Chapter 14 Pre-Lecture Questions

T/F A long-term note is valued at its face value.

False

T/F Convertible bonds give the issuer the right to retire bonds prior to maturity.

False

T/F Under both U.S. GAAP and IFRS, bond issuance costs are recorded as deferred charges and amortized to expense over the term of the bond.

False

T/F If a company elects the fair value option for a long-term note payable, its net income will be increased (decreased) by any unrealized holding gains (losses).

True

T/F The effective interest method is preferred when amortizing bond premiums and discounts

True

T/F When assets such as land are transferred in a troubled debt restructuring, the creditor should account for the transferred assets at fair value.

True

Which of the following is not a typically classified as a long-term liability? > Lease liability > Bonds Payable > Mortgage Payable > Unearned Revenue

Unearned Revenue

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition, > any costs of issuing the bonds must be amortized up to the purchase date > the premium must be amortized up to the purchase date > interest must be accrued from the last interest date to the purchase date > all of these answer choices are correct

all of these answer choices are correct

Bond issuance costs are: > recorded as an asset > recorded as an interest expense > added to the issue amount of the bond payable > amortized into expense over the life time of the bond

amortized into expense over the life time of the bond

Long-term debt that matures within one year and is to be converted into stock should be reported > as a current liability > only as non-current > as non-current and accompanied with a note explaining the method to be used in its liquidation > in a special section between liabilities and stockholders' equiry

as non-current and accompanied with a note explaining the method to be used in its liquidation

The interest rate actually earned by bondholders is called the > stated rate > nominal rate > effective yield > coupon rate

effective yield

A long-term note is valued at its > present value > face value > market value > maturity value

present value

A company can accomplish off-balance sheet financing using all of the following except > operating leases > nonconsolidated subsidiaries > zero-interest bearing notes > special purpose entities

zero-interest bearing notes