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
