F5/M3 Long-term Liabilities

Question 1

When present value factor do you apply to the Principal of a Bond

Answer 1

PV of 1

Question 2

(T/F): If interest compounds on an other than annual basis, the number of periods and interest rate must be adjusted

Answer 2

True

Question 3

(T/F): Present value factors and future value factors are inverses of each other

Answer 3

FV = 1 / (PV)
PV = 1 / (FV)

Question 4

(T/F): In an annuity due, each cash flow is discounted by one less period; therefore the value is higher by (1 + r)

Answer 4

True

Question 5

Present value of an annuity due =

Answer 5

= Present value of an ordinary annuity (x) (1 + r)

Question 6

(T/F): Long term liabilities are recorded at PV

Answer 6

True

Question 7

Equation: PVFAD = PVFOA (n - 1) + 1

Answer 7

True

Question 8

(T/F): Mandatory redeemable preferred stock is a liability

Answer 8

True

Question 9

(T/F): If a note is non-interest bearing or the interest rate is unreasonably low, you have to impute the market rate of interest

Answer 9

True

Question 10

(T/F): Do not impute a discount for Short-term notes payable or payables paid in property or services

Answer 10

True

Question 11

Carrying Value of Note Payable =

Answer 11

Face Value Note Payable (-) Discount

Question 12

(T/F): If there is no stated rate of interest, the cumulative interest expense = discount

Answer 12

True (IMPORTANT)
- Discount = Deferred Interest Expense

JE
Dr: Interest Expense
Dr: Note Payable
Cr: Cash

Question 13

(T/F): If an issued note is non-interest bearing, the price of the machine received in exchange is recorded at the PV of the note

Answer 13

True (IMPORTANT)

Question 14

(T/F): When a debt covenant is violated and the debtor is in technical default, a concession can either temporarily or permanently remove the covenant

Answer 14

True