Financial Accounting An Introduction To Concepts Methods And Uses 14th Edition By Roman Weil – Test Bank

Chapter 11: Notes, Bonds, and Leases

TRUE/FALSE

1. Firms typically finance long-term assets, particularly property, plant, and equipment, with long-term borrowing or funds provided directly or indirectly by shareholders.

ANS: T PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge

2. The more long-term debt in a firm’s capital structure, the less the risk that the firm will experience difficulty making the required payments when due.

ANS: F PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge

3. The more long-term debt in a firm’s capital structure, the less the risk of default or bankruptcy.

ANS: F PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge

4. Modern business usage has come to restrict the word equity to mean only shareholders’ equity, both contributed capital and retained earnings.

ANS: T PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge

5. Firms classify the portion of bonds due within the next year as a noncurrent liability.

ANS: F PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge

6. Firms must disclose a list of their long-term debt obligations in notes to the financial statements.

ANS: T PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge

7. The amount borrowed initially and the market value of a note or bond at any date subsequent to the initial borrowing equals the present value of the future, or remaining, cash flows discounted at an appropriate interest rate.

ANS: T PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge

8. The internal rate of return, often called yield to maturity, is the discount rate that equates the future cash flows to the market value at any date.

ANS: T PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge

9. Historical market interest rate is the discount rate prevailing at the date of the initial borrowing.

ANS: T PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge

10. Common terminology refers to the calculations for amortizing a financial instrument to its maturity value over time as the imputed interest method.

ANS: F PTS: 1 DIF: 1 REF: pp. 415-428 | pp. 433-434
OBJ: LO: 11-01 NAT: BUSPROG: Analytic
STA: AICPA: FN-Reporting | ACBSP: APC-22-Long-Term Liabilities Reporting
KEY: Bloom’s: Knowledge