secured bonds? ANS have specific assets pledged as collateral
What are unsecured bonds? ANS bonds issued against the general credit of the borrower
What are convertible bonds? ANS Can be converted to common stock; at the option of the
bondholder
What are callable bonds? ANS bonds that can be redeemed(bought back) prior to the maturity at the
option of the bond issuer
What is a bond certificate? ANS certificate issued to the investor and provides the name of the
company issuing the bonds, face value, maturity date, and the contract (stated) interest rate
What is the maturity date? ANS date final payment is due
What is the face value? ANS the amount a borrower must pay back to the bondholders on the
maturity date
When the contract rate is 10% and the market rate is 8 %. Bonds sell at ... ANS a premium
When the contract rate is 10% and the market rate is 10 %. Bonds sell at... ANS face value
When the contract rate is 10% and the market rate is 12 %. Bonds sell at... ANS a discount
The "carrying value" of bonds is... ANS the face value of the bonds (-) the unamortized bond discount
balance or (+) the unamortized bond premium balance
