Question 1

__________ bonds may be retired by the issuing company before their specified due date.

Accepted Answer

The answer of __________ bonds may be retired by the...

Question 2

If the market rate of interest is greater than the face rate,then the bonds are issued at a(n)__________.

Accepted Answer

The answer of If the market rate of interest is...

Question 3

Interest expense is computed annually when a bond is issued for other than its face value.For a bond issued at a premium,how will this component change under the effective interest method as the bond approaches maturity?
A)Decrease
B)Increase
C)Remain constant
D)Not enough information given to decide

Accepted Answer

When a bond is issued at a premium, the effective interest method will result in a decrease in the interest expense as the bond approaches maturity. This is because the effective interest rate will decrease over time, as the difference between the bond's face value and its carrying value (which declines toward face value as the bond nears maturity) becomes smaller. Thus, the amount of interest expense recognized each period will gradually decrease as the bond approaches its maturity date.

Question 4

An amortized premium is computed annually when a bond is issued for other than its face value.For a bond issued at a premium,how will this component change under the effective interest method as the bond approaches maturity?
A)Decrease
B)Increase
C)Remain constant
D)Not enough information given to decide

Accepted Answer

The answer of An amortized premium is computed annually when...

Question 5

The effective interest method amortizes premium or discount in a manner that produces a(n)__________ rate of interest from period to period.

Accepted Answer

The answer of The effective interest method amortizes premium or...

Question 6

Carrying value is computed annually when a bond is issued for other than its face value.For a bond issued at a premium,how will this component change as the bond approaches maturity?
A)Decrease
B)Increase
C)Remain constant
D)Not enough information given to decide

Accepted Answer

The carrying value of a bond issued at a premium is the face value of the bond plus the unamortized premium. As the bond approaches maturity, the unamortized premium will decrease as more of it is amortized over the life of the bond. Therefore, the carrying value will also decrease.

Question 7

The denomination or principal amount of the bond is usually referred to as the __________.

Accepted Answer

The answer of The denomination or principal amount of the...

Question 8

Cash interest is computed annually when a bond is issued for other than its face value.For a bond issued at a premium,how will this component change under the effective interest method as the bond approaches maturity?
A)Decrease
B)Increase
C)Remain constant
D)Not enough information given to decide

Accepted Answer

The answer of Cash interest is computed annually when a...

Question 9

The __________ rate of interest is the rate that bondholders could obtain by investing in other bonds that are similar to the issuing firm's bonds.

Accepted Answer

The answer of The __________ rate of interest is the...

Question 10

Discount on Bonds Payable is shown on the balance sheet as a(n)__________.

Accepted Answer

The answer of Discount on Bonds Payable is shown on...

Question 11

When a bond is retired early and the redemption price is greater than the bond's carrying value,there will be a(n)__________ on redemption.

Accepted Answer

The answer of When a bond is retired early and...

Question 12

An amortized discount is computed annually when a bond is issued for other than its face value.For a bond issued at a discount,how will this component change under the effective interest method as the bond approaches maturity?
A)Decrease
B)Increase
C)Remain constant
D)Not enough information given to decide

Accepted Answer

Under the effective interest method, the amortized discount increases over time as the bond approaches maturity. This is because the interest expense recorded each period is based on the carrying amount of the bond, which increases as the discount is amortized, leading to a larger interest expense and thus a larger amount of discount amortized each period.

Question 13

All liabilities that are not classified as current liabilities are classified as __________.

Accepted Answer

The answer of All liabilities that are not classified as...

Question 14

Under the effective interest method of amortization,the interest expense for each period is the carrying value times the __________.

Accepted Answer

The answer of Under the effective interest method of amortization,the...

Question 15

The carrying value is computed annually when a bond is issued for other than its face value.For a bond issued at a discount,how will this component change as the bond approaches maturity?
A)Decrease
B)Increase
C)Remain constant
D)Not enough information given to decide

Accepted Answer

For a bond issued at a discount, the carrying value increases as the bond approaches maturity. This is because the discount on the bond (the difference between its face value and the lower price at which it was issued) is amortized over the life of the bond, gradually increasing the carrying value of the bond to its face value at maturity.

Question 16

Bonds were issued at a(n)__________ when the issue price exceeds the face value.

Accepted Answer

The answer of Bonds were issued at a(n)__________ when the...

Question 17

A(n)__________ lease is recorded on the lessee's balance sheet as an asset and related liability.

Accepted Answer

The answer of A(n)__________ lease is recorded on the lessee's...

Question 18

The bond issue price equals the __________ of the cash flows that the bond will produce.

Accepted Answer

The answer of The bond issue price equals the __________...

Question 19

__________ is the process of transferring an amount from the bond discount or premium to interest expense each time period to adjust interest expense.

Accepted Answer

The answer of __________ is the process of transferring an...

Question 20

__________ is either the bond's face value minus any unamortized discount or plus any unamortized premium.

Accepted Answer

The answer of __________ is either the bond's face value...

Quiz 10: Long-Term Liabilities