Bakersfield College

ACG 2021

True/False Questions

1)The specific provisions of a bond issue are described in a document called a bond indenture.

2. Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period.

3. The book value of zero-coupon bonds increases by the periodic amount of interest recognized.

4. Bonds will sell for a premium when the market rate of interest exceeds their stated rate.

5. The initial selling price of bonds represents the sum of all the future cash outflows required by the obligation.

6. Amortization of discount on bonds payable results in interest expense that is less than the actual cash outflow.

7. Premium on bonds payable is a contra liability account.

8. An implicit or imputed rate of interest must be used when long-term notes are issued at a stated rate of interest that is materially different from the market rate of interest.

9. The interest expense on an installment note decreases with each periodic payment.

10. Paid-in capital is increased when bonds payable are issued with detachable stock purchase warrants.

11. Companies are not required to, but have the option to, value some or all of their financial assets and liabilities at fair value.

12. If a company chooses the option to report its bonds at fair value, then it reports changes in fair value in its income statement unless the changes are attributable to changes in credit risk.

Multiple Choice Questions

13. The interest rate that is printed on the bond certificate is referred to as any of the following except:
    1. Stated rate.
    2. Contract rate.
    3. Nominal rate.
    4. Effective rate.

14. Most corporate bonds are:
    1. Mortgage bonds.
    2. Debenture bonds.
    3. Secured bonds.
    4. Collateral bonds.

15. The method used to pay interest depends on whether the bonds are:
    1. Registered or coupon.
    2. Mortgaged or unmortgaged.
    3. Indentured or debentured.
    4. Callable or redeemable.

16. The rate of interest that actually is incurred on a bond payable is called the:
    1. Face rate.
    2. Contract rate.