Your Company Issues a 5-Year Bond with a Face Value

question 205

Multiple Choice

Your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond is calculated as the:

• A)present value of $10,000 to be received in 5 years plus the present value of $700 per year for 5 years.
• B)face value of the bonds,$10,000.
• C)amount investors would have to pay to earn 7% interest.
• D)amount investors would have to pay to earn an average of the stated interest rate and the market interest rate.

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Definitions:

Fixed Overhead Budget Variance

The difference between the actual fixed overhead costs incurred and the expected (budgeted) costs.

Standard Cost System

An accounting practice that uses predetermined costs for products or services to help managers control expenditures by comparing these standards with actual costs.

Commercial Refrigerators

Cooling appliances designed for commercial use to store perishable goods at required temperatures to prevent spoilage.

Variable Factory Overhead

Indirect manufacturing costs that vary with the level of production, such as utilities or materials used in the production process.