Chapter 12

Question 1

Debentures are backed only by

Answer 1

the borrower’s general credit.

Question 2

Define term bond

Answer 2

has a single maturity date at the end of its term.

Question 3

Define serial bond

Answer 3

matures in stated amounts at regular intervals.

Question 4

define Zero-coupon

Answer 4

deep-discount bonds are noninterest-bearing.

Question 5

The year-end balance for the bond sinking fund

Answer 5

the sum of its beginning balance plus any additional deposits and earnings (i.e., interest and dividends), net of expenses.

Question 6

list debt issue costs

Answer 6

1. Printing and engraving costs,
2. Legal fees,
3. Accountants’ fees,
4. Underwriters’ commissions,
5. Registration fees, and
6. Promotion costs.

Question 7

Do you amortize debt issue costs?

Answer 7

Yes, over the life of the debt.

Question 8

annual interest cost of a bond payable

Answer 8

= carrying amount X effective interest rate

Question 9

how is convertible debt classified on the balance sheet?

Answer 9

reported as a liability until conversion

Question 10

How are non detachable warrants classified on the balance sheet?

Answer 10

reported as a liability.

Question 11

JE to Record the issuance of the warrants.

Answer 11

DR Cash

CR paid in capital warrants

Question 12

the interest rate on convertible debt is typically lower or higher than non convertible debt.

Answer 12

Lower

Question 13

stock warrants should be booked at?

Answer 13

Market value

Question 14

formula for allocating proceeds to bonds payable

Answer 14

= FV of bonds w/o warrants/ (FV of bonds with warrants)

Question 15

formula for ending asset retirement obligation

Answer 15

beginning balance
\+ new ARO (FV)
- partial settlement
\+ accretion expense.
= ending balance