ch 14 tbs

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the face value by the table value for

20 periods and 4% from the present value of 1 table

Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements?

The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.

A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation?

The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period

Which of the following arguments is presented by FASB to explain why a gain is recorded by a company when its creditworthiness is becoming worse?

The debtholders' loss is the shareholders' gain.

The interest rate of variable-rate mortgages is tied to changes in the fluctuating market rate

True

If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting

Unrealized Holding Gain/Loss-Income

"In-substance defeasance" is a term used to refer to an arrangement whereby

a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

a new effective-interest rate must be computed

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

a. any costs of issuing the bonds must be amortized up to the purchase date. b. the premium must be amortized up to the purchase date. c. interest must be accrued from the last interest date to the purchase date. d. All of these answers are correct.

A project financing arrangement refers to:

an arrangement where a company creates a special-purpose entity to perform a special project

When a company enters into what is referred to as off-balance-sheet financing, the company

can enhance the quality of the balance sheet and permits credit to be obtained more readily and at less cost

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will

exceed what it would have been had the effective-interest method of amortization been used

If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current

false

The loss to be recognized by a creditor on an impaired loan is the difference between the investment in the loan and the expected undiscounted future cash flows from the loan

false

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be

greater than if the straight-line method were used

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will

increase if the bonds were issued at either a discount or a premium

The face value of bonds is also called each of the following except

stated value

A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place

the present value of the debt instrument must be approximated using an imputed interest rate

An unrealized holding gain or loss is the net change in the fair value of the liability from one period to another, exclusive of interest expense recognized but not recorded

true

The debt to assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet

true