Question 1

The time value of money is based on the concept that money earns interest over time.

Accepted Answer

The time value of money is based on the fact that money can generate interest over time. This concept is important in finance and investment, as it helps individuals and businesses to make informed financial decisions and understand the potential future value of their money.

Question 2

The main reason companies redeem debentures prior to their maturity date is to relieve the pressure of paying interest payments.

Accepted Answer

By redeeming debentures prior to their maturity date, companies can avoid paying future interest payments and thus relieve the pressure of their financial obligations.

Question 3

On 1 May 2017,Metro Company has debentures with balances as shown below.  If Metro redeems the debentures for $52 000,what will be the effect on the income statement?
A) There will be sales revenue of $3 140.
B) There will be a gain on redemption of $3 140.
C) There will be a loss on redemption of $3 140.
D) There will be no effect on profit.

Accepted Answer

Redeeming the debentures for $52,000 means that Metro will be paying off the debtholders at a premium of $3,140 ($52,000 - $48,860). This premium payment represents a loss on redemption for Metro, and will be reflected on the income statement as an expense. Therefore, the correct answer is (C) there will be a loss on redemption of $3,140.

Question 4

Which of the following statements about callable debentures is true?
A) Callable debentures give the issuer the flexibility to pay off the debentures whenever it benefits the company.
B) Whether the debentures are called or purchased, the journal entry is the same.
C) The call price is usually 100 or a few percentage points above maturity value to provide an incentive to the debenture holder.
D) All of the above

Accepted Answer

A) Callable debentures do give the issuer the flexibility to pay off the debentures whenever it benefits the company.
B) Whether the debentures are called or purchased, the journal entry is the same.
C) The call price is usually 100 or a few percentage points above maturity value to provide an incentive to the debenture holder.

Question 5

If a company wishes to redeem debentures early,they may call the debentures if the debentures are callable,but they may not purchase them on the open market.

Accepted Answer

The answer of If a company wishes to redeem debentures...

Question 6

The Australian Accounting Standards require that debenture premiums or discounts be amortised using the straight-line method.

Accepted Answer

The answer of The Australian Accounting Standards require that debenture...

Question 7

On 15 October 2016,Rural Sales has a debenture with balances as shown below.  If Rural Sales wishes to redeem the debentures for $82 000,what will be the effect on the income statement?
A) Loss on redemption of $2 600
B) Loss on redemption of $2 000
C) Gain on redemption of $2 600
D) Gain on redemption of $2 000

Accepted Answer

The answer of On 15 October 2016,Rural Sales has a...

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

The time value of money is based on the concept that money earns interest over time.

The main reason companies redeem debentures prior to their maturity date is to relieve the pressure of paying interest payments.

On 1 May 2017,Metro Company has debentures with balances as shown below. If Metro redeems the debentures for $52 000,what will be the effect on the income statement?

Which of the following statements about callable debentures is true?

If a company wishes to redeem debentures early,they may call the debentures if the debentures are callable,but they may not purchase them on the open market.

The Australian Accounting Standards require that debenture premiums or discounts be amortised using the straight-line method.

On 15 October 2016,Rural Sales has a debenture with balances as shown below. If Rural Sales wishes to redeem the debentures for $82 000,what will be the effect on the income statement?