Question 1

Which statement is correct about the derecognition of an obligation before maturity?

Accepted Answer

A) There will be a gain on retirement. 
B) There will be a loss on retirement. 
C) There will be no gain or loss on retirement. 
D) There could be either a gain or loss on retirement. 
A) There will be a gain on retirement. 
B) There will be a loss on retirement. 
C) There will be no gain or loss on retirement. 
D) There could be either a gain or loss on retirement.

Question 2

Explain how non-current liabilities are measured after initial recognition.

Accepted Answer

After initial recognition,all financial

Question 3

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 7%.What is the selling price of the bonds,rounded to nearest dollar?

Accepted Answer

A) $4,500 
B) $95,500 
C) $100,000 
D) $104,213 
A) $4,500 
B) $95,500 
C) $100,000 
D) $104,213

Question 4

What are "non-current liabilities"?

Accepted Answer

A) Obligations that are expected to be settled in the next operating cycle of the company. 
B) Obligations that are expected to be settled within the next the company's next 12 months. 
C) Obligations that are expected to be settled more than 12 months after the company's year end. 
D) Obligations that are expected to be settled more than 24 months after the company's year end. 
A) Obligations that are expected to be settled in the next operating cycle of the company. 
B) Obligations that are expected to be settled within the next the company's next 12 months. 
C) Obligations that are expected to be settled more than 12 months after the company's year end. 
D) Obligations that are expected to be settled more than 24 months after the company's year end.

Question 5

What are "debentures"?

Accepted Answer

A) Bonds that are unsecured. 
B) Bonds that protect investors against inflation. 
C) Bonds that mature at different dates. 
D) Bonds backed by specific collateral. 
A) Bonds that are unsecured. 
B) Bonds that protect investors against inflation. 
C) Bonds that mature at different dates. 
D) Bonds backed by specific collateral.

Question 6

On May 1,2014,SBC INC.buys a photocopier listed for $2,600.The office supply store agrees to accept a $800 down payment and a $2,100,three-year note payable at $798 per year.The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities.At what amount will the note be recorded at in the accounting records?

Accepted Answer

A) $1,853 
B) $1,950 
C) $2,100 
D) $2,600 
A) $1,853 
B) $1,950 
C) $2,100 
D) $2,600

Question 7

What is the coupon rate?

Accepted Answer

A) Yield on the issue date. 
B) Amount to be repaid at maturity. 
C) Rate of return earned by the investor. 
D) Interest rate specified in the bond indenture. 
A) Yield on the issue date. 
B) Amount to be repaid at maturity. 
C) Rate of return earned by the investor. 
D) Interest rate specified in the bond indenture.

Question 8

Which statement is correct about financial leverage?

Accepted Answer

A) Leverage can increase an investor's returns but also increases the risk of loss. 
B) Leverage can decrease an investor's returns and also decrease the risk of loss. 
C) Leverage decreases the payments that a company makes on an ongoing basis. 
D) Leverage decreases the debt level relative to a company's equity base. 
A) Leverage can increase an investor's returns but also increases the risk of loss. 
B) Leverage can decrease an investor's returns and also decrease the risk of loss. 
C) Leverage decreases the payments that a company makes on an ongoing basis. 
D) Leverage decreases the debt level relative to a company's equity base.

Question 9

What is the "best efforts" approach?

Accepted Answer

A) Broker's guarantee of the price to the borrower. 
B) Broker sells as much of the debt issue as possible. 
C) Debt that is backed by specific collateral. 
D) Feature that permits the issuer to redeem before maturity. 
A) Broker's guarantee of the price to the borrower. 
B) Broker sells as much of the debt issue as possible. 
C) Debt that is backed by specific collateral. 
D) Feature that permits the issuer to redeem before maturity.

Question 10

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 7%.What is the discount or premium of the sale of the bonds,rounded to nearest dollar?

Accepted Answer

A) $4,500 discount 
B) $4,500 premium 
C) $95,500 
D) $100,000 
A) $4,500 discount 
B) $4,500 premium 
C) $95,500 
D) $100,000

Question 11

Which is not a reason why companies borrow funds?

Accepted Answer

A) To pay for long-term assets when the company wants to conserve its operating cash. 
B) To invest in assets for the company that will generate income less than borrowing costs. 
C) To invest in assets for the company that will generate income greater than borrowing costs. 
D) To pay for acquisitions when the company has insufficient cash to pay for the acquisition. 
A) To pay for long-term assets when the company wants to conserve its operating cash. 
B) To invest in assets for the company that will generate income less than borrowing costs. 
C) To invest in assets for the company that will generate income greater than borrowing costs. 
D) To pay for acquisitions when the company has insufficient cash to pay for the acquisition.

Question 12

On May 1,2014,SBC INC.buys a computer listed for $12,600.The office supply store agrees to accept a $1,800 down payment and a $11,000,three-year note payable at $3,500 per year.The company's banker has suggested that an appropriate market rate is 11% per annum for loans that mature in one year or less and 14% for loans with longer maturities.At what amount will the note be recorded at in the accounting records?

Accepted Answer

A) $1,800 
B) $8,126 
C) $8,553 
D) $11,000 
A) $1,800 
B) $8,126 
C) $8,553 
D) $11,000

Question 13

On April 1,2013,a company sold $3,500,000 of ten year,6% bonds for $2,222,400. From the proceeds,the company paid $200,000 sales commission.Interest is payable semi-annually on April 1 and October 1.What is the effective rate of interest (round to 2 decimal places)?

Accepted Answer

A) 6.25% 
B) 6.98% 
C) 9.81% 
D) 11.46% 
A) 6.25% 
B) 6.98% 
C) 9.81% 
D) 11.46%

Question 14

On June 1,2012,ABC LTD.provides a vendor with an $18,500 non-interest-bearing note due on July 1,2013 in exchange for furniture with a list price of $18,100.At what amount will the property be recorded in the accounting records? The company's banker has suggested that an appropriate market rate is 12% per annum for loans that mature in one year or less and 15% for loans with longer maturities.

Accepted Answer

A) $16,087 
B) $16,518 
C) $18,100 
D) $18,500 
A) $16,087 
B) $16,518 
C) $18,100 
D) $18,500

Question 15

What is the market rate?

Accepted Answer

A) Yield on the issue date. 
B) Amount to be repaid at maturity. 
C) Rate of return earned by the investor. 
D) Interest rate specified in the bond indenture. 
A) Yield on the issue date. 
B) Amount to be repaid at maturity. 
C) Rate of return earned by the investor. 
D) Interest rate specified in the bond indenture.

Question 16

Which standard does not need to be considered when considering the disclosure and presentation of non-current liabilities?

Accepted Answer

A) IAS 1,Presentation of Financial Statements 
B) IAS 36,Impairment 
C) IFRS 7,Financial Instruments: Disclosures 
D) IAS 39,Financial Instruments: Recognition and Measurement 
A) IAS 1,Presentation of Financial Statements 
B) IAS 36,Impairment 
C) IFRS 7,Financial Instruments: Disclosures 
D) IAS 39,Financial Instruments: Recognition and Measurement

Question 17

What are "stripped bonds"?

Accepted Answer

A) Bonds that pay the market rate of interest. 
B) Bonds that are unsecured. 
C) Bonds that are sold at a discount. 
D) Bonds that are sold at a premium. 
A) Bonds that pay the market rate of interest. 
B) Bonds that are unsecured. 
C) Bonds that are sold at a discount. 
D) Bonds that are sold at a premium.

Question 18

Fredericton Aerospace Inc.raised $5,369,210 by selling $5,000,000 of six-year,12% bonds dated January 1,2013.Fredericton used part of the proceeds to pay its investment bank's fee of $100,000 and related legal and accounting fees of $600,000.
Interest is payable on June 30 and December 31 each year.Fredericton can call the bonds on January 1,2016 at 103.The company exercises this privilege,redeeming 40% of the bonds on the call date and retiring them.The company year ends on December 31.
Required:
Prepare journal entries to record:
a.The issuance of the bonds on January 1,2013.
b.Before completing the entries for parts (b)and (c),prepare the amortization table for the bonds through to December 21,2015.Prepare entry for the payment of interest and related amortization on December 31,2015.
c.Repurchase of the bonds on January 1,2016.

Accepted Answer

Determining the effective interest rate

Question 19

Why do bonds often include covenants?

Accepted Answer

A) To reduce information asymmetry. 
B) To reduce moral hazard. 
C) To compensate for value-added services. 
D) To ensure repayment of the bond. 
A) To reduce information asymmetry. 
B) To reduce moral hazard. 
C) To compensate for value-added services. 
D) To ensure repayment of the bond.

Question 20

What are "serial bonds"?

Accepted Answer

A) Bonds that are seldom used in Canada. 
B) Bonds that mature at regular scheduled dates. 
C) Bonds that are sold at a discount. 
D) Bonds that are sold at a premium. 
A) Bonds that are seldom used in Canada. 
B) Bonds that mature at regular scheduled dates. 
C) Bonds that are sold at a discount. 
D) Bonds that are sold at a premium.

Which statement is correct about the derecognition of an obligation before maturity?

Explain how non-current liabilities are measured after initial recognition.

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 7%.What is the selling price of the bonds,rounded to nearest dollar?

What are "non-current liabilities"?

What are "debentures"?

What is the coupon rate?

Which statement is correct about financial leverage?

What is the "best efforts" approach?

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 7%.What is the discount or premium of the sale of the bonds,rounded to nearest dollar?

Which is not a reason why companies borrow funds?

On April 1,2013,a company sold $3,500,000 of ten year,6% bonds for $2,222,400. From the proceeds,the company paid $200,000 sales commission.Interest is payable semi-annually on April 1 and October 1.What is the effective rate of interest (round to 2 decimal places)?

What is the market rate?

Which standard does not need to be considered when considering the disclosure and presentation of non-current liabilities?

What are "stripped bonds"?

Why do bonds often include covenants?

What are "serial bonds"?

Current Liabilities and Contingencies

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Accounting for Leases

Statement of Cash Flows

Filters

Exam 12: Non-Current Financial Liabilities

Which statement is correct about the derecognition of an obligation before maturity?

Explain how non-current liabilities are measured after initial recognition.

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 7%.What is the selling price of the bonds,rounded to nearest dollar?

What are "non-current liabilities"?

What are "debentures"?

What is the coupon rate?

Which statement is correct about financial leverage?

What is the "best efforts" approach?

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 7%.What is the discount or premium of the sale of the bonds,rounded to nearest dollar?

Which is not a reason why companies borrow funds?

On April 1,2013,a company sold $3,500,000 of ten year,6% bonds for $2,222,400. From the proceeds,the company paid $200,000 sales commission.Interest is payable semi-annually on April 1 and October 1.What is the effective rate of interest (round to 2 decimal places)?

What is the market rate?

Which standard does not need to be considered when considering the disclosure and presentation of non-current liabilities?

What are "stripped bonds"?

Why do bonds often include covenants?

What are "serial bonds"?

Current Liabilities and Contingencies

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Accounting for Leases

Statement of Cash Flows

Filters