A Note Renewed at Maturity Would Have the Following Effects

question 107

Multiple Choice

A note renewed at maturity would have the following effects for a seller:

• A) debit to Notes Receivable (new); debit to Notes Receivable (old); credit to Cash; credit to Interest Income.
• B) debit to Notes Receivable (old); debit to Cash; debit to Notes Receivable (new); credit to Interest Income.
• C) debit to Notes Receivable (new); debit to Cash; credit to Notes Receivable (old); credit to Interest Income.
• D) debit to Notes Receivable (old); debit to Interest Income; credit to Notes Receivable (new); credit to Cash.

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Definitions:

Yield To Maturity

A measurement of the annual return an investor can expect from a bond if held to its end date, factoring in its price, interest payments, and time to maturity.

Zero-Coupon Bond

A bond that does not pay periodic interest payments but is sold at a deep discount from its face value and pays its full face value at maturity.

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to changes in interest rates, often used as an indication of interest rate risk.

Coupon Bond

A type of bond that pays the holder a fixed interest rate (the coupon) at regular intervals until the bond matures, when the principal amount is repaid.