Bonds - Question PVB-0001 Bonds payable issued with...

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Question: PVB-0001 Bonds payable issued with scheduled maturities at various dates are called Serial bonds Term bonds A. No Yes B. No No C. Yes No D. Yes Yes Answers A : A. B : B. C : C. D : D. Answer Explanations This answer is incorrect. Refer to the correct answer explanation. This answer is incorrect. Refer to the correct answer explanation. C. Answer C is correct. Serial bonds are bond issues that mature in installments (i.e., on the same date each year over a period of years). Term bonds, on the other hand, are bond issues that mature on a single date. This answer is incorrect. Refer to the correct answer explanation. Question: PVB-0002 Glen Corporation had the following long-term debt: Sinking fund bonds, maturing in installments $1,100,000 Industrial revenue bonds, maturing in installments 900,000 Subordinated bonds, maturing on a single date 1,500,000 The total of the serial bonds amounted to Answers A : $1,500,000
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B : $2,000,000 C : $2,400,000 D : $3,500,000 Answer Explanations This answer is incorrect. Refer to the correct answer explanation. B. Answer B is correct. Serial bonds are bond issues that mature in installments. Therefore, the total serial bonds is $2,000,000 ($1,100,000 + $900,000). The bonds which mature on a single date ($1,500,000) are called term bonds. This answer is incorrect. Refer to the correct answer explanation. This answer is incorrect. Refer to the correct answer explanation. Question: PVB-0003 Theoretically, the proceeds from the sale of a bond will be equal to Answers A : The sum of the face amount of the bond and the periodic interest payments. B : The face amount of the bond. C : The face amount of the bond plus the present value of the interest payments made during the life of the bond discounted at the prevailing market rate of interest. D : The present value of the principal amount due at the end of the life of the bond plus the present value of the interest payments made during the life of the bond, each discounted at the prevailing market rate of interest. Answer Explanations A. Answer A is incorrect because the time value of money is not being considered. B. Answer B is incorrect because both the time value of money and the periodic interest payments are being ignored. C. Answer C is incorrect because the face value of the bond is not being discounted. D. Answer D is correct. Theoretically, market price (proceeds) of an obligation is equal to the present value of all future cash flows (i.e., the time value of money is considered). A bond has two sets of cash flows: periodic interest payments and the principal amount due at the end of the life of the bond. Such cash flows would be discounted at the prevailing market rate of interest at the time of the bond's issuance.
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Question: PVB-0004 On January 1, 2007, Colt Company issued 10-year bonds with a face amount of $1,000,000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows: At 8% At 10% Present value of 1 for 10 periods 0.463 0.386 Present value of an ordinary annuity of 1 for 10 periods 6.710 6.145 The total issue price (rounded) of the bonds was Answers A : $1,000,000 B : $ 954,600 C : $ 922,800 D : $ 877,600 Answer Explanations This answer is incorrect. Refer to the correct answer explanation.
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