Question 1

Full disclosure of non- current debt is very important.

Accepted Answer

Full disclosure of non-current debt is important as it provides important information to investors and stakeholders regarding a company's financial position and ability to service its debt obligations in the long term. This includes information about the amount, terms, interest rates, and maturity dates of the debt. Without full disclosure, investors may not have a complete understanding of the company's financial health and, therefore, may not be able to make informed investment decisions.

Question 2

All companies are prohibited to report current liabilities in reverse order of liquidity.

Accepted Answer

There is no such prohibition. Companies can report current liabilities in any order they prefer, as long as they provide clear and accurate information in the financial statements.

Question 3

The face value of a bond is the amount of principal and interest due at the maturity date.

Accepted Answer

The face value of a bond is the amount of principal that is paid back to the investor at the maturity date, not including interest payments. Interest is paid separately according to the bond's terms.

Question 4

"Off-balance-sheet financing" refers to a situation where liabilities are recorded in the income statement instead of the statement of financial position.

Accepted Answer

Off-balance-sheet financing refers to the practice of financing an asset, project or venture using a method that doesn't show up on the company's balance sheet. However, liabilities are not recorded in the income statement.

Question 5

Liquidity ratios measure a company's long term ability to pay debt.

Accepted Answer

Liquidity ratios measure a company's short-term ability to pay debt. Long-term ability to pay debt is measured by solvency ratios.

Question 6

All transactions between bondholders and other investors must be recorded by the issuing corporation.

Accepted Answer

The issuing corporation is not necessarily involved in secondary market transactions between bondholders and other investors. These transactions can occur on secondary markets (such as bond exchanges or over-the-counter markets) and may not involve the issuing corporation at all.

Question 7

The classification of a liability as current or non-current is important because it may affect the evaluation of a company's liquidity.

Accepted Answer

The classification of a liability as current or non-current can affect the calculation of a company's working capital and current ratio, which are measures of a company's liquidity. Therefore, it is important to correctly classify a liability as either current or non-current.

Question 8

Detailed information such as a list showing the amounts of non current debt that is scheduled to be paid off in each of the next five years should be disclosed in the notes to the financial statements.

Accepted Answer

This information is important for users of the financial statements, such as investors and creditors, to understand the company's debt obligations and its ability to meet its payment obligations in the future. It is typically disclosed in the notes to the financial statements.

Question 9

A high liquidity ratio generally indicates that a company has a greater ability to meet its current obligations.

Accepted Answer

A high liquidity ratio means a company has more liquid assets that can be used to pay off its current liabilities, indicating a greater ability to meet its current obligations.

Question 10

The carrying amount of bonds issued at a discount will initially be higher than the face value.

Accepted Answer

The carrying amount of bonds issued at a discount will initially be lower than the face value.

Question 11

The terms of an operating line of credit and a notes (loans) payable are disclosed in the notes to the financial statements.

Accepted Answer

The terms of both operating lines of credit and notes (loans) payable are typically disclosed in the notes to the financial statements.

Question 12

Interest (finance) expenses are separately reported in the "other gain and revenues" section of the income statement.

Accepted Answer

Interest expenses are typically classified as a separate line item under the "operating expenses" section of the income statement. They are not included in the "other gain and revenues" section.

Question 13

The debt to total assets ratio measures the percentage of the total assets provided by creditors.

Accepted Answer

The debt to total assets ratio is calculated by dividing total debt by total assets, and the result measures the percentage of the total assets that are financed by debt or provided by creditors.

Question 14

If a bond has a face value of $10,000 and a 6% coupon interest rate, then the semi-annual interest payment will be $600.

Accepted Answer

The semi-annual interest payment would be $300, as the annual interest is $600 (6% of $10,000), and it is divided into two payments.

Question 15

Current liabilities are generally presented on the statement of financial position in order or liquidity, but IFRS allows presentation in reverse order of liquidity as well.

Accepted Answer

Current liabilities are typically presented in order of their liquidity, meaning that the liabilities that are due soonest are listed first, followed by those that are due later. However, IFRS does allow for the presentation of current liabilities in reverse order of liquidity, meaning that those due later are listed first, followed by those that are due sooner.

Question 16

The times interest earned ratio is calculated by dividing net profit by interest expense.

Accepted Answer

The times interest earned ratio is calculated by dividing earnings before interest and taxes (EBIT) by interest expense.

Question 17

Current liabilities are listed in order of descending dollar value.

Accepted Answer

Current liabilities are typically listed in order of their maturity, with the shortest-term obligations listed first, rather than by their dollar value.

Question 18

Solvency ratios measure a company's ability to repay current debt.

Accepted Answer

Solvency ratios measure a company's ability to repay long-term debt, not current debt. Current ratios or quick ratios measure a company's ability to repay current debt.

Question 19

Bonds are often traded on an organized exchange, such as the Toronto Stock Exchange (TSX).

Accepted Answer

Bonds are frequently traded on organized exchanges such as the TSX, as well as over-the-counter markets.

Question 20

If bonds are redeemable, they can be retired by the issuer before they mature.

Accepted Answer

If bonds are redeemable, it means the issuer has the option to buy back or retire the bonds before they reach maturity.

Quiz 10: Reporting and Analyzing Long-Lived Assets