Intermediate Accounting - Week 3 Quiz

1. Question :

(TCO D) The printing costs and legal fees associated with the issuance of bonds should

Student Answer: be expensed when incurred.

be reported as a deduction from the face amount of bonds payable.

be accumulated in a deferred charge account and amortized over the life of the bonds.

not be reported as an expense until the period in which the bonds mature or are retired.

Instructor Explanation: Treated as a deferred charge and amortized. Chapter 14

Points Received: 4 of 4

Comments:

2. Question :

(TCO D) "In-substance defeasance" is a term used to refer to an arrangement whereby

Student Answer: a company gets another company to cover its payments due on long-term debt.

a governmental unit issues debt instruments to corporations.

a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust.

a company legally extinguishes debt before its due date.

Instructor Explanation: By definition. Chapter 14

Points Received: 4 of 4

Comments:

3. Question :

(TCO D) On January 1, 2010, Ellison Co. issued 8-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are as follows:

Present value of one for eight periods at 6% .627

Present value of one for eight periods at 8% .540

Present value of one for 16 periods at 3% .623

Present value of one for 16 periods at 4% .534

Present value of annuity for eight periods at 6% 6.210

Present value of annuity for eight periods at 8% 5.747

Present value of annuity for 16 periods at 3% 12.561

Present value of annuity for 16 periods at 4%...