Intermediate Accounting Volume 2 Canadian 7th Edition By Beechy - Test Bank

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The carrying value of a bond from the issuing corporation's standpoint will always move closer to its

face value, regardless of whether the bond is issued at a premium or a discount.

A) True

B) False

Answer: B

2) Under the effective interest method, interest expense is calculated by multiplying the market interest

rate by the carrying value of the bonds.

A) True

B) False

Answer: B

3) Assume that a company issues bonds at a discount. Under the effective interest method, the

company will record progressively less interest expense with the passage of time.

A) True

B) False

Answer: B

4) Transaction costs are deducted from the carrying value of long-term financial liabilities.

A) True

B) False

Answer: B

5) When the market rate exceeds the stated or nominal rate, a bond's carrying value will be less than its

fair value.

A) True

B) False

Answer: B

6) In-substance defeasance leads to the de-recognition of a company's long-term debt.

A) True

B) False

Answer: B

7) The stated rate of interest is the interest rate used to determine the amount of cash interest that will

be paid on the principal.

A) True

B) False

Answer: B

8) The capitalization of borrowing costs is mandatory under both IFRS & ASPE.

A) True

B) False

Answer: B

19) A company enters into a forward exchange contract to hedge its US dollar payable which is due in

90 days. The company committed to purchase sufficient US currency to settle its liability at a rate of

$1 US=$1.20 CAD US. The company's year-end falls 30 days before the settlement date. On that

date, the forward rate for 30-day settlement contracts was 1 US=$1.22 CAD US. As a result of these

facts the company will record a gain on its current year financial statements.

A) True

B) False

Answer: B

10) A short-term payable may be the current portion of a long-term liability, which arises when the next

payment on such a debt will be made out of current assets.

A) True

B) False

Answer: B

11) Interest may be recognized on a note even though the note does not explicitly state an interest rate.

A) True

B) False

Answer: B

12) The principal amount of a debt is the cash or cash equivalent amount borrowed.

A) True

B) False

Answer: B

13) Use of the effective interest method for amortizing bond premiums and discounts is mandatory

under IFRS but not under ASPE.

A) True

B) False

Answer: B

14) Borrowing costs can only be capitalized on non-financial assets.

A) True

B) False

Answer: B

15) The cost of any equity financing is included when calculating the cost of generalized borrowings.

A) True

B) False

Answer: B

16) Bonds are said to be redeemable when they can be prematurely retired at the discretion of the

issuing company and retractable when they can be prematurely retired at the investor's discretion.

A) True

B) False

Answer: B

217) When the maturity date of a b