Chapter 11 – Liabilities: Bonds Payable
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Page 1
1. A bond is simply a form of an interest-bearing note.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 – LO: 11–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.BB.01 – Industry
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
2. Bondholders are creditors of the issuing corporation.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 – LO: 11–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
3. Bondholder claims on the assets of the corporation rank ahead of stockholders.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
Bloom’s: Remembering
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 – LO: 11–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.BB.01 – Industry
ACCT.AICPA.FN.03 – Measurement
Chapter 11 – Liabilities: Bonds Payable
Copyright Cengage Learning. Powered by Cognero.
Page 5
ANSWER:
False
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 – LO: 11–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
13. If the market rate of interest is 8% and a corporation’s bonds bear interest at 7%, the bonds will sell at a premium.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-01 – LO: 11–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
14. The total interest expense over the entire life of a bond is equal to the sum of the interest payments plus the total
discount or minus the total premium related to the bond.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 – LO: 11–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
Copyright Cengage Learning. Powered by Cognero.
Page 6
15. Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do not
materially differ from the results obtained by use of the interest method.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 – LO: 11–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
16. If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will
decrease as the bonds approach maturity.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 – LO: 11–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
17. If the straight-line method of amortization of discount on bonds payable is used, the amount of yearly interest expense
will increase as the bonds approach maturity.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 – LO: 11–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
Copyright Cengage Learning. Powered by Cognero.
Page 9
23. If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is
$5,500.
a.
True
b.
False
ANSWER:
False
RATIONALE:
Amount of interest payment = $100,000 × 11% = $11,000
Annual premium amortization = $12,928 ÷ 4 = $3,232
Annual interest expense = $11,000 – $3,232 = $7,768
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 – LO: 11–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
24. To determine the six-month interest payment amount on a bond, you would take one-half of the market rate times the
face value of the bond.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Easy
QUESTION TYPE:
True / False
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.11-02 – LO: 11–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.22 – Long-Term Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:28 PM
DATE MODIFIED:
10/16/2017 6:10 PM
25. Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of
the bond issue.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Easy
QUESTION TYPE:
True / False
