41. The amortization of discount on bonds payable reduces the amount of interest expense recognized during the period.
42. The amortization of bond discount by the issuing company decreases the carrying value of its bonds payable.
43. A primary means used by credit rating agencies to evaluate a company's ability to pay its debts is to compare total assets to total liabilities.
44. Companies may understate liabilities so as not to be perceived as risky by credit rating agencies.
45. Special purpose entities (SPEs) are established by corporations to accomplish specific purposes such as borrowing money.
Multiple Choice Questions
46. U. S. GAAP requires that convertible bonds be classified on the balance sheet as:
A. Part liability, part equity
B. A liability
C. Either a liability or equity
D. As an asset
47. International accounting standards require that convertible bonds be classified on the balance sheet as:
A. Part liability, part equity
B. A liability
C. Either a liability or equity
D. As an asset
48. Off balance sheet financing may involve either:
A. An operating lease
B. A special purpose entity
C. Both of the above
D. Neither of the above
49. Employers are required to pay all of the following on the wages paid to each employee except:
A. Social security taxes
B. Worker's compensation insurance
C. Medicare taxes
D. Health insurance benefits.
50. In preparing an amortization table, it is necessary to include:
A. The original amount of the liability, the amount of periodic payments and the interest rate.
B. The original amount of the liability, the amount of periodic payments and the amount of past payments.
C. The monthly payment, the total amount of past payments and the original amount of the liability.
D. The total amount of past payments, the interest rate and the amount of periodic payments.