Chapter 14 - Long-Term Liabilities Flashcards
Is unearned revenue a long-term liability?
No
Are bonds payable a long-term liability?
Yes
Is a lease payable a long-term liability?
Yes
Is a mortgage payable a long-term liability?
Yes
Bonds arise from a contract known as a bond _____.
Debenture
How often do bonds normally pay interest?
Semiannually
What is the typical face value of a single bond?
$1,000
The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the bond ____.
Indenture
Bonds that are not recorded in the name of the bondholder are called ____ bonds.
Coupon
____ bonds give the issuer the right to retire bonds prior to maturity.
Callable
A bond that matures in installments is called a _____ bond.
Serial
Bonds which do not pay interest unless the issuing company is profitable are called ____ bonds.
Income
A debenture bond is a (an) (unsecured/secured) bond.
Unsecured
A bond issued in the name of the owner is a ____ bond.
Registered
When the effective rate of a bond is lower than the stated rate, the bond sells at a (discount/premium).
Premium
If a bond is sold at 98, the market rate was (greater/less than/equal to) the stated rate.
Greater than
Bond issue costs are recorded as a(n):
expense, asset, reduction in bonds payable, deferred charge
Deferred charge
Bond issue costs are amortized over the life of the bond. (True/False)
True
When bonds are sold between interest dates, why does the buyer pay the seller accrued interest?
Because the buyer will receive interest for the entire period at the next interest payment date.
What rate is used to determine the selling price of a bond?
stated, nominal, coupon, market
Market
What is the interest rate actually earned by bondholders?
stated, nominal, coupon, market
Market
What is another term for market rate?
Effective rate
What interest rate is written in the terms of the bond indenture?
(effective, market, coupon)
Coupon
What are two other terms for a coupon rate?
Nominal rate, Stated rate
Bond printing costs and legal fees are known as bond ____ costs.
Issue
Which method is preferred when amortizing bond premiums and discounts?
(effective interest, straight-line)
effective interest
Bond premium amortization _____ interest expense and ____ the premium on bonds payable balance.
(increases, decreases)
decreases
decreases
The effective interest method calculates interest expenses by multiplying the carrying value of the bonds by the _____ rate of interest.
(Market, Stated)
market
Discount on bonds payable and premium on bonds payable are liability _____ accounts.
Valuation
If bonds are sold at a discount, interest expense in earlier years is higher with the ______ method than with the ______ method.
(straight line, effective interest)
Straight line
Effective interest
Over the term of the bonds, the straight-line method and effective-interest method produce (the same, different) amounts of interest expense.
the same
When a bond sells at a premium, bond interest expense is (greater than/less than/equal to) the bond interest payment.
Less than
Should gains and losses on early extinguishment of debt be reported as other gains and losses on the income statement, or as extraordinary items?
Other gains and losses
In an early extinguishment of premium bonds in between interest dates, what must be amortized up to the purchase date?
Bond issue costs
Bond premium
In an early extinguishment of premium bonds in between interest dates, what must be accrued up to the purchase date?
Interest
In an early extinguishment of a bond, how are gains or losses calculated?
The difference between the reacquisition price and the net carrying amount of the bond.
Long-term notes payable are valued at their ____ value.
present
The discount on a zero-interest bearing note is amortized to interest expense how?
(in the period the note is issued, over the life of the note)
Over the life of the note
When a debt instrument with no ready market is exchanged for property whose fair market value is indeterminable, how is the present value of the debt instrument approximated?
By using an imputed interest rate
The most common form of long-term notes payable are ____ notes.
Mortgage
A ____ note payable is a promissory note secured by a document that pledges title to property as security for the loan.
Mortgage
How are mortgage notes payable reported?
Long-term liability
Part current, part long-term liability
Part current, part long-term liability
Are there any comparable institutions to the SEC in the international securities market?
No
Is a non-interest bearing note an example of off-balance-sheet financing?
Yes
Is an operating lease an example of off-balance-sheet financing?
No
Is a non-consolidated subsidiary an example of off-balance-sheet financing?
Yes
Is a special purpose entity an example of off-balance-sheet financing?
Yes
Is a consolidated subsidiary an example of off-balance-sheet financing?
No
When a business enterprise enters into off-balance-sheet financing, the company can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. (True/False)
True
When a business enterprise enters into off-balance-sheet financing, the company is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. (True/False)
False
When a business enterprise enters into off-balance-sheet financing, the company wishes to confine all information related to the debt to the income statement and the statement of cash flows. (True/False)
False
Off-balance-sheet financing is a violation of GAAP.
False
Are capital leases an example of off-balance-sheet financing?
No
What is the “times interest earned” ratio?
Income before interest and taxes divided by interest expense
Assets pledged as security are included in note disclosures for long-term debt. (True/False)
True
Call provisions and conversion privileges are included in note disclosures for long-term debt. (True/False)
True
Restrictions imposed by the creditor are included in note disclosures for long-term debt. (True/False)
True
Names of specific creditors are included in note disclosures for long-term debt. (True/False)
False
Does the IFRS allow recognition of liabilities for future losses?
No
Does GAAP allow recognition of liabilities for future losses?
No
Long-term debt that matures within one year and is to be converted into stock should be reported as:
(Current/Non-Current)
Non-Current
