Chapter 14 - TRUE/FALSE + Multiple Choice Flashcards Preview

Intermediate Accounting II > Chapter 14 - TRUE/FALSE + Multiple Choice > Flashcards

Flashcards in Chapter 14 - TRUE/FALSE + Multiple Choice Deck (20):
1

TRUE/FALSE
Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period.

FALSE

2

TRUE/FALSE
The carrying value of zero-coupon bonds increases by the periodic amount of interest recognized.

TRUE

3

TRUE/FALSE
Paid-in capital is increased when bonds payable are issued with detachable stock purchase warrants.

TRUE

4

TRUE/FALSE
Bonds will sell for a premium when the market rate of interest exceeds their stated rate.

FALSE

5

TRUE/FALSE
The initial selling price of bonds represents the sum of all future cash flows required by the obligation.

FALSE

6

TRUE/FALSE
Amortization of discount on bonds payable results in interest expense that is less than the actual cash outflow.

FALSE

7

TRUE/FALSE
Premium on bonds payable is a contra liability account.

FALSE

8

TRUE/FALSE
Companies are not required to, but have the option to, value some or all of their financial assets and liabilities at fair value.

TRUE

9

TRUE/FALSE
If a company choose the option to report its bonds at fair value, then it reports changes in fair value in its income statement.

TRUE

10

TRUE/FALSE
An implicit or imputed rate of interest must be used when long term notes are issued at a stated rate of interest that is materially different than the market rate of interest.

TRUE

11

TRUE/FALSE
The interest expense on an installment note decreases with each periodic payment.

TRUE

12

TRUE/FALSE
The specific provisions of a bond issue are described in a document called a bond indenture.

TRUE

13

The interest rate that is printed on the bond certificate is not referred to as the:
A. Stated rate
B. Contract rate
C. Nominal rate
D. Effective rate

D. Effective rate

14

Most corporate bonds are:
A. Mortgage bonds
B. Debenture bonds
C. Secured bonds
D. Collateral bonds

B. Debenture bonds

15

The method used to pay interest depends on whether the bonds are:
A. Registered or coupon
B. Mortgaged or unmortgaged
C. Indentured or debentured
D. Callable or redeemable

A. Registered or coupon

16

The rate of interest that actually is incurred on a bond is called the:
A. Face rate
B. Contract rate
C. Effective rate
D. Stated rate

C. Effective rate

17

Interest expense is:
A. The effective interest rate times the amount of debt outstanding during the interest period.
B. The stated interest rate times the amount of debt outstanding during the interest period.
C. The effective interest rate times the face amount of the debt.
D. The stated interest rate times the face amount of the debt.

A. The effective interest rate times the amount of the debt outstanding during the interest period.

18

Bonds usually sell at their:
A. Maturity value
B. Face value
C. Present value
D. Statistical expected value

C. Present value

19

Straight-line amortization of bond discount or premium:
A. Can be used for amortization of discount or premium in all cases and circumstances.
B. Provides the same amount of interest expense each period as does the effective interest method.
C. Is appropriate for deep discount bonds.
D. Provides the same total amount of interest expense over the life of the bond issue as does the effective interest method.

D. Provides the same total amount of interest expense over the life of the bond issue as does the effective interest method.

20

An amortization schedule for bonds issued at a premium:
A. Summarizes the amortization of the premium, a contra-asset account with a credit balance.
B. Is reported in the balance sheet.
C. Is a schedule that reflects the changes in the debt over its term to maturity.
D. All the above are correct.

C. Is a schedule that reflects the changes in debt over its term to maturity.