 In this presentation, we will take a look at multiple choice questions related to bonds, notes payable, and long-term liabilities. Support a counting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources, such as Excel practice problems, PDF files, and more, like QuickBooks backup files, when applicable. So once again, click the link below for a free month membership to our website and all the content on it. First question. Promissory notes where the issuer makes a series of payments consisting of both interest and principle are A. Bonds, B. Discounted notes, C. Installment notes, D. Normal notes, E. Investment notes. So let's go through this again. Promissory notes where the issuer makes a series of payments consisting of both interest and principles are either A. Bonds. Now notes and bonds are different or they sound very similar, but it's not going to be that's not going to be like a bond or note that is a bond. Now B says discounted note. That sounds kind of reasonable if we don't we will think it will keep that for now. C says installment note. And again, that probably sounds like a term we've heard. So I'll keep that for now. D says normal notes. And that sounds kind of neat with the two ends there, the normal note, but it doesn't I don't think that's the thing. There might be such a thing as like a normal note, but we don't usually call it a normal note if that's not one of our terms. So I'm going to cross that out and then E says investment notes. And again, it sounds like it doesn't really sound like something we've dealt with much investment. It sounds a little off, so I'm going to say I'm going to narrow it down between B and C. So we have promissory notes where the issuer makes a series of payments consisting of both interest and principle are either B discounted notes or C installment notes. And of the of the two, it's going to be the installment notes. And if you take a look at the material we use here, we've mainly been looking at installment notes. So that's the type of note that we're most familiar with. And you can think of it as making installment payments. So when we finance a car or like a mortgage, typically, we're paying back both interest and principle and we're paying installments. And the idea there is that we're trying to standardize the payment to make the payment as standardized as possible. And to do that, we're paying interest and principle throughout the term of the note, although the amount allocated between interest and principle will vary with the payments. Next question. A bond sells at a premium when, A, the contract rate is higher than the market rate, B, the contract rate is equal to the market rate, C, the contract rate is lower than the market rate, D, it is a normal bond, or E, the bond is issued right away. Let's go through this again. A bond sells at a premium when, either A, the contract rate is higher than the market rate. And notice A, B, and C are very similar. B says the contract rate is equal to the market rate. And C says the contract rate is lower than the market rate. So it's got to be one of those three, you would think, because there's a lot of focus on those. So I think we could pretty much eliminate D and E, which say D says it is a normal bond. Again, there might be a normal bond, but that's not really one of our terms, a normal bond. So I'm going to cross that out. And E says the bond is issued right away. And that may be more likely to have something happen, but it's not a determining factor, the ultimate cause of something. So if we go through this again, we're going to say A bond sells a premium when, the contract rate is higher than the market rate, equal to the market rate, or lower than the market rate. Now, if it's equal to the market rate, that's when it's going to be issued at par. There's not going to be any premium or discount. So I'm going to cross that out. The question is, is it higher or lower? Normally I would try to think this through, because this is going to be a question that's always going to be asked on a multiple choice question related to bonds. And typically I would try to just think through it. If you had a $1,000 bond and you had a 5% on the face of the amount of bond, the market rate is where you can go elsewhere. So basically if I had $1,000 to invest, the reason I'm investing it is because I want to get interest on it. If I give my $1,000 to this company for this bond, they're going to pay me 5% interest and give me my principal back at the end of the bond. But if I can go somewhere else and get 6% interest, then I'm not going to give the $1,000 to this company. I might give them money. I might buy their bond at something less, at a discount. I might buy it for less than a thousand. If, on the other hand, 5% is what's on the bond, they're going to pay me according to the contract. And if I go somewhere else, I can only get 4% with my $1,000. I'm going to get less return on it. Then I'd be willing to give them the $1,000 for the 5%, but they will not allow that. They're going to say, well, if you can only get 4% elsewhere, we know that. So we're going to sell our bond at a premium, meaning they're going to want more money. So that means then, of course, that if the bond rate is higher than the market rate, it's going to sell at a premium. And that's going to be a. So the contract rate, the rate on the bond is higher than the market rate. That means that the company is paying more back on the investment that is being given to them than someone could find elsewhere. And that means that because we can't change the rate, I can't change the rate to 4% to match the market rate. What we're going to do instead is increase the amount that we're going to get paid over the face amount of the bond.