Deck 14: Non-Current Liabilities

Question 1

When bonds are issued at a discount, the bonds payable account is credited for the proceeds from the issue.

Answer 1

True

Question 2

The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond.

Answer 2

False

Question 3

If the market rate is greater than the stated rate, bonds will be sold at a premium.

Answer 3

False

Question 4

When bonds are issued at a premium, the bonds payable account is credited for the face amount.

Question 5

The semi-annual interest payment on a 6.5% HK$10,000,000 bond is HK$650,000.

Question 6

Bond issues that mature in installments are called serial bonds.

Question 7

The interest rate written in the terms of the bond indenture is called the effective yield or market rate.

Question 8

A bond may only be issued on an interest payment date.

Question 9

The process of interest-rate approximation is called imputation, and the resulting interest rate is called an imputed interest rate.

Question 10

The stated rate is the same as the coupon rate.

Question 11

If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate.

Question 12

The journal entry to record amortization of bond discount includes a debit to the bonds payable account.

Question 13

The proceeds of a bond with a face amount of ¥100,000,000 which sells at 98 will be ¥98,000,000.

Question 14

At any point during the term of the bond, the balance in the bonds payable account should be the carrying value of the bond.

Question 15

The proceeds of a bond with a face amount of ¥100,000,000 which sells at 102 will be ¥100,200,000.

Question 16

Amortization of bond premium reduces the balance in bonds payable.

Question 17

Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense.

Question 18

A mortgage bond is referred to as a debenture bond.

Question 19

When a zero-interest bearing note is issued, the note payable account will be credited for the present value of the maturity value.

Question 20

Companies usually make bond interest payments semiannually, although the interest rate is generally expressed as an annual rate.

Question 21

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the

A)bond indenture.
B)bond debenture.
C)registered bond.
D)bond coupon.

Question 22

The rate of interest actually earned by bondholders is called the

A)stated rate.
B)yield rate.
C)effective rate.
D)effective yield or market rate.

Question 23

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to

A)the stated (nominal) rate of interest multiplied by the face value of the bonds.
B)the market rate of interest multiplied by the face value of the bonds.
C)the stated rate multiplied by the beginning-of-period carrying amount of the bonds.
D)the market rate multiplied by the beginning-of-period carrying amount of the bonds.

Question 24

Off-balance-sheet financing is an attempt to borrow monies in such a way to minimize the reporting of debt on the balance sheet.

Question 25

Under IFRS, subsidiaries in which the parent company holds a less than 50 percent interest do not have to be included in consolidated financial statements.

Question 26

Debt issuance costs are recorded as an asset and amortized to expense over the life of the bond.

Question 27

The interest rate written in the terms of the bond indenture is known as the

A)coupon rate.
B)nominal rate.
C)stated rate.
D)coupon rate, nominal rate, or stated rate.

Question 28

Use the following information for questions.issued $100,000 of ten-year, 10% bonds that pay interest semiannually.The bonds are sold to yield 8%.
One step in calculating the issue price of the bonds is to multiply the principal by the table value for

A)10 periods and 10% from the present value of 1 table.
B)20 periods and 5% from the present value of 1 table.
C)10 periods and 8% from the present value of 1 table.
D)20 periods and 4% from the present value of 1 table.

Question 29

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will

A)increase if the bonds were issued at a discount.
B)decrease if the bonds were issued at a premium.
C)increase if the bonds were issued at a premium.
D)increase if the bonds were issued at either a discount or a premium.

Question 30

When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be

A)decreased by accrued interest from June 1 to November 1.
B)decreased by accrued interest from May 1 to June 1.
C)increased by accrued interest from June 1 to November 1.
D)increased by accrued interest from May 1 to June 1.

Question 31

The times interest earned ratio is computed by dividing income before interest expense by interest expense.

Question 32

IFRS recognition criteria for environment liabilities are more stringent than that of US GAAP.

Question 33

The debt to total assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.

Question 34

Use the following information for questions.issued $100,000 of ten-year, 10% bonds that pay interest semiannually.The bonds are sold to yield 8%.
Another step in calculating the issue price of the bonds is to

A)multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table.
B)multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table.
C)multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table.
D)none of these.

Question 35

If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.

Question 36

Reich, Inc.issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue.If the bonds were issued at a premium, this indicates that

A)the effective yield or market rate of interest exceeded the stated (nominal) rate.
B)the nominal rate of interest exceeded the market rate.
C)the market and nominal rates coincided.
D)no necessary relationship exists between the two rates.

Question 37

The replacement of an existing bond issue with a new one is called refunding.

Question 38

Amortization of the discount on a zero-interest bearing note decreases the balance in notes payable.

Question 39

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

A)debit to Interest Payable.
B)credit to Interest Receivable.
C)credit to Interest Expense.
D)credit to Unearned Interest.

Question 40

The IASB's position is that fair value measurement for financial liabilities is more relevant and understandable than amortized cost.

Question 41

Use the following information for questions.issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31.The bonds were sold to yield 8%.Table values are:
The present value of the interest is

A)$344,820.
B)$349,560.
C)$372,600.
D)$376,830.

Question 42

Use the following information for questions.issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31.The bonds were sold to yield 8%.Table values are:
Downing Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2010 on January 1, 2010.The bonds pay interest semiannually on June 30 and December 31.The bonds are issued to yield 5%.What are the proceeds from the bond issue?

A)$5,000,000
B)$5,216,494
C)$5,218,809
D)$5,217,308

Question 43

A discount on notes payable is charged to interest expense

A)equally over the life of the note.
B)only in the year the note is issued.
C)using the effective-interest method.
D)only in the year the note matures.

Question 44

The times interest earned ratio is computed by dividing

A)net income by interest expense.
B)income before taxes by interest expense.
C)income before income taxes and interest expense by interest expense.
D)net income and interest expense by interest expense.

Question 45

Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements?

A)The present value of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.
B)The present value of scheduled interest payments on long-term debt during each of the next five years.
C)The amount of scheduled interest payments on long-term debt during each of the next five years.
D)The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.

Question 46

In a debt settlement in which the debt is continued with modified terms, a gain should be recognized at the date of settlement whenever the

A)carrying amount of the debt is less than the total future cash flows.
B)carrying amount of the debt is greater than the present value of the future cash flows.
C)present value of the debt is less than the present value of the future cash flows.
D)present value of the debt is greater than the present value of the future cash flows.

Question 47

In a debt extinguishment in which the debt is continued with modified terms and the carrying value of the debt is more than the fair value of the debt,

A)a loss should be recognized by the debtor.
B)a new effective-interest rate must be computed.
C)a gain should be recognized by the debtor.
D)no interest expense should be recognized in the future.

Question 48

Use the following information for questions.issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31.The bonds were sold to yield 8%.Table values are:
The issue price of the bonds is

A)$883,560.
B)$884,820.
C)$889,560.
D)$999,600.

Question 49

All of the following are differences between IFRS and U.S.GAAP in according for liabilities except:

A)When a bond is issued at a discount, U.S.GAAP records the discount in a separate contra-liability account.IFRS records the bond net of the discount.
B)Under IFRS, bond issuance costs reduces the carrying value of the debt.Under U.S.GAAP, these costs are recorded as an asset and amortized to expense over the term of the bond.
C)U.S.GAAP, but not IFRS uses the term "troubled debt restructurings."
D)U.S.GAAP, but not IFRS uses the term "provisions" for contingent liabilities which are accrued.

Question 50

Bond issuance costs, including the printing costs and legal fees associated with the issuance, should be

A)expensed in the period when the debt is issued.
B)recorded as a reduction in the carrying value of bonds payable.
C)accumulated in a deferred charge account and amortized over the life of the bonds.
D)reported as an expense in the period the bonds mature or are retired.

Question 51

In a debt extinguishment in which the debt is settled by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize

A)no gain or loss on the settlement.
B)a gain on the settlement.
C)a loss on the settlement.
D)none of these.

Question 52

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless

A)no interest rate is stated.
B)the stated interest rate is unreasonable.
C)the stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note.
D)any of these.

Question 53

The debt to total assets ratio is computed by dividing

A)current liabilities by total assets.
B)long-term liabilities by total assets.
C)total liabilities by total assets.
D)total assets by total liabilities.

Question 54

Use the following information for questions.issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31.The bonds were sold to yield 8%.Table values are:
Feller Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2010 at 97 plus accrued interest.The bonds are dated January 1, 2010, and pay interest on June 30 and December 31.What is the total cash received on the issue date?

A)$19,400,000
B)$20,450,000
C)$19,700,000
D)$19,100,000

Question 55

When a note payable is issued for property, goods, or services, the present value of the note is measured by

A)the fair value of the property, goods, or services.
B)the fair value of the note.
C)using an imputed interest rate to discount all future payments on the note.
D)any of these.

Question 56

Note disclosures for long-term debt generally include all of the following except

A)assets pledged as security.
B)call provisions and conversion privileges.
C)restrictions imposed by the creditor.
D)names of specific creditors.

Question 57

Use the following information for questions.issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31.The bonds were sold to yield 8%.Table values are:
The present value of the principal is

A)$534,000.
B)$540,000.
C)$623,000.
D)$627,000.

Question 58

The amortization of a premium on bonds payable

A)decreases the balance of the bonds payable account.
B)increases the amount of interest expense reported.
C)decreases the carrying amount of the bond.
D)increases the cash payment to bondholders.

Question 59

The printing costs and legal fees associated with the issuance of bonds should

A)be expensed when incurred.
B)be reported as a deduction from the face amount of bonds payable.
C)be recorded as a reduction of the bond issue amount and then amortized over the life of the bonds.
D)not be reported as an expense until the period the bonds mature or are retired.

Question 60

Which of the following is not a difference between IFRS and U.S.GAAP in according for non-current liabilities?

A)Non-current liabilities follow current liabilities on the statement of financial position under U.S.GAAP, but precede current liabilities under IFRS.
B)The criteria for recognizing environment liabilities is more stringent under U.S.GAAP compared to IFRS.
C)Bond issuance costs are recorded as a reduction of the carrying value of the debt under U.S.GAAP but are recorded as an asset and amortized to expense over the term of the debt under IFRS.
D)Under U.S.GAAP, bonds payable is recorded at the face amount and any premium or discount is recorded in a separate account.Under IFRS, bonds payable is recorded at the carrying value so no separate premium or discount accounts are used.

Question 61

A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010.Interest is paid on June 30 and December 31.The proceeds from the bonds are $19,604,145.Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2010 statement of financial position?

A)$19,612,643
B)$20,000,000
C)$19,625,125
D)$19,608,310

Question 62

On January 2, 2010, a calendar-year corporation sold 8% bonds with a face value of $600,000.These bonds mature in five years, and interest is paid semiannually on June 30 and December 31.The bonds were sold for $553,600 to yield 10%.Using the effective-interest method of computing interest, how much should be charged to interest expense in 2010?

A)$48,000.
B)$55,360.
C)$55,544.
D)$60,000.

Question 63

At the beginning of 2010, Winston Corporation issued 10% bonds with a face value of $600,000.These bonds mature in five years, and interest is paid semiannually on June 30 and December 31.The bonds were sold for $555,840 to yield 12%.Winston uses a calendar-year reporting period.Using the effective-interest method of amortization, what amount of interest expense should be reported for 2010? (Round your answer to the nearest dollar.)

A)$66,500
B)$66,700
C)$66,901
D)$68,832

Question 64

The following information applies to both questions
On October 1, 2010 Bartley Corporation issued 5%, 10-year bonds with a face value of $500,000 at 108 (a 4% yield).Interest is paid on October 1 and April 1, with any premiums or discounts amortized on an effective-interest basis.
The entry to record the issuance of the bonds would include a

A)credit of $12,500 to interest Payable.
B)credit of $540,000 to Bonds Payable.
C)credit of $500,000 to Bonds Payable.
D)debit of $40,000 to Bonds Payable.

Question 65

Use the following information for questions.issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31.The bonds were sold to yield 8%.Table values are:
Everhart Company issues $10,000,000, 6%, 5-year bonds dated January 1, 2010 on January 1, 2010.The bonds pays interest semiannually on June 30 and December 31.The bonds are issued to yield 5%.What are the proceeds from the bond issue?

A)$10,000,000
B)$10,432,988
C)$10,437,618
D)$10,434,616

Question 66

A company issues $5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010.Interest is paid on June 30 and December 31.The proceeds from the bonds are $4,901,036.Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2010 statement of financial position?

A)$4,903,160
B)$5,000,000
C)$4,906,281
D)$4,902,077

Question 67

At the beginning of 2010, Wallace Corporation issued 10% bonds with a face value of $900,000.These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31.The bonds were sold for $833,760 to yield 12%.Wallace uses a calendar-year reporting period.Using the effective-interest method of amortization, what amount of interest expense should be reported for 2010? (Round your answer to the nearest dollar.)

A)$103,248
B)$100,353
C)$100,050
D)$99,750

Question 68

Bangalor Company issues Rs10,000,000, 8%, 10-year bonds at 96.5 on July 1, 2011.Interest is paid on July 1 and January 1.The journal entry to record the issuance will include

A)a debit to cash for Rs10,000,000
B)a credit to cash for Rs9,650,000
C)a debit to discount on bonds payable for Rs350,000
D)a credit to bonds payable for Rs9,650,000

Question 69

Franzia Company issues €10,000,000, 7.8%, 20-year bonds to yield 8% on July 1, 2011.Interest is paid on July 1 and January 1.The proceeds from the bonds are €9,802,073.What amount of interest expense will be reported on the 2012 income statement?

A)€392,083
B)€780,000
C)€784,249
D)€784,419

Question 70

On January 1, 2011, Chang Company sold HK$10,000,000 of its 10%, bonds for HK$8,852,960, a yield of 12%.Interest is payable semiannually on January 1 and July1.The June 30, 2011 entry to record the first interest payment will include

A)a debit to Bonds Payable for HK$531,178.
B)a credit to Bonds Payable for HK$1,062,355.
C)a debit to Cash for HK$600,000.
D)a credit to Interest Expense for HK$442,648.

Question 71

A company issues $5,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010.Interest is paid on June 30 and December 31.The proceeds from the bonds are $4,901,036.Using effective-interest amortization, how much interest expense will be recognized in 2010?

A)$195,000
B)$390,000
C)$392,124
D)$392,083

Question 72

Use the following information for questions.issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31.The bonds were sold to yield 8%.Table values are:
Farmer Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2010 at 97 plus accrued interest.The bonds are dated January 1, 2010, and pay interest on June 30 and December 31.What is the total cash received on the issue date?

A)$9,700,000
B)$10,225,000
C)$9,850,000
D)$9,550,000

Question 73

Franzia Company issues €10,000,000, 7.8%, 20-year bonds to yield 8% on July 1, 2011.Interest is paid on July 1 and January 1.The proceeds from the bonds are $9,604,145.The balance reported in the bonds payable account on the December 31, 2011 statement of financial position?

A)€9,802,073
B)€9,804,156
C)€9,806,322
D)€10,000,000

Question 74

A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010.Interest is paid on June 30 and December 31.The proceeds from the bonds are $19,604,145.Using effective-interest amortization, how much interest expense will be recognized in 2010?

A)$780,000
B)$1,560,000
C)$1,568,498
D)$1,568,332

Question 75

The following information applies to both questions
On October 1, 2010 Macklin Corporation issued 5%, 10-year bonds with a face value of $1,000,000 at 108 (a 4% yield).Interest is paid on October 1 and April 1, with any premiums or discounts amortized on an effective-interest basis.
The entry to record the issuance of the bonds would include a credit of

A)$25,000 to interest Payable.
B)$80,000 to Bonds Payable.
C)$1,000,000 to Bonds Payable.
D)$1,080,000 to Bonds Payable.

Question 76

On January 1, Martinez Inc.issued $3,000,000, 11% bonds for $3,195,000.The market rate of interest for these bonds is 10%.Interest is payable annually on December 31.Martinez uses the effective-interest method of amortizing bond premium.At the end of the first year, Martinez should report bonds payable of:

A)$3,185,130
B)$3,184,500
C)$3,173,550
D)$3,165,000

Question 77

The following information applies to both questions
On October 1, 2010 Bartley Corporation issued 5%, 10-year bonds with a face value of $500,000 at 108 (a 4% yield).Interest is paid on October 1 and April 1, with any premiums or discounts amortized on an effective-interest basis.
Bond interest expense reported on the December 31, 2010 income statement of Bartley Corporation would be

A)$6,750
B)$10,800
C)$5,400
D)$6,250

Question 78

On January 1, 2010, Huber Co.sold 12% bonds with a face value of $600,000.The bonds mature in five years, and interest is paid semiannually on June 30 and December 31.The bonds were sold for $646,200 to yield 10%.Using the effective-interest method of amortization, interest expense for 2010 is

A)$60,000.
B)$64,436.
C)$64,620.
D)$72,000.

Question 79

On January 1, Patterson Inc.issued $5,000,000, 9% bonds for $4,695,000.The market rate of interest for these bonds is 10%.Interest is payable annually on December 31.Patterson uses the effective-interest method of amortizing bond discount.At the end of the first year, Patterson should report bonds payable of

A)$4,725,500.
B)$4,714,500.
C)$258,050.
D)$4,745,000.

Question 80

The following information applies to both questions
On October 1, 2010 Macklin Corporation issued 5%, 10-year bonds with a face value of $1,000,000 at 108 (a 4% yield).Interest is paid on October 1 and April 1, with any premiums or discounts amortized on an effective-interest basis.
Bond interest expense reported on the December 31, 2010 income statement of Macklin Corporation would be

A)$10,800
B)$12,500
C)$13,500
D)$21,600