True/False Questions

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

Answer: True Learning Objective: 1 Level of Learning: 1

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

Answer: False Learning Objective: 2 Level of Learning: 1

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

Answer: False Learning Objective: 1 Level of Learning: 1

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

Answer: False Learning Objective: 2 Level of Learning: 1

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

Answer: False Learning Objective: 2 Level of Learning: 1

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

Answer: False Learning Objective: 2 Level of Learning: 1

7. The carrying value of zero-coupon bonds increases by the periodic amount of interest recognized.
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 Answer: True Learning Objective: 1 Level of Learning: 1

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

Answer: True Learning Objective: 1 Level of Learning: 2

9. 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 than the market rate of interest.

Answer: True Learning Objective: 3 Level of Learning: 2

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

Answer: True Learning Objective: 3 Level of Learning: 2

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