Question 1

Regardless of whether the straight-line method or the effective interest method is used,the carrying value of a term bond issued at a discount will decrease continually over the life of the bond.

Accepted Answer

The answer of Regardless of whether the straight-line method or...

Question 2

When bonds are converted to stock,no gain or loss is recognized.

Accepted Answer

When bonds are converted to stock, it is considered a non-taxable event and therefore no gain or loss is recognized.

Question 3

The calculation of cash for interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance.

Accepted Answer

The calculation of interest to be paid on a bond payable is based on the face value of the bond and the coupon rate. It is not affected by any premium or discount incurred upon issuance.

Question 4

The present value of a bond is always less than the face value of the bond.

Accepted Answer

The present value of a bond can be less than, equal to, or greater than the face value of the bond, depending on the relationship between the bond's coupon rate and the market interest rate.

Question 5

Total interest cost for a bond issued at a premium equals the total of the periodic interest payments minus the premium.

Accepted Answer

The answer of Total interest cost for a bond issued...

Question 6

When a bond issue is converted into common stock,total contributed capital is increased by the carrying value of the bonds converted.

Accepted Answer

When a bond issue is converted into common stock, the carrying value of the bonds converted is added to the contributed capital section of the balance sheet, which increases the total contributed capital.

Question 7

The amount of unamortized discount at the end of an interest period is equal to the amount of the unamortized discount at the beginning of the period minus the amount of discount that was amortized during the period.

Accepted Answer

This statement is true. The unamortized discount at the end of the period is simply the remaining portion of the initial discount that has not yet been amortized.

Question 8

When there are material differences between the results of using the straight-line method and using the effective interest method of amortization,the effective interest method should be used.

Accepted Answer

The effective interest method of amortization takes into account the time value of money and results in a more accurate allocation of interest expense over the life of the bond. Therefore, when there are material differences between the results of using straight-line and effective interest methods, effective interest method should be used to provide a more accurate picture of the bond's financial performance.

Question 9

The carrying value of a bond is also referred to as its present value.

Accepted Answer

The carrying value of a bond is its face value adjusted for any unamortized premium or discount, not its present value. The present value is a calculation that discounts the bond's future cash flows to their value today, which can differ from the carrying value.

Question 10

Issuing bonds at a discount has the effect of decreasing interest expense below the face amount of interest.

Accepted Answer

The answer of Issuing bonds at a discount has the...

Question 11

If a 20-year bond pays interest of 8 percent semi-annually,the present value of the bond is calculated based upon 4 percent and 40 periods.

Accepted Answer

The present value of a bond is calculated based on the bond's interest rate and number of periods. In this case, the bond pays interest of 8 percent semi-annually, which translates to a 4 percent annual interest rate (since there are two semi-annual periods in a year). The bond has a 20-year maturity, which equals 40 semi-annual periods. Therefore, the present value of the bond would be calculated based on a 4 percent annual interest rate and 40 periods.

Question 12

Discounts or premiums are contra-accounts that are subtracted from or added to bonds payable on the balance sheet.

Accepted Answer

Discounts or premiums are contra-accounts that are subtracted from or added to bonds payable on the balance sheet.

Question 13

When bonds are called for retirement,any excess of the bonds' call price over the bonds' carrying value is reported as a gain on the income statement.

Accepted Answer

When bonds are called for retirement, any excess of the bonds' call price over the bonds' carrying value is reported as a loss, not a gain, on the income statement. Conversely, if the carrying value exceeds the call price, the difference is reported as a gain.

Question 14

When the present value of a bond issue is calculated,both the present value of a single sum table and the present value of an annuity table must be used.

Accepted Answer

This statement is true. The present value of a bond issue is the sum of the present values of its interest payments (which are an annuity) and its principal payment (which is a single sum). Therefore, both the present value of an annuity table and the present value of a single sum table are needed to calculate the present value of a bond issue.

Question 15

The carrying value of a bond issued at a premium is calculated at any given point in time by deducting the balance of the unamortized premium from the bond's face value.

Accepted Answer

The answer of The carrying value of a bond issued...

Question 16

Under the effective interest method of amortizing a bond discount,the bond interest expense recorded for each period increases over the life of the bond.

Accepted Answer

Under the effective interest method, the bond interest expense is calculated as a percentage of the carrying value of the bond, and since the carrying value decreases over time as the bond discount is amortized, the interest expense recorded each period increases.

Question 17

When the effective interest method of amortization is used,the amount of bond interest expense for a given period is calculated by multiplying the face interest rate by the bond's carrying value at the beginning of the given period.

Accepted Answer

When the effective interest method of amortization is used, the amount of bond interest expense for a given period is calculated by multiplying the effective interest rate by the bond's carrying value at the beginning of the given period. The effective interest rate takes into account both the stated interest rate and any discount or premium on the bond.

Question 18

Whether a bond is sold at a discount or a premium,its carrying value will equal its face value on the maturity date.

Accepted Answer

This statement is true. The carrying value of a bond refers to its accounting value on the balance sheet, which is calculated by amortizing any discount or premium on the bond over the term of the bond. On the maturity date, the carrying value of the bond will have been fully amortized, resulting in it equaling the face value of the bond.

Question 19

The effective interest method produces a constant dollar amount of bond interest expense to be reported each interest period.

Accepted Answer

The effective interest method produces a varying amount of bond interest expense each period because it applies the market rate of interest at issuance to the outstanding balance of the bond, which changes as the bond is paid down or amortizes.

Question 20

When a bond has been issued at a discount,the carrying value at the end of one period is equal to the carrying value at the beginning of the period plus the amount of discount that was amortized during the period.

Accepted Answer

This statement is true. When a bond is issued at a discount, the discount is recorded as a liability and amortized over the life of the bond. At the end of the period, the carrying value of the bond will be the carrying value at the beginning of the period plus the amount of discount that was amortized during the period.

Quiz 10: Long-Term Liabilities

Regardless of whether the straight-line method or the effective interest method is used,the carrying value of a term bond issued at a discount will decrease continually over the life of the bond.

When bonds are converted to stock,no gain or loss is recognized.

The calculation of cash for interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance.

The present value of a bond is always less than the face value of the bond.

Total interest cost for a bond issued at a premium equals the total of the periodic interest payments minus the premium.

When a bond issue is converted into common stock,total contributed capital is increased by the carrying value of the bonds converted.

The amount of unamortized discount at the end of an interest period is equal to the amount of the unamortized discount at the beginning of the period minus the amount of discount that was amortized during the period.

When there are material differences between the results of using the straight-line method and using the effective interest method of amortization,the effective interest method should be used.

The carrying value of a bond is also referred to as its present value.

Issuing bonds at a discount has the effect of decreasing interest expense below the face amount of interest.

If a 20-year bond pays interest of 8 percent semi-annually,the present value of the bond is calculated based upon 4 percent and 40 periods.

Discounts or premiums are contra-accounts that are subtracted from or added to bonds payable on the balance sheet.

When bonds are called for retirement,any excess of the bonds' call price over the bonds' carrying value is reported as a gain on the income statement.

When the present value of a bond issue is calculated,both the present value of a single sum table and the present value of an annuity table must be used.

The carrying value of a bond issued at a premium is calculated at any given point in time by deducting the balance of the unamortized premium from the bond's face value.

Under the effective interest method of amortizing a bond discount,the bond interest expense recorded for each period increases over the life of the bond.

When the effective interest method of amortization is used,the amount of bond interest expense for a given period is calculated by multiplying the face interest rate by the bond's carrying value at the beginning of the given period.

Whether a bond is sold at a discount or a premium,its carrying value will equal its face value on the maturity date.

The effective interest method produces a constant dollar amount of bond interest expense to be reported each interest period.

When a bond has been issued at a discount,the carrying value at the end of one period is equal to the carrying value at the beginning of the period plus the amount of discount that was amortized during the period.