Question 1

When the market rate exceeds the stated or nominal rate, a bond's carrying value will be less than its fair value.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is true with respect to bond retirement?

Accepted Answer

A) On debt retirement all related accounts should be update. 
B) Gains and losses on bond retirements may be classified as ordinary gains and losses or unusual gains and losses. 
C) If interest rates increase, the issuer can retire bonds at a gain by buying them on the open market. 
D) All of these answers are correct. 
A) On debt retirement all related accounts should be update. 
B) Gains and losses on bond retirements may be classified as ordinary gains and losses or unusual gains and losses. 
C) If interest rates increase, the issuer can retire bonds at a gain by buying them on the open market. 
D) All of these answers are correct.

Question 3

The result of an effective interest rate that is higher than the stated rate on a debt security is the:

Accepted Answer

A) Carrying value of the debt will decrease each interest period. 
B) Dollar amount of interest expense reported on the income statement, assuming the interest method is used, will increase each interest period. 
C) Cash interest paid on each interest date will be changed. 
D) Security will sell at a premium. 
A) Carrying value of the debt will decrease each interest period. 
B) Dollar amount of interest expense reported on the income statement, assuming the interest method is used, will increase each interest period. 
C) Cash interest paid on each interest date will be changed. 
D) Security will sell at a premium.

Question 4

Use of the effective interest method for amortizing bond premiums and discounts is mandatory under IFRS but not under ASPE.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true?

Accepted Answer

A) If a bond is sold "at a discount," the effective interest rate on the bond is lower than the stated interest rate. 
B) Bond price of 98 means that the yield rate is 98% of the stated rate. 
C) If a bond is sold "at a premium," the effective interest rate on the bond is higher than the stated interest rate. 
D) If a bond is sold between interest dates, it is necessary to record the interest accrued since the last payment date before sale. 
A) If a bond is sold "at a discount," the effective interest rate on the bond is lower than the stated interest rate. 
B) Bond price of 98 means that the yield rate is 98% of the stated rate. 
C) If a bond is sold "at a premium," the effective interest rate on the bond is higher than the stated interest rate. 
D) If a bond is sold between interest dates, it is necessary to record the interest accrued since the last payment date before sale.

Question 6

AB Company issued a $100,000, 10%, bond at $99.Therefore, the bond:

Accepted Answer

A) sold at a premium because the $1,000 accrued interest is added to the $100,000 face amount. 
B) was sold at a premium because the stated interest rate was higher than the yield rate. 
C) sold at a discount because the stated interest rate was lower than the market interest rate. 
D) was sold for $100,000 less $1,000 of accrued interest. 
A) sold at a premium because the $1,000 accrued interest is added to the $100,000 face amount. 
B) was sold at a premium because the stated interest rate was higher than the yield rate. 
C) sold at a discount because the stated interest rate was lower than the market interest rate. 
D) was sold for $100,000 less $1,000 of accrued interest.

Question 7

On November 1, 2009, WC purchased CX, 10-year, 7%, bonds with a face value of $100,000 for $96,000.The bonds are intended to be held to maturity.An additional
$2,333 was paid for the accrued interest.Interest is payable semi-annually on January 1 and July 1.The bonds mature on July 1, 2016.WC uses the straight-line method of amortization.Ignoring income taxes, the amount of interest revenue reported in WC's 2019 income statement (year-end December 31)as a result of WC's long-term bond investment in CX was:

Accepted Answer

A) $1,120 
B) $1,267 
C) $1,167 
D) $1,067 
A) $1,120 
B) $1,267 
C) $1,167 
D) $1,067

Question 8

ASPE and IFRS differ in their treatment of long-term Bonds Payable in that:

Accepted Answer

A) The straight-line method may be used under ASPE but not under IFRS. 
B) ASPE ignores foreign exchanges gains and losses. 
C) IFRS does not account for foreign exchange gains and losses on Bonds Payable. 
D) Under IFRS, exchange gains and losses on short-term debt are recorded in the income statement immediately. 
A) The straight-line method may be used under ASPE but not under IFRS. 
B) ASPE ignores foreign exchanges gains and losses. 
C) IFRS does not account for foreign exchange gains and losses on Bonds Payable. 
D) Under IFRS, exchange gains and losses on short-term debt are recorded in the income statement immediately.

Question 9

Interest may be recognized on a note even though the note does not explicitly state an interest rate.

Accepted Answer

A) True 
 B)False

Question 10

On March 1, 2012, WC issued 10% stated interest rate, 10 year debentures dated January 1, 2012, in the face amount of $1,000,000, with interest payable on January 1 and July 1.The debentures were sold to yield 8% plus accrued interest.How much should WC debit to cash on March 1, 2012, if the bondholders receive their pro-rata share of coupon on that date?

Accepted Answer

A) $901,967 
B) $903,003 
C) $1,152,573 
D) $1,135,927 
A) $901,967 
B) $903,003 
C) $1,152,573 
D) $1,135,927

Question 11

VB owes a $200,000, 8%, five-year note payable dated January 1, 2020.It is the end of year 2020, and instead of making the interest payment now due, VB has made arrangements to pay the debt and the 2020 interest payment in four equal instalments based on the same interest rate.The first payment is to be made on January 1, 2021.The amount of the equal annual payments is (rounded to the nearest dollar):

Accepted Answer

A) $60,384 
B) $65,214 
C) $54,000 
D) $55,912 
A) $60,384 
B) $65,214 
C) $54,000 
D) $55,912

Question 12

A short-term payable may be the current portion of a long-term liability, which arises when the next payment on such a debt will be made out of current assets.

Accepted Answer

A) True 
 B)False

Question 13

A firm issued a 16%, $1,000 bond issued and dated Jan.1/2000 maturing Jan.1, 2011 paying interes each June 30 and December 31, and yielding 14%.One bond is used for simplicity.
Required:
(a)Determine the price of the bond
(b)All Year 2000 entries and balance sheet presentations for the bond after each interest date in Yea
A.Show the interest method and straight-line methods in parallel fashion.

Accepted Answer

@#IMG-DLM& 77.42 = $1,105.94(.07)5.30 =

Question 14

On April 1, 2020, the DEF sold a $2,000,000 bond issue dated January 1, 2020, to yield 9% per annum to maturity.The bonds were to be outstanding for twenty years from January 1, 2020, and the stated rate of interest was 8%.Interest is paid each January 1.
(a)Give the entry to record the purchase of one-fourth of these bonds as a long-term investment by NOP.Assume effective interest amortization and contra/adjunct accounts.
(b)Give the December 31, 2020, adjusting and closing entries for NOP.

Accepted Answer

(a) @#IMG-DLM& (b) @#IMG-DLM& PV @ n = 20; i = 9:
Principal

Question 15

Bonds are said to be redeemable when they can be prematurely retired at the discretion of the issuing company and retractable when they can be prematurely retired at the investor's discretion.

Accepted Answer

A) True 
 B)False

Question 16

A company enters into a forward exchange contract to hedge its US dollar payable which is due in 90 days.The company committed to purchase sufficient US currency to settle its liability at a rate of $1 US=$1.20 CAD US.The company's year-end falls 30 days before the settlement date.On that date, the forward rate for 30-day settlement contracts was 1 US=$1.22 CAD US.As a result of these facts the company will record a gain on its current year financial statements.

Accepted Answer

A) True 
 B)False

Question 17

In-substance defeasance is sometimes used as a method of bond retirement.Choose the correct statement about this practice.

Accepted Answer

A) The firm may invest in any investment-grade debt security to retire the bonds as long as the investment securities are transferred irrevocably to a trustee 
B) The process may require the company which issued the bonds to make substantial payments in addition to the investments purchased for the defeasance 
C) The bonds are legally retired as a result 
D) Neither the assets used to effect the defeasance, nor the bonds themselves, are reported in the balance sheet, even though the bonds remain outstanding 
A) The firm may invest in any investment-grade debt security to retire the bonds as long as the investment securities are transferred irrevocably to a trustee 
B) The process may require the company which issued the bonds to make substantial payments in addition to the investments purchased for the defeasance 
C) The bonds are legally retired as a result 
D) Neither the assets used to effect the defeasance, nor the bonds themselves, are reported in the balance sheet, even though the bonds remain outstanding

Question 18

There are two methods for amortizing premiums and discounts on the sale of bonds.The differences between the two methods are:

Accepted Answer

A) There are no differences between the two methods. 
B) Both methods charge a constant amount of interest to the financial statements each year; however, the effective interest method charges a larger total amount of interest expense over the life of the bond. 
C) The effective interest method charges a different interest expense each year while the straight-line method results in a constant amount of expense each year. 
D) None of these answers are correct. 
A) There are no differences between the two methods. 
B) Both methods charge a constant amount of interest to the financial statements each year; however, the effective interest method charges a larger total amount of interest expense over the life of the bond. 
C) The effective interest method charges a different interest expense each year while the straight-line method results in a constant amount of expense each year. 
D) None of these answers are correct.

Question 19

Transaction costs are deducted from the carrying value of long-term financial liabilities.

Accepted Answer

A) True 
 B)False

Question 20

Debt issue costs on long-term debt are expensed upon issue.

Accepted Answer

A) True 
 B)False

When the market rate exceeds the stated or nominal rate, a bond's carrying value will be less than its fair value.

Which of the following is true with respect to bond retirement?

The result of an effective interest rate that is higher than the stated rate on a debt security is the:

Use of the effective interest method for amortizing bond premiums and discounts is mandatory under IFRS but not under ASPE.

Which of the following statements is true?

AB Company issued a $100,000, 10%, bond at $99.Therefore, the bond:

ASPE and IFRS differ in their treatment of long-term Bonds Payable in that:

Interest may be recognized on a note even though the note does not explicitly state an interest rate.

A short-term payable may be the current portion of a long-term liability, which arises when the next payment on such a debt will be made out of current assets.

Bonds are said to be redeemable when they can be prematurely retired at the discretion of the issuing company and retractable when they can be prematurely retired at the investor's discretion.

In-substance defeasance is sometimes used as a method of bond retirement.Choose the correct statement about this practice.

There are two methods for amortizing premiums and discounts on the sale of bonds.The differences between the two methods are:

Transaction costs are deducted from the carrying value of long-term financial liabilities.

Debt issue costs on long-term debt are expensed upon issue.

Financial Liabilities and Provisions

Shareholders Equity

Financial Instruments: Complex Debt and Equity

Corporate Income Tax

Tax Losses

Leases

Post-Employment Benefits

Earnings Per Share

Accounting Changes

Financial Statement Analysis

Filters

Exam 13: Financial Instruments: Long-Term Debt

When the market rate exceeds the stated or nominal rate, a bond's carrying value will be less than its fair value.

Which of the following is true with respect to bond retirement?

The result of an effective interest rate that is higher than the stated rate on a debt security is the:

Use of the effective interest method for amortizing bond premiums and discounts is mandatory under IFRS but not under ASPE.

Which of the following statements is true?

AB Company issued a $100,000, 10%, bond at $99.Therefore, the bond:

ASPE and IFRS differ in their treatment of long-term Bonds Payable in that:

Interest may be recognized on a note even though the note does not explicitly state an interest rate.

A short-term payable may be the current portion of a long-term liability, which arises when the next payment on such a debt will be made out of current assets.

Bonds are said to be redeemable when they can be prematurely retired at the discretion of the issuing company and retractable when they can be prematurely retired at the investor's discretion.

In-substance defeasance is sometimes used as a method of bond retirement.Choose the correct statement about this practice.

There are two methods for amortizing premiums and discounts on the sale of bonds.The differences between the two methods are:

Transaction costs are deducted from the carrying value of long-term financial liabilities.

Debt issue costs on long-term debt are expensed upon issue.

Financial Liabilities and Provisions

Shareholders Equity

Financial Instruments: Complex Debt and Equity

Corporate Income Tax

Tax Losses

Leases

Post-Employment Benefits

Earnings Per Share

Accounting Changes

Financial Statement Analysis

Filters