Question 1

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 2

What are "stripped bonds"?

Accepted Answer

A) Bonds that pay the market rate of interest. 
B) Bonds that are unsecured. 
C) Bonds that pay no interest and 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 pay no interest and are sold at a discount. 
D) Bonds that are sold at a premium.

Question 3

When will bonds sell at a discount?

Accepted Answer

A) When the coupon rate is below the par value. 
B) When the coupon rate is below the market rate. 
C) When the coupon rate is above the market rate. 
D) When the coupon rate is above the par value. 
A) When the coupon rate is below the par value. 
B) When the coupon rate is below the market rate. 
C) When the coupon rate is above the market rate. 
D) When the coupon rate is above the par value.

Question 4

Define the following:
-Debentures

Accepted Answer

Debentures

Question 5

Which statement is correct about offsetting?

Accepted Answer

A) Offsetting is required under IFRS when the entity is willing and legally able to offset. 
B) Offsetting is required under IFRS when the company intends to settle on a net basis. 
C) Offsetting is generally permitted under IFRS, unless it is specifically prohibited. 
D) Offsetting is required under IFRS when there is a legally enforceable right of offset. 
A) Offsetting is required under IFRS when the entity is willing and legally able to offset. 
B) Offsetting is required under IFRS when the company intends to settle on a net basis. 
C) Offsetting is generally permitted under IFRS, unless it is specifically prohibited. 
D) Offsetting is required under IFRS when there is a legally enforceable right of offset.

Question 6

A $100,000 5-year 6% bond is issued on January 1, 2020. The bond pays interest annually. The market rate is 8%. What is the selling price of the bonds, rounded to nearest dollar?

Accepted Answer

A) $7,986 
B) $92,014 
C) $100,000 
D) $108,425 
A) $7,986 
B) $92,014 
C) $100,000 
D) $108,425

Question 7

Non-current debt instruments exchanged for assets are recognized at:

Accepted Answer

A) book value. 
B) fair value. 
C) cash paid. 
D) cash equivalents paid. 
A) book value. 
B) fair value. 
C) cash paid. 
D) cash equivalents paid.

Question 8

Define the following:
-Stripped bonds

Accepted Answer

Stripped (zero-coupon)bonds ar

Question 9

On November 1, 2020, FastCare sold $5,000,000 of three-year bonds for $4,750,325. From the proceeds, the company paid accounting fees of 50,000. Interest of 5% is payable annually. What is the effective rate of interest (round to 2 decimal places)?

Accepted Answer

A) 7.30% 
B) 5.00% 
C) 4.69% 
D) 3.63% 
A) 7.30% 
B) 5.00% 
C) 4.69% 
D) 3.63%

Question 10

Bold Accountants Co. sells $6,000,000 of 10-year, 6% bonds priced to yield 5.5%. The bonds are dated and issued on January 1, 2020. Interest is payable on January 1 and July 1 each year. Bold's year-end is June 30.
Required:
Prepare entries for
a. The issuance of the bonds.
b. Accrual of interest and related amortization on June 30, 2020.
c. Payment of interest on July 1,2020.
d. Payment of interest and related amortization on January 1,2021.

Accepted Answer

Determining the effective inte

Question 11

What are "zero-coupon bonds"?

Accepted Answer

A) Bonds that pay the market rate of interest. 
B) Bonds that are unsecured. 
C) Bonds that do not pay interest. 
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 do not pay interest. 
D) Bonds that are sold at a premium.

Question 12

When will bonds sell without a premium or discount?

Accepted Answer

A) When the coupon rate equals the par value. 
B) When the coupon rate is below the market rate. 
C) When the coupon rate is above the market rate. 
D) When the coupon rate is equal to the market rate. 
A) When the coupon rate equals the par value. 
B) When the coupon rate is below the market rate. 
C) When the coupon rate is above the market rate. 
D) When the coupon rate is equal to the market rate.

Question 13

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 14

Why do companies sell notes directly to the investing public?

Accepted Answer

Companies sell notes directly

Question 15

Blue Sky Travel Inc. issues $2,000,000 of ten-year, 8% bonds dated January 1, 2020. Interest is payable on January 1 and July 1 each year. The proceeds realized from the issue were the $1,821,367 sales price less the $20,000 fee charged by Blue Sky's investment bank. Blue Sky's year-end is December 31.
Required:
Prepare journal entries:
a. The issuance of the bonds.
b. Payment of interest and related amortization on July 1, 2020.
c. Accrual of interest and related amortization on December 31, 2020.

Accepted Answer

Determining the effective interest rate

Question 16

Over the River Co. (OTRC)sells $1,200,000 of 6-year, 10% bonds at par plus accrued interest. The bonds are dated January 1, 2020 but due to market conditions are not issued until May 1, 2020. Interest is payable on June 30 and December 31 each year. The market rate of interest at time of issue is the same as the stated rate.
Required:
Prepare journal entries to record:
a. The issuance of the bonds on May 1, 2020. Assume that OTRC has adopted a policy of crediting accrued interest payable for the accrued interest on the date of sale.
b. Payment of interest on June 30, 2020.
c. Payment of interest on December 31, 2020.

Accepted Answer

The answer of Over the River Co. (OTRC)sells $1,200,000 of...

Question 17

What is the effective interest rate?

Accepted Answer

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

Which statement is correct about financial leverage?

What are "stripped bonds"?

When will bonds sell at a discount?

Define the following: -Debentures

Which statement is correct about offsetting?

A $100,000 5-year 6% bond is issued on January 1, 2020. The bond pays interest annually. The market rate is 8%. What is the selling price of the bonds, rounded to nearest dollar?

Non-current debt instruments exchanged for assets are recognized at:

Define the following: -Stripped bonds

On November 1, 2020, FastCare sold $5,000,000 of three-year bonds for $4,750,325. From the proceeds, the company paid accounting fees of 50,000. Interest of 5% is payable annually. What is the effective rate of interest (round to 2 decimal places)?

What are "zero-coupon bonds"?

When will bonds sell without a premium or discount?

What are "debentures"?

Why do companies sell notes directly to the investing public?

What is the effective interest rate?

Current Liabilities and Contingencies

Equities

Complex Financial Instruments

Earnings Per Share

Pensions and Other Employee Future Benefits

Accounting for Leases

Accounting for Income Taxes

Accounting Changes

Statement of Cash Flows

Filters

Exam 2: Non-Current Financial Liabilities

Which statement is correct about financial leverage?

What are "stripped bonds"?

When will bonds sell at a discount?

Define the following: -Debentures

Which statement is correct about offsetting?

A $100,000 5-year 6% bond is issued on January 1, 2020. The bond pays interest annually. The market rate is 8%. What is the selling price of the bonds, rounded to nearest dollar?

Non-current debt instruments exchanged for assets are recognized at:

Define the following: -Stripped bonds

On November 1, 2020, FastCare sold $5,000,000 of three-year bonds for $4,750,325. From the proceeds, the company paid accounting fees of 50,000. Interest of 5% is payable annually. What is the effective rate of interest (round to 2 decimal places)?

What are "zero-coupon bonds"?

When will bonds sell without a premium or discount?

What are "debentures"?

Why do companies sell notes directly to the investing public?

What is the effective interest rate?

Current Liabilities and Contingencies

Equities

Complex Financial Instruments

Earnings Per Share

Pensions and Other Employee Future Benefits

Accounting for Leases

Accounting for Income Taxes

Accounting Changes

Statement of Cash Flows

Filters