Question 1

An entity neglected to amortize the premium on outstanding bonds payable. What is the effect of the failure to record premium amortization on interest expense and bond carrying amount, respectively?

Group of answer choices

Overstated and overstated.

Understated and understated.

Understated and overstated

Overstated and understated.

Question 2

A debt instrument withnoready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place

Group of answer choices

the present value of the debt instrument must be approximated using an imputed interest rate.

the directors of both entities involved in the transaction should negotiate a value to be assigned to the property.

the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction.

it should not be recorded on the books of either party until the fair value of the property becomes

Question 3

At issuance date, the present value of a note payable should be equal to the face amount if the note

Group of answer choices

is noninterest bearing and the implicit interest rate is equal to the prevailing market rate for similar notes.

is noninterest bearing and the implicit interest rate is less than the prevailing market rate for similar notes.

bears a stated rate of interest which is less than the prevailing market rate for similar notes.

bears a stated rate of interest which is realistic.

Question 4

If bonds are initially sold at a discount and the straight line method of amortization is used, interest in the earlier years

Group of answer choices

will exceed what it would have been had the effective interest method of amortization been used.

will be the same as what it would have been had the effective interest method of amortized have been used.

will be less than the coupon rate of interest.

will be less than what it would have been had the effective interest method of amortization have been used.

Question 5

There is substantial modification of terms of an old financial liability if the gain or loss on extinguishment is

Group of answer choices

less than 10% of the new liability.

less than 10% of the carrying amount of the old liability

at least 10% of the carrying amount of the old liability.

at least 10% of the new liability.

Question 6

What is the amortized cost of note payable?

Group of answer choices

The amount at which the note payable is initially recognized minus principal repayment, plus or minus the cumulative effective interest amortization of the difference between the initial carrying amount and maturity amount.

The amount at which the note payable is initially recognized minus principal repayment, plus or minus the cumulative effective interest amortization of the difference between the initial carrying amount and maturity amount.

The amount at which the note payable is initially recognized.

The amount at which the note payable is initially recognized minus principal repayment.

Question 7

A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank P80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation?

Group of answer choices

The balance of mortgage payable at a given statement of financial position date will be reported as a non-current liability.

The amount of interest expense will remain constant over the 10-year period.

The balance of mortgage payable will remain a constant amount over the 10-year period.

The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period.

Question 8

In a debt restructuring that is considered an asset swap, the gain on extinguishment is equal to the

Group of answer choices

Excess of the fair value of the asset over the carrying amount of the debt.

Excess of the carrying amount of the debt over the fair value of the asset.

Excess of the carrying amount of the asset over the carrying amount of the debt.

Excess of the carrying amount of the debt over the carrying amount of the asset.

Question 9

When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be

Group of answer choices

decreased by accrued interest from May 1 to June 1.

increased by accrued interest from June 1 to November 1.

increased by accrued interest from May 1 to June 1.

decreased by accrued interest from June 1 to November 1.

Question 10

Black Pearl Corp issues P1,000,000 of 10% bonds payable which may be converted into 10,000 shares of P2 par value ordinary shares. The market rate of interest on similar bonds is 12%. Interest is payable annually on December 31, and the bonds were issued for total proceeds of P1,000,000. In accounting for these bonds, Black Pearl Corp. will

Group of answer choices

Assign no value to the equity component since the conversion privilege is not separable from the bond.

Use the "with-and-without" method to value the compound instrument.

First assign a value to the liability component based on the face amount of the bond.

First assign a value to the equity component, then determine the liability component.

ANSWER ONLY