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Exam 15: Non-Current Liabilities

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Question 71

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If bonds are issued at a discount, it means that the

A) financial strength of the issuer is suspect.
B) market interest rate is higher than the contractual interest rate.
C) market interest rate is lower than the contractual interest rate.
D) bondholder will receive effectively less interest than the contractual rate of interest.

E) C) and D)
F) B) and C)

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Question 72

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The sale of bonds above face value

A) is a rare occurrence.
B) will cause the total cost of borrowing to be less than the bond interest paid.
C) will cause the total cost of borrowing to be more than the bond interest paid.
D) will have no net effect on Interest Expense by the time the bonds mature.

E) A) and B)
F) None of the above

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Question 73

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Debt to Total Assets measures the percentage of total assets that is financed by creditors rather than shareholders.

Unsecured bonds have specific assets of the issuer pledged as collateral for the bonds.

Notes Payable are often traded on stock exchanges.

If the contractual interest rate on a bond is 9% and interest is paid semi-annually, the interest paid semi annually is

With both types of instalment notes payable, the reduction in principal for the next year must be reported as

If bonds are redeemable, the company will pay the bondholders an amount that was specified at the date of issue which is known as

Which of the following statements are correct in regards to financial leverage?

The market rate of interest is the rate that investors demand for lending their money.

An increase in the interest coverage ratio indicates primarily that the corporation's

Use the following exhibit for questions $\begin{array} { l l l l l } \frac { \text { Bonds } } { \text { Bombardier } } & \frac { \text { Coupon } } { 7.350 } & \frac { \text { Maturity Date } } { \text { Dec. } 22 / 26 } & \frac { \text { Bid } \$ } { 103.12 } & \frac { \text { Yield } \% } { 6.35 }\end{array}$ -On the day of trading referred to above,

On July 1, 2014, Jasper Distributors Inc. finances the purchase of a new pickup truck by making a cash down payment of $5,000 and issuing a $30,000 two year, 10% note payable for the balance. The note is payable in four equal semi-annual blended payments of $8,460 due on December 31, and June 30 of each year. Instructions a. Record the purchase of the truck. b. Prepare the amortization table for the note payable. c. Record the first and last payments made on the note.

Which is a major shortcoming of issuing debt instead of equity?

The carrying value (amortized cost) of bonds will equal the market price

On January 1, 2014, Sark Wholesale Ltd. issued $500,000 of 10-year, 6% bonds payable at 99. Interest is payable semi-annually on June 30 and December 31. Semi-annual amortization for this bond is $250. Instructions a. Record all entries required for this bond during 2014. b. Show how the bonds would be reported on Sark's December 31, 2014 balance sheet.

The market rate of interest is often called the

Common examples of non-current liabilities include all of the following EXCEPT

Debt that is NOT current is non-current.