Exam 1

Question 1

A gain or loss from extinguishment occurs when the reacquisition price differs from the bonds:

Answer 1

Net Carrying Value

Question 2

Both discount and premium on bonds payable are:

Answer 2

Valuation Accounts

Question 3

A long-term note is valued at its:

Answer 3

Present Value

Question 4

The rate of interest actually earned by bondholders is called the:

Answer 4

Effective Yield

Question 5

T / F: Mortgage notes payable are always reported as a long-term liability

Answer 5

False

Question 6

Under the effective interest method, interest expense:

Answer 6

is the same total amount as straight-line interest expense over the term of the bonds

Question 7

When a note is exchanged from property in a bargained transaction, the stated interest rate is presumed to be fair unless:

Answer 7

1. No interest rate is stated
2. The stated interest rate is unreasonable
3. The stated face amount of the note is materially different from the current cash sales price for similar items.

Question 8

A debenture bond is a:

Answer 8

Unsecured Bond

Question 9

Under the effective interest method, bond interest expense is computed by multiplying the bonds:

Answer 9

carrying value by the effective interest rate

Question 10

Bonds will sell at a premium when the:

Answer 10

effective yield is lower than the stated rate

Question 11

T / F: Non-interest bearing notes is an example of off-balance-sheet financing?

Answer 11

False

Question 12

A bond that may be transferred from one owner to another by mere delivery is a:

Answer 12

Bearer Bond

Question 13

Bond issue costs are recorded as an:

Answer 13

Deferred Charge

Question 14

T / F: Bonds usually pay interest annually

Answer 14

True