The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the
bond indenture
The interest rate written in the terms of the bond indenture is known as the
coupon rate, stated rate or nominal rate
A bond for which the issuer has the right to call and retire the bonds prior to maturity is a
callable bond
A bond issued in the name of the owner is a:
registered bond
When the effective rate of a bond is lower than the stated rate, the bond sells at a discount.
false
If a bond sold at 97, the market rate was:
greater than the stated rate
The effective interest method calculates interest expense by multiplying the carrying value of the bonds by the stated rate of interest.
false--multiplying by the effective rate
If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will
exceed what it would have been had the effective-interest method of amortization been used.
Gains and losses on early extinguishment of debt are reported as other gains and losses on the income statement.
True
All of the following statements are true regarding IFRS treatment of reporting and recognition of liabilities except:
IFRS allows the recognition of liabilities for future losses.
If a company elects the fair value option for its long-term liabilities, a decrease in the fair value of a bond payable will result in an unrealized holding loss.
false
Which of the following is not an example of "off-balance-sheet financing"?
Capital Leases
Note disclosures for long-term debt generally include all of the following except
names of specific creditors
The loss recorded by the creditor in a troubled debt restructuring is based on the expected future cash flows discounted at the current effective interest rate.
False
Franzia Co. prepares its financial statements using IFRS. The company has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amou
the mid-point of the range
Best-efforts underwriting means that the investment bank guarantees the proceeds of the bond issue will be a certain amount.
false
Bonds that are not recorded in the name of the bondholder are called unsecured bonds.
false
A bond that matures in installments is called a:
serial bond
Bonds which do not pay interest unless the issuing company is profitable are called
income bonds
The selling price of a bond is the sum of the present values of the principal and the periodic interest payments. The present values are determined by discounting using the
market rate
The printing costs and legal fees associated with the issuance of bonds should
be accumulated in a deferred charge account and amortized over the life of the bonds.
Stonehenge, Inc. issued bonds with a maturity amount of $5,000,000 and a maturity eight years from date of issue. If the bonds were issued at a premium, this indicates that
stated rate exceeded the market rate
Under the effective interest method, interest expense:
is the same total amount as straight-line interest expense over the term of the bonds
When a bond sells at a premium, interest expense will be:
less than the bond interest payment
A debt instrument with no ready market is exchanged for property whose fair market value is currently indeterminable. When such a transaction takes place
the present value of the debt instrument must be approximated using an imputed interest rate.
When a note is exchanged for property in a bargained transaction, the stated interest rate is presumed to be fair unless:
no interest rate is stated.
the stated face amount of the note is materially different from the current cash sales price for similar items.
the stated interest rate is unreasonable.
Which one of the following statements relating to mortgage notes payable is not correct?
they are always reported as a long term liability
Boomchickapop Company elects the fair value option for a long-term note payable. In 2014, the company reported an unrealized holding gains which was reported as a component of Other Comprehensive Income.
False
Which of the following is not an example of off-balance-sheet financing
non-interest bearing note
When a business enterprise enters into what is referred to as 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.
The numerator in the times interest earned ratio is:
income before interest expense and income taxes
When assets such as buildings and equipment are transferred in a troubled debt restructuring, the creditor should record a gain or loss for the difference between the fair value and the debtor's book value.
false
Under IFRS, bond issuance costs, including the printing costs and legal fees associated with the issuance, should be:
recorded as a reduction in the carrying value of bonds payable.