Unit 6: Noncurrrent Liabilities Flashcards
The covenants and other terms of the agreement between the issuer of the bonds and the lender are set forth in the ____.
Bond indenture.
The term used for bonds that are unsecured as to principal is ____.
Debenture bonds.
Aaron Inc. issued bonds with a maturity of P1,000,000 and a maturity of 10 years from date of issue. If the bonds were issued at a premium, this indicates that:
A. the effective yield or market rate of interest exceeded the stated (nominal) rate.
B. the nominal rate of interest exceeded the market rate.
C. the market and nominal rates coincided.
D. no necessary relationship exists between the two rates.
B. the nominal rate of interest exceeded the market rate.
When the effective interest method is used to amortize bond premium or discount, the periodic amortization will:
A. increase if the bonds were issued at a discount.
B. decrease if the bonds were issued at a premium.
C. increase if the bonds were issued at a premium.
D. increase if the bonds were issued at either a discount or a premium.
D. increase if the bonds were issued at either a discount or a premium.
If the bonds are issued between interest dates, the entry on the books of the issuing corporation could include a: A. debit to Interest Payable. B. credit to Interest Receivable. C. credit to Interest Expense. D. credit to Unearned Interest.
C. credit to Interest Expense.
Bond premium should be presented in the FS of the issuer as a(n): A. contra-liability. B. adjunct liability. C. deferred charge. D. contra-asset.
B. adjunct liability.
Fanny, Inc. neglected to amortize the premium on outstanding 10-year bonds payable. What is the effect of the failure to record premium amort. on interest expense and bond carrying value, respectively? A. understate, understate B. understate, overstate C. overstate, overstate D. overstate, understate
C. overstate, overstate
In an asset swap, the settlement of debt through a non-cash asset results in a gain on debt restructuring which is the:
A. the excess of the CV of the debt over the cost of asset given
B. the excess of the FV of the asset given over the CV of the debt
C. the excess of the FV of the asset given over its CV
D. the excess of the CV of the CV of the asset given over its FV
A. the excess of the CV of the debt over the cost of asset given
When a long-term note is given in exchange for equipment, the amount considered as paid for the machine is:
A. the invoice price.
B. the wholesale price.
C. the PV of the cash outflows discounted at the stated rate.
D. the PV of the note payments discounted at the market rate.
D. the PV of the note payments discounted at the market rate.
Bond issuance costs, including the printing costs and legal fees assoc. with the issuance, should be:
A. expensed in the period when the debt is issued.
B. recorded as a reduction in the CV of bonds payable.
C. accumulated in a deferred charge account and amortized over the life of the bonds.
D. reported as an expense in the period the bonds mature or are retired.
B. recorded as a reduction in the CV of bonds payable.
[T/F]. Discount on NP is charged to interest expense equally over the life of the note.
False.
[T/F]. In a troubled debt restructuring in which the debt is continued with modified terms, a gain should be recognized at the date of restructure if the carrying amount of the pre-restructured debt is substantially different from the total of future cash outflows.
True.
[T/F]. Registered bonds are not recorded in the name of the owner; title of these bonds passes with delivery.
False. This refers to a bearer/coupon bond.
Registered bonds call for the registry of the owner’s name on the corp’s books, and transfer of ownership is similar to that for stock.
[T/F]. If the sales price is more than the face value of the bonds, the bonds are said to be sold at a discount.
False.
[T/F]. When property or noncash asset is acquired by issuing promissory note which is interest-bearing, the property or noncash asset is recognized at the purchase price.
True.
