Deck 15: Non-Current Liabilities

Question 1

A variable interest rate changes as market rates change.

Answer 1

True

Question 2

Bond prices are quoted as a percentage of the face value of the bonds.

Answer 2

True

Question 3

A non-current note is always secured.

Answer 3

False

Question 4

The amount that must be invested today at current interest rates in order to receive a specified sum of money at a specified date is the present value.

Question 5

When bonds are issued at face value, the market interest rate is equal to the contractual interest rate.

Question 6

Bonds with a higher contractual interest rate than the market rate for similar bonds will probably sell at a discount.

Question 7

When a note payable is repaid with blended payments, the same amount of principal is repaid with each payment.

Question 8

The portion of a non-current note that will be repaid within the next year is shown as a current liability on the balance sheet.

Question 9

The total cost of borrowing on a 10 year, 4%, $1,000 bond that is sold for $970 is:

A) $370.
B) $400.
C) $430.
D) $970.

Question 10

Bonds with a face value of $1,000,000 and a carrying value of $975,000 are retired at 99, after paying semi-annual interest. The gain or loss is:

A) $15,000 loss.
B) $10,000 loss.
C) $10,000 gain.
D) $15,000 gain.

Question 11

If bonds payable are issued at a discount, the contractual interest rate is:

A) higher than the market rate of interest.
B) lower than the market rate of interest.
C) equal to the market rate of interest.
D) changed to reflect the market rate of interest.

Question 12

Castaway Corporation borrows $300,000 and signs a 6%, 5 year note. Monthly payments will include a fixed amount of principal, plus interest on the unpaid balance. The first payment will be:

A) $5,000.
B) $6,500.
C) $18,000.
D) $23,000.

Question 13

Select the appropriate word or phrase from the table to complete the following statements correctly:
a. When the market rate exceeds the contractual interest rate, bonds will sell at _________________________________.
b. Cash paid to bondholders each period is calculated by multiplying the _________________________ by the __________________________.
c. When bonds are issued at a discount, the total cost of borrowing will equal the sum of the periodic interest payments _______________ the discount.
d. The carrying value of the bond moves towards the _____________________.

Question 14

On Jan 1, 2013, Dawson Corporation borrows $300,000 and signs a 5-year, 6% note payable. Blended monthly payments of $5,800 are required, beginning Feb 1, 2013.
a. Record the journal entry for Dawson on January 1.
b. Record the journal entry for Dawson on February 1.

Question 15

What are two advantages of debt over equity financing?

Question 16

At what amount do bonds trade at on the market?