In Connection with the Examination of Bonds Payable, an Auditor

question 8

Multiple Choice

In connection with the examination of bonds payable, an auditor would expect to find in a bond agreement

• A) The issue date and maturity date of the bond.
• B) The names of the original subscribers to the bond issue.
• C) The yield to maturity of the bonds issued.
• D) The company's debt-to-equity ratio at the time of issuance.

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Definitions:

Straight Bond Value

The present value of future cash flows, such as interest payments and the return of principal, from a bond with no embedded options.

Convertible Bond

This bond offers the option to be exchanged for a set amount of the company's shares at various points during its term, often at the preference of the individual holding the bond.

Straight Bond Value

The value of a bond that pays fixed interest payments until maturity and repays the principal amount without any embedded options, traded purely on interest rate and credit quality.

Convertible Bond

A convertible bond is a type of bond that the holder can convert into a specified number of shares of the issuing company, typically at certain times during its life.