Need help Financial Accounting MCQIf bonds are issued at a discount, it means that thea. market interest rate is higher than the contractual interestrate.b. bondholder will receive effectively less interest than thecontractual interest rate.c. financial strength of the issuer is suspect.d. market interest rate is lower than the contractual interestrate.

Explanation of Bond Discount: A bond discount occurs when a bond is issued or trades at a price…

Answered: Financial Accounting MCQ If bonds are…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter6: Accounting Quality

Section: Chapter Questions

Problem 4QE

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When selling bonds at a premium, the premium received effectively a.does not affect the cost of borrowing. b.increases the cost of borrowing. c.reduces the cost of borrowing. d.reduces the amount of cash received when bonds are sold.
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Premium on Bonds Payable has a debit balance. O is a contra account. is deducted from bonds payable on the balance sheet. is considered to be a reduction in the cost of borrowing.
Multiple ChoiceIdentify the choice that best completes the statement or answers the question. 9. For a liability to exist, a. a past transaction or event must have occurred. b. the exact amount must be known. c. the identity of the party owed must be known. d. an obligation to pay cash in the future must exist. 10. The effective interest rate on bonds is higher than the stated rate when bonds sell a. at face value. b. above face value. c. below face value. d. at maturity value. 11. The effective interest rate on bonds is lower than the stated rate when bonds sell a. at maturity value. b. above face value. c. below face value. d. at face value. 12. When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the a. actual amount of interest paid. b. book value of the…
If bond issuance costs are incurred, which of the following is always true? None of the other choices It will result to a discount It will result to a premium It will result to direct loss on the income statement
1. To calculate a gain or loss on redemption of a bond, you compare a. The market interest rate to the contract rate b. The carrying value value of the bond to the proceeds received from the sale of the bond c. The income for the period d. The proceeds to the unamortized premium or discount 2. If the proceeds are greater than the carrying value, you will have a a. gain with a credit balance b. gain with a debit balance c. loss with a debit balance d. loss with a credit balance
Which of the following about bonds is false? OA. Higher bond rating indicates higher probability of default. OB. An indenture is the legal agreement between the firm issuing the bond and the trustee who represents the bondholders. OC.Call protection period where the firm cannot call the bond for a specified period of time. OD.A mortgage bond is secured by a lien on real property. OE. Both A and B.
Bond 1 and Bond 2 are identical, except that Bond 2 has credit enhancement. Issuer of Bond 2 has higher credit risk compared to issuer of Bond 1. Which of the following statements is true? A. Credit risk for Bond 2 will be lower than that for Bond 1 B. Credit risk for Bond 2 will be higher than that for Bond 1 OC. Need more information to answer the question
As the bond discount is amortized, the carrying value of the bonds will increase. True False As the bond premium is amortized, the carrying value of the bonds will decrease. True False When bonds that were initially issued at a discount are redeemed at maturity, the journal entry requires a ) debit to Bonds Payable, debit to Discount on Bonds Payable, and a credit to Cash ) debit to Bonds Payable, credit to Discount on Bonds Payable, and a credit to Cash O debit to Cash, credit to Bonds Payable and a credit to Discount on Bonds Payable ) debit to Bonds Payable and a credit to Cash When bonds that were initially issued at a premium are redeemed at maturity, the journal entry requires a ) debit to Bonds Payable and a credit to Cash O debit to Bonds Payable, credit to Premium on Bonds Payable, and a credit to Cash O debit to Bonds Payable, debit to Premium on Bonds Payable, and a credit to Cash O debit to Cash, credit to Bonds Payable and a credit to Premium on Bonds Payable When bonds…
A discount on bonds payable: O Occurs when a company issues bonds with a contract rate less than the market rate Occurs when a company issues bonds with a contract rate more than the market rate O Increases the Bond Payable account O Decreases the total bond interest expense O Is not allowed in many states to protect creditors
When the effective cost of debt is greater its the nominal cost, *a. The entity records a discount on the bond payable.b. the initial net measurement of the bond is more than the face value.c. The net proceeds is more than the face value.d. The interest expense is less than the interest payments.
ll of the following are differences between IFRS and GAAP in accounting for liabilities except: a. When a bond is issued at a discount, GAAP records the discount in a separate contra liability account. IFRS records the bond net of the discount. b. Under IFRS, bond issuance costs reduce the carrying value of the debt. Under GAAP, these costs are recorded as an asset and amortized to expense over the terms of the bond. c. GAAP, but not IFRS, uses the term “troubled-debt restructurings.” d. GAAP, but not IFRS, uses the term “provisions” for contingent liabilities which are accrued

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