Chapter 10

Which of the following statements best describes the behavior over time of the components of equal mortgage payments?

Payment of principal increases and interest expense decreases.

In the balance sheet, the account Premium on Bonds Payable is

added from bond payable

Secured bonds are bonds that

have specific assets of the issuer pledged as collateral.

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

interest must be paid on a periodic basis regardless of earnings.

The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that

is less than the amount of cash to be paid for interest for the period.

Sales taxes collected by a retailer are reported from the customer are expenses

of the customer.

Failure to record a liability will probably

result in an overstated net income

Liquidity ratios measure a company's

short-term debt paying ability.

The contractual interest rate on a bond is often referred to as the

stated rate

Bond discount should be amortized to comply with

the expense recognition principle.

Stockholders of a company may be reluctant to finance expansion by issuing more equity because

their earnings per share may decrease.

The market value (present value) of a bond is a function of all of the following except the

types of bonds

A current liability is a debt that can reasonably be expected to be paid

within one year whichever is longer

Sales taxes collected by a retailer are reported as

current liabilities

The amount of sales tax collected by a retail store when making sales is

a current liability

If the market rate of interest is lower than the contractual interest rate, the bonds will sell at

a premium

The contractual rate of interest is usually stated as a(n)

annual rate

If the market rate of interest is greater than the contractual rate of interest, bonds will sell

at a discount

Bonds are not always categorized as

callable or convertible.

Selling the bonds at a premium has the effect of

causing the total cost of borrowing to be lower than the bond interest paid.

Sales taxes collected by a retailer are recorded by

crediting Sales Taxes Payable

Bonds that are issued against the general credit of the borrower are called

debenture bonds.

Over the term of the bonds, the balance in the Discount on Bonds Payable account will

decrease

Liabilities are classified as current or long-term based on their

due date

The market rate of interest is often called the

effective rate

With an interest-bearing note, the amount of assets received upon issuance of the note is generally

equal to the note's face value.

Liabilities are classified on the balance sheet as current or

long term

The present value of a bond is also known as its

market price

The statement "Bond prices vary inversely with changes in the market rate of interest" means that if the

market rate of interest decreases, then bond prices will go up.

Bonds that are secured by real estate are termed

mortgage bonds