Question 1

If debentures with a face value of $100 000 are sold at par, the amount of cash proceeds is:
A)$88 000.
B)$99 912.
C)$100 000.
D)$108 800.

Accepted Answer

When debentures are sold at par, they are sold at their face value, which means the cash proceeds will be equal to the face value of $100,000.

Question 2

Premium on debentures payable is spread over the term of the debentures and reduces total interest expense.

Accepted Answer

This statement is true. The premium on debentures payable is added to the face value of the debentures and then spread over the term of the debentures. This reduces the effective interest rate, which in turn reduces the total interest expense.

Question 3

The time value of money is based on which of the following concepts?
A)The concept that money loses its purchasing power over time
B)The concept that money can be converted into other currencies over time
C)The concept that money earns income over time
D)The concept that money becomes obsolete over time

Accepted Answer

The answer of The time value of money is based...

Question 4

A debenture is sold for an amount equal to its face value. Which of the following statements would explain why?
A)The debenture is not secured by specific assets of the issuer.
B)The debenture's stated rate is higher than the prevailing market rate at time of sale.
C)The debenture's stated rate is the same as the prevailing market rate at time of sale.
D)The debenture's stated rate is lower than the prevailing market rate at time of sale.

Accepted Answer

When a debenture's stated rate is the same as the prevailing market rate, it is sold at its face value because the interest it offers matches the market's expectations.

Question 5

A debenture is sold for an amount higher than face value. Which of the following statements would explain why?
A)The debenture's stated rate is lower than the prevailing market rate at time of sale.
B)The debenture is not secured by specific assets of the issuer.
C)The debenture's stated rate is the same as the prevailing market rate at time of sale.
D)The debenture's stated rate is higher than the prevailing market rate at time of sale.

Accepted Answer

A debenture is sold at a premium (higher than face value) when its stated interest rate is higher than the prevailing market rate, making it more attractive to investors.

Question 6

The balance in the Debentures payable is a credit of $50 00. The balance in the Premium on debentures payable is a credit of $900. The balance sheet will report the debenture balance as $49 100.

Accepted Answer

The answer of The balance in the Debentures payable is...

Question 7

If a debenture's stated interest rate is lower than the market rate, which of the following is TRUE?
A)The debenture will be issued at a discount.
B)The debenture will be issued at a premium.
C)The debenture will be issued at par.
D)The debenture will be issued for an amount higher than the maturity value.

Accepted Answer

When a debenture's stated interest rate is lower than the market rate, it will be less attractive to investors, leading it to be issued at a discount to compensate for the lower interest income.

Question 8

The balance in the Debentures payable account is a credit of $50 000. The balance in the Premium on debentures payable account is a credit of $900. The debenture carrying amount is $50 900.

Accepted Answer

The carrying amount of debentures is calculated by adding the balance of the Debentures payable account ($50,000) and the Premium on debentures payable account ($900), resulting in a total of $50,900.

Question 9

If a company issues a debenture in- between interest payments, the company can pay a prorated portion of the interest payment on the regular payment date.

Accepted Answer

The answer of If a company issues a debenture in-...

Question 10

The debenture carrying amount is the balance in the debenture payable account subtracted from or added to the balance in either the discount or premium account.

Accepted Answer

This statement is true. The debenture carrying amount is calculated as the debenture's face value, plus any premium or minus any discount, adjusted for any payments made, and is equal to the balance in the debenture payable account added to or subtracted from the balance in the discount or premium account.

Question 11

If a debenture's stated interest rate is the same as the market rate, which of the following is TRUE?
A)The debenture will be issued for an amount lower than the maturity value.
B)The debenture will be issued at par.
C)The debenture will be issued at a premium.
D)The debenture will be issued at a discount.

Accepted Answer

When a debenture's stated interest rate is the same as the market rate, it is issued at par, meaning its issue price is equal to its face value.

Question 12

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable account is a debit of $1 500. The debenture carrying amount is $51 500.

Accepted Answer

The debenture carrying amount should be the face value of the debentures minus the discount on debentures payable. 
Debenture carrying amount = Face value - Discount on debentures payable
Debenture carrying amount = Face value - (-$1,500)  (since the discount account has a debit balance)
Debenture carrying amount = Face value + $1,500
If the debenture carrying amount is $51,500 and the discount on debentures payable is $1,500, then the face value of the debentures must be $50,000.
However, the question states that the balance in the Debentures payable account is a credit of $50,000, which suggests that the face value of the debentures is actually $50,000 and not $51,500. Therefore, the statement is false.

Question 13

Premium on debentures payable is considered to be additional interest expense of the company that issues the debenture.

Accepted Answer

The answer of Premium on debentures payable is considered to...

Question 14

A debenture is sold for an amount less than its face value. Which of the following statements would explain why?
A)The debenture's stated rate is higher than the prevailing market rate at time of sale.
B)The debenture is not secured by specific assets of the issuer.
C)The debenture's stated rate is lower than the prevailing market rate at time of sale.
D)The debenture's stated rate is the same as the prevailing market rate at time of sale.

Accepted Answer

The answer of A debenture is sold for an amount...

Question 15

Discount on debentures payable is considered to be additional interest expense of the company that issues the debenture.

Accepted Answer

Discount on debentures payable is amortized over the term of the debenture and added to the interest expense, thus it is considered an additional interest expense.

Question 16

If debentures with a face value of $100 000 are sold at 102, the amount of cash proceeds is:
A)$108 800.
B)$99 898.
C)$102 000.
D)$100 000.

Accepted Answer

Debentures sold at 102 means they are sold at 102% of their face value. Therefore, the cash proceeds are 102% of $100,000, which is $102,000.

Question 17

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable is a debit of $1 500. The balance sheet will report the debenture balance as
$48 500.

Accepted Answer

The debenture balance is calculated as the total value of the debentures minus any discount on the debentures. Therefore, the debenture balance is $50,000 - $1,500 = $48,500.

Question 18

If a debenture's stated interest rate is higher than the market rate, which of the following is TRUE?
A)The debenture will be issued at par.
B)The debenture will be issued for an amount lower than the maturity value.
C)The debenture will be issued at a discount.
D)The debenture will be issued at a premium.

Accepted Answer

When a debenture's stated interest rate is higher than the market rate, it is more attractive to investors, leading it to be issued at a premium, meaning above its face value.

Question 19

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at discount, for a total of $19 000. On 1 January 2019, when the debentures mature, Davie Services will make the final principal payment. That entry will be which of the following?
A)Debit Debenture discount for $1 000 and credit Cash for $1 000.
B)Debit Debentures payable for $19 000, debit Debenture discount for $1 000 and credit Cash for $19 000.
C)Debit Debentures payable for $19 000 and credit Cash for $1 000.
D)Debit Debentures payable for $20 000 and credit Cash for $20 000.

Accepted Answer

The debentures payable account is debited for the full face value of $20,000, and cash is credited for the same amount to reflect the repayment of the principal at maturity.

Question 20

The Cases Company issues $800 000 of 7%, 10- year debentures on 31 March 2013. The debenture pays interest on 31 March and 30 September. Which of the following statements is TRUE?
A)If the market rate of interest is 8%, the debentures will issue at par.
B)If the market rate of interest is 8%, the debentures will issue at a discount.
C)If the market rate of interest is 8%, the debentures will issue above par.
D)If the market rate of interest is 8%, the debentures will issue at a premium.

Accepted Answer

If the market rate of interest is higher than the coupon rate (7%), the debentures will issue at a discount to make them more attractive to investors.

Quiz 12: Non-Current Liabilities, Debentures Payable and Classification of Liabilities on the Balance Sheet

If debentures with a face value of $100 000 are sold at par, the amount of cash proceeds is:

Premium on debentures payable is spread over the term of the debentures and reduces total interest expense.

The time value of money is based on which of the following concepts?

A debenture is sold for an amount equal to its face value. Which of the following statements would explain why?

A debenture is sold for an amount higher than face value. Which of the following statements would explain why?

The balance in the Debentures payable is a credit of $50 00. The balance in the Premium on debentures payable is a credit of $900. The balance sheet will report the debenture balance as $49 100.

If a debenture's stated interest rate is lower than the market rate, which of the following is TRUE?

The balance in the Debentures payable account is a credit of $50 000. The balance in the Premium on debentures payable account is a credit of $900. The debenture carrying amount is $50 900.

If a company issues a debenture in- between interest payments, the company can pay a prorated portion of the interest payment on the regular payment date.

The debenture carrying amount is the balance in the debenture payable account subtracted from or added to the balance in either the discount or premium account.

If a debenture's stated interest rate is the same as the market rate, which of the following is TRUE?

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable account is a debit of $1 500. The debenture carrying amount is $51 500.

Premium on debentures payable is considered to be additional interest expense of the company that issues the debenture.

A debenture is sold for an amount less than its face value. Which of the following statements would explain why?

Discount on debentures payable is considered to be additional interest expense of the company that issues the debenture.

If debentures with a face value of $100 000 are sold at 102, the amount of cash proceeds is:

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable is a debit of $1 500. The balance sheet will report the debenture balance as $48 500.

If a debenture's stated interest rate is higher than the market rate, which of the following is TRUE?

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at discount, for a total of $19 000. On 1 January 2019, when the debentures mature, Davie Services will make the final principal payment. That entry will be which of the following?

The Cases Company issues $800 000 of 7%, 10- year debentures on 31 March 2013. The debenture pays interest on 31 March and 30 September. Which of the following statements is TRUE?