Accounting II Chapter 14

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 a. 20 periods and 4% from the present value of 1 table b. 10 periods and 10% from the present value of 1 table c. 10 periods and 8% from the present value of 1 table d. 20 periods and 5% from the present value of 1 table

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

If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting. a. Unrealized Holding Gain/Loss-Income. b. Bonds Payable. c. Realized Holding Gain. d. Gain on Restructuring of Debt.

a. Unrealized Holding Gain/Loss-Income.

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as a. a difference between the re acquisition price and the net carrying amount of the debt which should be recognized in the period of redemption. b. an adjustment to the cost basis of the asset obtained by the debt issue. c. an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument. d. an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt.

a. a difference between the re acquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.

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

a. as noncurrent and accompanied with a note explaining the method to be used in its liquidation.

Bonds for which the owners' names are not registered with the issuing corporation are called a. bearer bonds. b. debenture bonds. c. term bonds. d. secured bonds.

a. bearer bonds.

The interest rate written in the terms of the bond indenture is known as the a. coupon rate, nominal rate, or stated rate. b. coupon rate. c. stated rate. d. nominal rate.

a. coupon rate, nominal rate, or stated rate.

When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be a. increased by accrued interest from May 1 to June 1. b. increased by accrued interest from June 1 to November 1. c. decreased by accrued interest from May 1 to June 1. d. decreased by accrued interest from June 1 to November 1

a. increased by accrued interest from May 1 to June 1.

Note disclosures for long-term debt generally include all of the following except a. call provisions and conversion privileges. b. names of specific creditors. c. assets pledged as security. d. restrictions imposed by the creditor.

b. names of specific creditors.

An example of an item which is not a liability is a. the portion of long-term debt due within one year. b. accrued estimated warranty costs. c. dividends payable in stock. d. advances from customers on contracts.

c. dividends payable in stock.

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that a. the effective yield or market rate of interest exceeded the stated (nominal) rate. b. the market and nominal rates coincided. c. the nominal rate of interest exceeded the market rate. d. no necessary relationship exists between the two rates.

c. the nominal rate of interest exceeded the market rate.

A project financing arrangement refers to: a. an arrangement where a company finances a project from a sinking fund established for bond repayments. b. an arrangement where a company borrows from its subsidiary to finance a project. c. an arrangement where a company promises future repayment by placing purchased assets in an irrevocable trust. d. an arrangement where a company creates a special-purpose entity to perform a special project.

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

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to a. the stated (nominal) rate of interest multiplied by the face value of the bonds. b. the stated rate multiplied by the beginning-of-period carrying amount of the bonds. c. the market rate of interest multiplied by the face value of the bonds. d. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

d. the market rate multiplied by the beginning-of-period carrying amount of the bonds.