Question 1

When a company sells its bonds on a date other than an interest payment date, the purchasers always pay the issuer a premium.

Accepted Answer

A) True 
 B)False

Question 2

An advantage of bond financing is that it does not affect shareholder control.

Accepted Answer

A) True 
 B)False

Question 3

A finance lease obligation is a form of long-term liability.

Accepted Answer

A) True 
 B)False

Question 4

A note payable:

Accepted Answer

A)  Is typically a transaction with a single lender. 
B)  Can be repaid as a lump sum. 
C)  Is initially measured and recorded at its selling price. 
D)  Has annual interest expense calculated by multiplying the interest rate on the note by the beginning of the period carrying value. 
E)  All of these answers are correct. 
A)  Is typically a transaction with a single lender. 
B)  Can be repaid as a lump sum. 
C)  Is initially measured and recorded at its selling price. 
D)  Has annual interest expense calculated by multiplying the interest rate on the note by the beginning of the period carrying value. 
E)  All of these answers are correct.

Question 5

Two common ways for the issuing corporation to retire bonds before maturity are to 1) exercise a convertible option or 2) purchase them on the open market.

Accepted Answer

A) True 
 B)False

Question 6

When graphing the amount of interest paid over time and the amount of interestexpensed over time, the lines are parallel if the effective interest amortization method is used.

Accepted Answer

A) True 
 B)False

Question 7

Under the equal total payments model for instalment notes:

Accepted Answer

A)  The note payable is reduced in equal amounts with each payment made 
B)  More interest expense is booked in comparison to the accrued interest and equal principal payment model 
C)  Equal interest expense is booked in comparison to the accrued interest and equal principal payment model 
D)  The note payable is not reduced in equal amounts with the final payment made 
E)  Less interest expense is booked in comparison to the accrued interest and equal principal payment model 
A)  The note payable is reduced in equal amounts with each payment made 
B)  More interest expense is booked in comparison to the accrued interest and equal principal payment model 
C)  Equal interest expense is booked in comparison to the accrued interest and equal principal payment model 
D)  The note payable is not reduced in equal amounts with the final payment made 
E)  Less interest expense is booked in comparison to the accrued interest and equal principal payment model

Question 8

Bondholders can exchange convertible bonds for a fixed number of the issuing corporation's preferred shares.

Accepted Answer

A) True 
 B)False

Question 9

Debentures have specific assets of the issuing corporation pledged as collateral.

Accepted Answer

A) True 
 B)False

Question 10

Accrued interest is paid on bonds that are issued between interest dates.

Accepted Answer

A) True 
 B)False

Question 11

A common installment note payment pattern is equal interest payments over the life of the loan with the principal of the loan due at maturity.

Accepted Answer

A) True 
 B)False

Question 12

The Premium on Bonds Payable account is an):

Accepted Answer

A)  Adjunct-revenue account. 
B)  Adjunct-liability account. 
C)  Revenue account. 
D)  Contra liability account. 
E)  Contra revenue account. 
A)  Adjunct-revenue account. 
B)  Adjunct-liability account. 
C)  Revenue account. 
D)  Contra liability account. 
E)  Contra revenue account.

Question 13

The market value of a bond is equal to:

Accepted Answer

A)  The present value of the principal of the bond. 
B)  The future value of all future cash payments provided by a bond. 
C)  The present value of all future interest payments provided by a bond. 
D)  The present value of all future cash payments provided by a bond. 
E)  The future value of all future interest payments provided by a bond. 
A)  The present value of the principal of the bond. 
B)  The future value of all future cash payments provided by a bond. 
C)  The present value of all future interest payments provided by a bond. 
D)  The present value of all future cash payments provided by a bond. 
E)  The future value of all future interest payments provided by a bond.

Question 14

An operating lease is a lease agreement that transfers the risks and benefits associated with ownership to the lessee.

Accepted Answer

A) True 
 B)False

Question 15

Majeau Tri Ltd bought display racks with a fair market value of $150,000. The corporation signed a 3-year interest-bearing note at 8%. The entry to record the transaction would include:

Accepted Answer

A)  A debit to Interest Expense for $12,000. 
B)  A credit to Notes Payable for $39,692. 
C)  A credit to Notes Payable for $150,000. 
D)  A credit to Interest Payable for $400. 
E)  A debit to Notes Payable for $150,000. 
A)  A debit to Interest Expense for $12,000. 
B)  A credit to Notes Payable for $39,692. 
C)  A credit to Notes Payable for $150,000. 
D)  A credit to Interest Payable for $400. 
E)  A debit to Notes Payable for $150,000.

Question 16

Callable bonds:

Accepted Answer

A)  Have an option whereby the issuing corporation may redeem them under specified conditions. 
B)  Are also called debentures. 
C)  Are usually not registered. 
D)  Can be exchanged for a fixed number of the issuing corporation's common shares. 
E)  Do not require payment of interest over the life of the bond issue. 
A)  Have an option whereby the issuing corporation may redeem them under specified conditions. 
B)  Are also called debentures. 
C)  Are usually not registered. 
D)  Can be exchanged for a fixed number of the issuing corporation's common shares. 
E)  Do not require payment of interest over the life of the bond issue.

Question 17

You graphed bond interest expense and interest paid over the life of a bond. You noticed that the interest expense line was below the interest paid line. Identify the statement below that is best described by the graph you drew.

Accepted Answer

A)  The bond was issued at a discount. 
B)  Discounted interest amortization is used. 
C)  The bond was issued at par. 
D)  Effective interest amortization is used. 
E)  The bond was issued at a premium. 
A)  The bond was issued at a discount. 
B)  Discounted interest amortization is used. 
C)  The bond was issued at par. 
D)  Effective interest amortization is used. 
E)  The bond was issued at a premium.

Question 18

A bond's par value is the same as market value.

Accepted Answer

A) True 
 B)False

Question 19

Tab Skates Ltd issued $100,000 worth of 5-year, 7% bonds and received proceeds of$96,909. The total bond discount would be $10,091.

Accepted Answer

A) True 
 B)False

Question 20

A call option in a bond indenture gives the issuing corporation an option to call the bonds before they mature by paying the par value plus a call premium to thebondholders.

Accepted Answer

A) True 
 B)False

When a company sells its bonds on a date other than an interest payment date, the purchasers always pay the issuer a premium.

An advantage of bond financing is that it does not affect shareholder control.

A finance lease obligation is a form of long-term liability.

A note payable:

Two common ways for the issuing corporation to retire bonds before maturity are to 1) exercise a convertible option or 2) purchase them on the open market.

When graphing the amount of interest paid over time and the amount of interestexpensed over time, the lines are parallel if the effective interest amortization method is used.

Under the equal total payments model for instalment notes:

Bondholders can exchange convertible bonds for a fixed number of the issuing corporation's preferred shares.

Debentures have specific assets of the issuing corporation pledged as collateral.

Accrued interest is paid on bonds that are issued between interest dates.

A common installment note payment pattern is equal interest payments over the life of the loan with the principal of the loan due at maturity.

The Premium on Bonds Payable account is an):

The market value of a bond is equal to:

An operating lease is a lease agreement that transfers the risks and benefits associated with ownership to the lessee.

Majeau Tri Ltd bought display racks with a fair market value of $150,000. The corporation signed a 3-year interest-bearing note at 8%. The entry to record the transaction would include:

Callable bonds:

You graphed bond interest expense and interest paid over the life of a bond. You noticed that the interest expense line was below the interest paid line. Identify the statement below that is best described by the graph you drew.

A bond's par value is the same as market value.

Tab Skates Ltd issued $100,000 worth of 5-year, 7% bonds and received proceeds of$96,909. The total bond discount would be $10,091.

A call option in a bond indenture gives the issuing corporation an option to call the bonds before they mature by paying the par value plus a call premium to thebondholders.

Property, Plant and Equipment and Intangibles

Current Liabilities

Partnerships

Organization and Operation of Corporations

Corporate Reporting: Profit, Earnings Per Share, and Retained Earnings

Accounting for Debt and Share Investments

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Filters

Exam 14: Bonds and Long-Term Notes Payable

When a company sells its bonds on a date other than an interest payment date, the purchasers always pay the issuer a premium.

An advantage of bond financing is that it does not affect shareholder control.

A finance lease obligation is a form of long-term liability.

A note payable:

Two common ways for the issuing corporation to retire bonds before maturity are to 1) exercise a convertible option or 2) purchase them on the open market.

When graphing the amount of interest paid over time and the amount of interestexpensed over time, the lines are parallel if the effective interest amortization method is used.

Under the equal total payments model for instalment notes:

Bondholders can exchange convertible bonds for a fixed number of the issuing corporation's preferred shares.

Debentures have specific assets of the issuing corporation pledged as collateral.

Accrued interest is paid on bonds that are issued between interest dates.

A common installment note payment pattern is equal interest payments over the life of the loan with the principal of the loan due at maturity.

The Premium on Bonds Payable account is an):

The market value of a bond is equal to:

An operating lease is a lease agreement that transfers the risks and benefits associated with ownership to the lessee.

Majeau Tri Ltd bought display racks with a fair market value of $150,000. The corporation signed a 3-year interest-bearing note at 8%. The entry to record the transaction would include:

Callable bonds:

You graphed bond interest expense and interest paid over the life of a bond. You noticed that the interest expense line was below the interest paid line. Identify the statement below that is best described by the graph you drew.

A bond's par value is the same as market value.

Tab Skates Ltd issued $100,000 worth of 5-year, 7% bonds and received proceeds of$96,909. The total bond discount would be $10,091.

A call option in a bond indenture gives the issuing corporation an option to call the bonds before they mature by paying the par value plus a call premium to thebondholders.

Property, Plant and Equipment and Intangibles

Current Liabilities

Partnerships

Organization and Operation of Corporations

Corporate Reporting: Profit, Earnings Per Share, and Retained Earnings

Accounting for Debt and Share Investments

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Filters