Question 1

Prime is the interest rate that

Accepted Answer

A)   a bank charges their least creditworthy customers.
B)   a bank charges their most creditworthy customers.
C)   a constant for the entire time of the note.
D)   is applied only to non-current instalment notes payable and no other forms of debt.E) A) and B)
F) A) and C)

Question 2

The maturity date of the bond is the date that the first interest payment is due.

Accepted Answer

A) True 
 B)False

Question 3

The market value depends on three factors. Which of the following is NOT a factor affecting the market value of bonds?

Accepted Answer

A)   credit rating of the bond issuers
B)   dollar value to be received in the future
C)   length of time until amounts are received
D)   market interest ratesE) All of the above
F) None of the above

Question 4

The adjusted trial balance for Raines Corporation at the end of the 2014 fiscal year contained the following accounts:
Bonds payable, 5% $460,000
Bond interest payable 20,000
Mortgage notes payable, 6%, due 2030 80,000
Accounts payable 120,000
Other information: The mortgage note is payable in monthly payments of $700 principal plus interest.
Instructions
a. Prepare the non-current liabilities section of the balance sheet.
b. Indicate the proper balance sheet classification for the accounts listed above that do not belong in the non-current liabilities section.

Accepted Answer

a. Non-current liabilities

b. Bond int...

Question 5

If bonds with a face value of $20,000 are redeemed before maturity when the amortized cost of the bonds is $18,000, the entry to record the redemption will include a debit to

Accepted Answer

A)   Bonds Payable for $20,000.
B)   Bonds Payable for $18,000.
C)   Interest Payable for $2,000.
D)   Bonds Payable equal to the market price of the bonds on the date of conversion.E) All of the above
F) B) and C)

Question 6

The Interest coverage ratio indicates the company's ability to meet interest payments as they come due.

Accepted Answer

A) True 
 B)False

Question 7

The effective interest method is required for

Accepted Answer

A)   companies reporting under IFRS.
B)   companies reporting under ASPE.
C)   both IFRS and ASPE.
D)   private companies.E) A) and B)
F) A) and C)

Question 8

When debt is issued instead of equity, earnings per share may be higher.

Accepted Answer

A) True 
 B)False

Question 9

The contractual interest rate and the market interest rate on a bond will always be equal.

Accepted Answer

A) True 
 B)False

Question 10

The ratio that measures the percentage of total assets provided by creditors is the

Accepted Answer

A)   interest coverage ratio.
B)   debt to total assets ratio.
C)   return on assets ratio.
D)   receivables turnover ratio.E) C) and D)
F) A) and D)

Question 11

If $180,000, 9%, bonds are issued on January 1, and pay interest semi-annually, the amount of interest paid on July 1, will be $8,100.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements pertaining to fixed-rate non-current Instalment Notes Payable is correct?

Accepted Answer

A)   Blended payments result in the same amount of principal being paid at every payment date.
B)   When blended payments are made, a progressively larger portion of the payment goes toward the principal while a progressively smaller portion of the payment goes toward the interest.
C)   When blended payments are made, a progressively smaller portion of the payment goes toward the principal while a progressively larger portion of the payment goes toward the interest.
D)   Blended payments do not apply to non-current Instalment Notes Payable.E) B) and C)
F) A) and C)

Question 13

The interest expense recorded on an interest payment date is increased

Accepted Answer

A)   by the amortization of premium on bonds payable.
B)   by the amortization of discount on bonds payable.
C)   only if the bonds were sold at face value.
D)   only if the market rate of interest is less than the stated rate of interest on that date.E) A) and B)
F) None of the above

Question 14

When a bond is retired, a gain is recorded when the cash paid is less than the amortized cost.

Accepted Answer

A) True 
 B)False

Question 15

When bonds are issued at a discount, the

Accepted Answer

A)   applicable interest rate used to calculate interest expense is the prevailing market interest rate on the date of each interest payment date.
B)   amortized cost of the bonds will decrease each period.
C)   interest expense will not be a constant dollar amount over the life of the bond.
D)   interest paid to bondholders will be a function of the effective interest rate on the date the bonds are issued.E) B) and C)
F) None of the above

Question 16

When equity is issued instead of debt, the company will have an income tax savings.

Accepted Answer

A) True 
 B)False

Question 17

Ten $1,000 bonds with an amortized cost of $12,800 are retired at 105 after paying semi-annual interest. The entry to record the redemption is

Accepted Answer

The answer of Ten $1,000 bonds with an amortized cost...

Question 18

Within a corporation, formal approval is required before bonds can be issued by the

Accepted Answer

A)   chief executive officer.
B)   board of directors.
C)   controller.
D)   provincial government.E) C) and D)
F) A) and B)

Question 19

Use the following information for questions :
On January 1, 2012, Coté Limited issues a $27,232, 5% 3-year note payable. The note calls for three annual payments of $10,000, blended principal and interest. The first payment is to be made on December 31, 2012.
-On December 31, 2013, Coté will report interest expense of

Accepted Answer

A)   $1,000.
B)   $1,350.
C)   $917.50.
D)   $10,000.E) None of the above
F) C) and D)

Question 20

Financing by creditors is less risky than financing provided by shareholders.

Accepted Answer

A) True 
 B)False

Exam 15: Non-Current Liabilities

The contractual interest rate and the market interest rate on a bond will always be equal.

Correct Answer
verified

The market value depends on three factors. Which of the following is NOT a factor affecting the market value of bonds?

Correct Answer
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When debt is issued instead of equity, earnings per share may be higher.

Correct Answer
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The ratio that measures the percentage of total assets provided by creditors is the

Correct Answer
verified

When bonds are issued at a discount, the

Correct Answer
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Correct Answer
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If $180,000, 9%, bonds are issued on January 1, and pay interest semi-annually, the amount of interest paid on July 1, will be $8,100.

Correct Answer
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The Interest coverage ratio indicates the company's ability to meet interest payments as they come due.

Correct Answer
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Correct Answer
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a. Non-current liabilities
b. Bond int...
View Answer

The interest expense recorded on an interest payment date is increased

Correct Answer
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Within a corporation, formal approval is required before bonds can be issued by the

Correct Answer
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The maturity date of the bond is the date that the first interest payment is due.

Correct Answer
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Financing by creditors is less risky than financing provided by shareholders.

Correct Answer
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The effective interest method is required for

Correct Answer
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Which of the following statements pertaining to fixed-rate non-current Instalment Notes Payable is correct?

Correct Answer
verified

When a bond is retired, a gain is recorded when the cash paid is less than the amortized cost.

Correct Answer
verified

When equity is issued instead of debt, the company will have an income tax savings.

Correct Answer
verified

If bonds with a face value of $20,000 are redeemed before maturity when the amortized cost of the bonds is $18,000, the entry to record the redemption will include a debit to

Correct Answer
verified

Ten $1,000 bonds with an amortized cost of $12,800 are retired at 105 after paying semi-annual interest. The entry to record the redemption is

Correct Answer
verified

Prime is the interest rate that

Correct Answer
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Exam 15: Non-Current Liabilities

The contractual interest rate and the market interest rate on a bond will always be equal.

Correct AnswerverifiedShow Answer

The market value depends on three factors. Which of the following is NOT a factor affecting the market value of bonds?

Correct AnswerverifiedShow Answer

When debt is issued instead of equity, earnings per share may be higher.

Correct AnswerverifiedShow Answer

The ratio that measures the percentage of total assets provided by creditors is the

Correct AnswerverifiedShow Answer

When bonds are issued at a discount, the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If $180,000, 9%, bonds are issued on January 1, and pay interest semi-annually, the amount of interest paid on July 1, will be $8,100.

Correct AnswerverifiedShow Answer

The Interest coverage ratio indicates the company's ability to meet interest payments as they come due.

Correct AnswerverifiedShow Answer

Correct Answerverifieda. Non-current liabilities b. Bond int...View AnswerShow Answer

The interest expense recorded on an interest payment date is increased

Correct AnswerverifiedShow Answer

Within a corporation, formal approval is required before bonds can be issued by the

Correct AnswerverifiedShow Answer

The maturity date of the bond is the date that the first interest payment is due.

Correct AnswerverifiedShow Answer

Financing by creditors is less risky than financing provided by shareholders.

Correct AnswerverifiedShow Answer

The effective interest method is required for

Correct AnswerverifiedShow Answer

Which of the following statements pertaining to fixed-rate non-current Instalment Notes Payable is correct?

Correct AnswerverifiedShow Answer

When a bond is retired, a gain is recorded when the cash paid is less than the amortized cost.

Correct AnswerverifiedShow Answer

When equity is issued instead of debt, the company will have an income tax savings.

Correct AnswerverifiedShow Answer

If bonds with a face value of $20,000 are redeemed before maturity when the amortized cost of the bonds is $18,000, the entry to record the redemption will include a debit to

Correct AnswerverifiedShow Answer

Ten $1,000 bonds with an amortized cost of $12,800 are retired at 105 after paying semi-annual interest. The entry to record the redemption is

Correct AnswerverifiedShow Answer

Prime is the interest rate that

Correct AnswerverifiedShow Answer

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a. Non-current liabilities
b. Bond int...
View Answer

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