CHAP014 - Chapter 14 Bonds and Long-Term Notes True/False...

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Chapter 14 Bonds and Long-Term Notes True/False Questions 1. The specific provisions of a bond issue are described in a document called a bond indenture. Answer: True Learning Objective: 1 Level of Learning: 1 2. Bonds will sell for a premium when the market rate of interest exceeds their stated rate. Answer: False Learning Objective: 2 Level of Learning: 1 3. Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period. Answer: False Learning Objective: 1 Level of Learning: 1 4. The initial selling price of bonds represents the sum of all the future cash outflows required by the obligation. Answer: False Learning Objective: 2 Level of Learning: 1 5. Amortization of discount on bonds payable results in interest expense that is less than the actual cash outflow. Answer: False Learning Objective: 2 Level of Learning: 1 6. Premium on bonds payable is a contra liability account. Answer: False Learning Objective: 2 Level of Learning: 1 7. The carrying value of zero-coupon bonds increases by the periodic amount of interest recognized. Answer: True Learning Objective: 1 Level of Learning: 1 8. Paid-in capital is increased when bonds payable are issued with detachable stock purchase warrants. Answer: True Learning Objective: 1 Level of Learning: 2 9. 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. Answer: True Learning Objective: 3 Level of Learning: 2 10. The interest on an installment note decreases with each periodic payment. Answer: True Learning Objective: 3 Level of Learning: 2 Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition 49
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Chapter 14 Bonds and Long-Term Notes Matching Pair Questions Use the following to answer questions 11-15: 11-15. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. Terms: A. Bond indenture B. Call feature C. Gain on extinguishment D. Implicit rate of interest E. Interest expense F. Interest fund G. Loss on extinguishment H. Mortgage bond I. Sinking fund J. Subordinated debenture Phrases: 11. ____ Used when the rate is not stated or is materially different from the market rate. 12. ____ Used by a trustee to repurchase bonds in the open market. 13. ____ Conceptually equal to effective rate times balance. 14. ____ Secured by real property. 15. ____ Promises made to bondholders. Use the following to answer questions 16-20: 16-20. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. Terms:
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