An 8 Percent Debenture Has Five Years of Call Protection

question 56

Multiple Choice

An 8 percent debenture has five years of call protection and is thereafter callable at 100 percent, except that it is nonrefundable below interest cost. Which of the following statements is correct?

• A)The debenture may be called any time during the next five years.
• B)The debenture may not be called during the next five years.
• C)The lender has the option to demand early repayment.
• D)The bond should be called when the yield on similar noncallable bonds falls to 8 percent.

Describe the accounting entries for bond issuance, interest payment, amortization of bond discount/premium, and bond redemption.

Understand the methods for amortization of bond discount and premium and their impact on interest expense.

Calculate the amount of cash received from bond issuance and the bond carrying amount over its life.

Analyze the effect of selling bonds at a discount, premium, or face value on financial statements.

---

Definitions:

Typical Corporation

A standard business entity where ownership is divided into shares of stock, offering limited liability to its shareholders and being subject to corporate tax rates.

Disposable Income

Money left for savings and expenditures in households after paying income taxes.

Disposable Income

This refers to the amount of money that households have available for spending and saving after income taxes have been accounted for.

Disposable Income

The total funds available for spending and saving by households after subtracting income taxes.