31. Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.
32. GAAP criteria for identifying a lease as a capital lease are more general than the criteria under IFRS.
Multiple Choice Questions
33. To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by:
A. Safe deposit boxes
B. Mortgages
C. Equity
D. The FASB
E. Debentures
34. Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:
A. Debentures
B. Discounted notes
C. Installment notes
D. Indentures
E. Investment notes
35. The carrying value of a long-term note payable:
A. Is computed as the future value of all remaining future payments, using the market rate as interest.
B. Is the face value of the long-term note less the total of all future interest payments.
C. Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance.
D. Is computed as the present value of all remaining interest payments, discounted using the note's rate of interest.
E. Decreases each time period the discount on the note is amortized.
36. Installment notes payable that require periodic payments of accrued interest plus equal amounts of principal result in:
A. Periodic total payments that gradually decrease in amount.
B. Periodic total payments that are equal.
C. Periodic total payments that gradually increase in amount.
D. Increasing amounts of interest each period.
E. Increasing amounts of principal each period.
37. A company must repay the bank $10,000 cash in three years for a loan. The loan agreement specifies 8% interest compounded annually. The present value factor for three years at 8% is 0.7938. How much cash did the company receive from the bank on the day they borrowed this money?
A. $10,000
B. $12,400
C. $7,938
D. $9,200
E. $7,600
38. A company borrowed $300,000 cash from the bank by signing a five-year, 8% installment note. The present value factor for an annuity at 8% for five years is 3.9927. Each annuity payment equals $75,137. How much cash did the company receive from the bank on the day they borrowed this money?
A. $75,137
B. $94,013
C. $300,000
D. $375,685
E. $1,197,810
39. A company borrowed $50,000 cash from the bank and signed a six-year note at 7%. The present value factor for an annuity for six years at 7% is 4.7665. The annual annuity payments equal $10,490. The present value of the loan is:
A. $10,490
B. $11,004
C. $50,000
D. $52,450
E. $238,325
40. A company purchased equipment and signed a seven-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value factor for an annuity for seven years at 9% is 5.0330. What value for this equipment should be recorded on the company’s books on the day the contract is signed?
A. $9,000
B. $5,033
C. $63,000
D. $57,330
E. $45,297