Question 1

Bonds are usually sold in small denominations; as a result,

Accepted Answer

A)   bonds will not attract investors.
B)   bonds must be sold in one transaction.
C)   bonds attract many investors.
D)   only one investor may purchase all the bonds.E) All of the above
F) A) and D)

Question 2

If $100,000 face value bonds with a carrying value of $95,200 are redeemed at 97, a loss on redemption will be recorded.

Accepted Answer

A) True 
 B)False

Question 3

If there is a loss on bonds redeemed before maturity, it is

Accepted Answer

A)   debited directly to Retained Earnings.
B)   reported as "Other Expenses" on the income statement.
C)   reported as a reduction in interest revenue on the income statement.
D)   debited to Interest Expense, as a cost of financing.E) A) and B)
F) C) and D)

Question 4

The entry to record an instalment payment on a non-current note payable is

Accepted Answer

A)   Mortgage Notes Payable Cash
B)   Interest Expense Cash
C)   Mortgage Notes Payable Interest ExpenseCash
D)   Bonds Payable CashE) A) and C)
F) B) and C)

Question 5

The contractual rate of interest is always stated as a(n)

Accepted Answer

A)   monthly rate.
B)   daily rate.
C)   semi-annual rate.
D)   annual rate.E) A) and B)
F) A) and C)

Question 6

Even if it is riskier to issue debt, most companies still choose to do this because

Accepted Answer

A)   money that is borrowed increases earnings per share.
B)   it produces a higher return on equity.
C)   it does not affect shareholder control.
D)   all of the above are correct.E) C) and D)
F) A) and D)

Question 7

The present value of a bond is also known as its

Accepted Answer

A)   face value.
B)   market price.
C)   future value.
D)   deferred value.E) A) and D)
F) None of the above

Question 8

When authorizing bonds to be issued, the board of directors does NOT specify the

Accepted Answer

A)   total number of bonds authorized to be sold.
B)   contractual interest rate.
C)   selling price.
D)   total face value of the bonds.E) B) and D)
F) None of the above

Question 9

The effective-interest method of amortization results in varying amounts of amortization, and interest expense per period but a constant rate of interest.

Accepted Answer

A) True 
 B)False

Question 10

Match between columns
                        Premises: Bonds that can be retired by the company before they mature
A debt security that is traded on organized exchanges
Unsecured bonds issued against the general credit of the borrower
Fixed debt payments resulting in an increasingly larger portion of each payment being credited toward principal and a smaller portion toward interest over time.
Occurs when the contractual rate of interest is greater than the market rate of interest.
Indicates the company's ability to meet interest payments as they come due.
Used to determine the amount of interest the borrower pays and the investor receives.
Borrowing at one rate and investing at a different rate.
Occurs when the contractual rate of interest is less than the market rate of interest.
Produces a periodic interest expense equal to a constant percentage of the amortized cost of the bonds.
Bonds that mature at a single specified future date
A contractual arrangement that transfers the risks and rewards of ownership to the lessee.

Accepted Answer

The Answer of Interest Coverage and Financial Leverage and Term is...

Question 11

Hanna Manufacturing Limited receives $240,000 on January 1, 2013 when it issues a 6%, 3-year note payable to finance the purchase of equipment. The terms provide for annual payments each December 31. The first payment is due December 31, 2013.
Instructions
Prepare the journal entries to record the note and the first two instalment payments assuming:
a. the payment is a fixed principal payment of $80,000.
b. the payment is a blended payment of $89,786.76.

Accepted Answer

The answer of Hanna Manufacturing Limited receives $240,000 on January...

Question 12

The present value of a bond is the value at which the bond would sell in the marketplace.

Accepted Answer

A) True 
 B)False

Question 13

When recording a retirement of bonds, a company must account for all of the following EXCEPT

Accepted Answer

A)   the payment of cash to the bondholders.
B)   the removal of the bond from the company's accounting records.
C)   the recognition of any gain or loss on redemption.
D)   the receipt of cash from the bondholders.E) All of the above
F) A) and C)

Question 14

Bonds that are issued against the general credit of the issuer are termed

Accepted Answer

A)   market value bonds.
B)   redeemable bonds.
C)   debentures.
D)   junk bonds.E) All of the above
F) None of the above

Question 15

Earnings per share is usually higher under debt financing because

Accepted Answer

A)   more common shares are issued.
B)   interest expense reduces profit.
C)   no additional common shares are issued.
D)   interest expense increases profit.E) All of the above
F) B) and D)

Question 16

On January 1, 2013, Callahan Corporation issued $600,000, 9%, 5-year bonds, dated January 1, 2013, at 104. The bonds pay interest semi-annually on January 1 and July 1. The company has a December 31 year end. Assume amortization of $1,700 and $2,100 respectively for the first two semi-annual interest periods.
Instructions
Prepare the journal entries that Callahan Corporation would make related to the bond issue on the dates indicated below:

Accepted Answer

The answer of On January 1, 2013, Callahan Corporation issued...

Question 17

Stead, Inc. issued $600,000, 6%, 20-year bonds on January 1, 2014, at 102. Interest is payable semi-annually on July 1 and January 1. Stead has a December 31 year end. Assume amortization of $250 and $260 respectively for the first two semi-annual interest periods.
Instructions
Prepare all journal entries made in 2014 related to the bond issue.

Accepted Answer

The answer of Stead, Inc. issued $600,000, 6%, 20-year bonds...

Question 18

Bonds that mature in instalments are called term bonds.

Accepted Answer

A) True 
 B)False

Question 19

When bonds are issued at a premium, the

Accepted Answer

A)   amount of premium amortized will get larger with successive amortization.
B)   amortized cost of the bonds will increase with successive amortization.
C)   interest paid to bondholders will increase after each interest payment date.
D)   interest rate used to calculate interest expense will be the contractual rate.E) C) and D)
F) None of the above

Question 20

Instalment notes with blended payments are repayable in variable periodic amounts that include the principal and the interest.

Accepted Answer

A) True 
 B)False

Exam 15: Non-Current Liabilities

Instalment notes with blended payments are repayable in variable periodic amounts that include the principal and the interest.

Correct Answer
verified

The entry to record an instalment payment on a non-current note payable is

Correct Answer
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When recording a retirement of bonds, a company must account for all of the following EXCEPT

Correct Answer
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Correct Answer
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The present value of a bond is also known as its

Correct Answer
verified

When authorizing bonds to be issued, the board of directors does NOT specify the

Correct Answer
verified

Even if it is riskier to issue debt, most companies still choose to do this because

Correct Answer
verified

Earnings per share is usually higher under debt financing because

Correct Answer
verified

When bonds are issued at a premium, the

Correct Answer
verified

Bonds that are issued against the general credit of the issuer are termed

Correct Answer
verified

Bonds are usually sold in small denominations; as a result,

Correct Answer
verified

Match the items below by entering the appropriate code letter in the space provided.

The present value of a bond is the value at which the bond would sell in the marketplace.

Correct Answer
verified

The contractual rate of interest is always stated as a(n)

Correct Answer
verified

The effective-interest method of amortization results in varying amounts of amortization, and interest expense per period but a constant rate of interest.

Correct Answer
verified

Correct Answer
verified

If there is a loss on bonds redeemed before maturity, it is

Correct Answer
verified

Correct Answer
verified

Bonds that mature in instalments are called term bonds.

Correct Answer
verified

If $100,000 face value bonds with a carrying value of $95,200 are redeemed at 97, a loss on redemption will be recorded.

Correct Answer
verified

Exam 15: Non-Current Liabilities

Instalment notes with blended payments are repayable in variable periodic amounts that include the principal and the interest.

Correct AnswerverifiedShow Answer

The entry to record an instalment payment on a non-current note payable is

Correct AnswerverifiedShow Answer

When recording a retirement of bonds, a company must account for all of the following EXCEPT

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The present value of a bond is also known as its

Correct AnswerverifiedShow Answer

When authorizing bonds to be issued, the board of directors does NOT specify the

Correct AnswerverifiedShow Answer

Even if it is riskier to issue debt, most companies still choose to do this because

Correct AnswerverifiedShow Answer

Earnings per share is usually higher under debt financing because

Correct AnswerverifiedShow Answer

When bonds are issued at a premium, the

Correct AnswerverifiedShow Answer

Bonds that are issued against the general credit of the issuer are termed

Correct AnswerverifiedShow Answer

Bonds are usually sold in small denominations; as a result,

Correct AnswerverifiedShow Answer

Match the items below by entering the appropriate code letter in the space provided.

The present value of a bond is the value at which the bond would sell in the marketplace.

Correct AnswerverifiedShow Answer

The contractual rate of interest is always stated as a(n)

Correct AnswerverifiedShow Answer

The effective-interest method of amortization results in varying amounts of amortization, and interest expense per period but a constant rate of interest.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If there is a loss on bonds redeemed before maturity, it is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Bonds that mature in instalments are called term bonds.

Correct AnswerverifiedShow Answer

If $100,000 face value bonds with a carrying value of $95,200 are redeemed at 97, a loss on redemption will be recorded.

Correct AnswerverifiedShow Answer

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