Intermediate Accounting Chapter 14

Front 1

Give an example of an item which is not a liability

Back 1

Dividends payable in stock

Front 2

The convenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the

Back 2

Bond indenture

Front 3

The term used for bonds that are unsecured as to principal is

Back 3

Debenture bonds

Front 4

Bonds for which the owners' names are not registered with the issuing corporation are called

Back 4

Bearer bonds

Front 5

Bonds that pay no interest unless the issuing company is profitable are called

Back 5

Income bonds

Front 6

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

Back 6

Greater than if the straight-line method were used.

Front 7

The interest rate written in the terms of the bond indenture is known as the

Back 7

Coupon rate, nominal rate, or stated rate

Front 8

The rate of interest actually earned by bondholders is called the

Back 8

Effective, yield, or market rate

Front 9

Fox & Co. Issued $100,000 of 10-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 principal by the table value for:

Back 9

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

Front 10

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:

Back 10

The nominal rate of interest exceeded the market rate

Front 11

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

Back 11

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

Front 12

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to:

Back 12

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

Front 13

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

Back 13

Increase if the bonds were issued at either a discount or a premium.

Front 14

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

Back 14

Credit to interest expense

Front 15

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

Back 15

Increased by accrued interest from May 1 to June 1.

Front 16

Theoretically, the costs of issuing bonds could be

Back 16

Expensed when incurred, reported as a reduction of the bond liability, debited to a deferred charge account and amortized over the life of the bonds.

Front 17

The printing costs and legal fees associated with the issuance of bonds should be

Back 17

Accumulated in a deferred account and amortized over the life of the bonds.

Front 18

Treasury Bonds should be shown on the balance sheet as

Back 18

A deduction from bonds payable issued to arrive at net bonds payable and outstanding.

Front 19

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between issue dates. At the time of reacquisition

Back 19

Any costs of issued 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.

Front 20

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as

Back 20

A difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.

Front 21

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

Back 21

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

Front 22

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 except to apply to the situation?

Back 22

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.

Front 23

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

Back 23

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

Front 24

When a note payable is issued for property, goods, or services, the present value of the note is measured by

Back 24

The fair value of the property, goods, or services. The fair value of the note. Using an imputes interest rate to discount all future payments on the note.

Front 25

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless

Back 25

No interest rate is stated. The stated interest rate is unreasonable. The stated face amount of the note is materially difference from the current cash sales price for similar items or from current fair value of the note.

Front 26

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

Back 26

Unrealized Holding Gain or Loss - Income

Front 27

What is an example of "off-balance-sheet financing"?

Back 27

Non-consolidated subsidiary. Special purpose entity. Operating leases.

Front 28

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

Back 28

Can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.

Front 29

Long-term debt that matures within one year and is to be converted into stock should be reported

Back 29

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

Front 30

What must be disclosed relative to long-term debt maturities and sinking fund requirements?

Back 30

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

Front 31

Note disclosures for long-term debt generally include all of the following except

Back 31

Names of specific creditors

Front 32

The times interest earned ratio is computed by dividing

Back 32

Income before income taxes and interest expense by interest expense

Front 33

The debt to total assets ratio is computed by dividing

Back 33

Total liabilities by total assets

Front 34

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

Back 34

A new effective-interest rate must be computed.

Front 35

A troubled debt restructuring will generally result in a

Back 35

Gain by the debtor and a loss by the creditor.

Front 36

In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize

Back 36

A gain on the restructuring

Front 37

In a troubled debt restructuring in which the debt is continued with modified terms, a gain should be recognized at the date of restructure, but no interest expense should be recognized over the remaining life of the debt, whenever the

Back 37

Carrying amount of the pre-restructure debt is greater than the total future cash flows.

Front 38

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, the creditor should

Back 38

Calculate its loss using the historical effective rate of the loan

Front 39

On January 1, 2012, Ellison Co. issued eight-year bonds with a face value of $2,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were

sold to yield 8%.

The present value of the principal is:

Back 39

$1,068,000

$2,000,000 x .534 (16 periods, 4% present value of 1)

Front 40

On January 1, 2012, Ellison Co. issued eight-year bonds with a face value of $2,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were

sold to yield 8%.

The present value of the interest is:

Back 40

$699,120

2,000,000 x 6%/2 * 11.652 (16 periods, 4% present value of an annuity)

Front 41

On January 1, 2012, Ellison Co. issued eight-year bonds with a face value of $2,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were

sold to yield 8%.

The issue price of the bond is:

Back 41

$1,767,120

PV of Principal 1,068,000

+ PV of Interest 699,120

Front 42

Downing Company issues $3,000,000, 6%, 5-year bonds dated January 1, 2012 on January 1, 2012. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?

Back 42

$3,131,285

$3,000,000 x .78120 (10 periods, 2.5%)

$90,000 x 8.75206 (3,000,000 x 3% x 8.75206, 10 periods, 2.5%)

Front 43

Feller Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus

accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and

December 31. What is the total cash received on the issue date?

Back 43

$9,850,000

10,000,000 x .97 = 9,700,000

10,000,000 x 9% / 2= 450,000 / 6 = 75,000

75,000 x 2 = $150,000