MUHASEBE II

In a balance sheet, obligations related with external financing sources named as “liabilities”. Liabilities are first classified as “Current (ShortTerm) Liabilities” and “Non-Current (LongTerm) Liabilities” based on the time period in which expected debt will be paid back. Short term liabilities consist of an expected outflow of resources arising from present obligations that are not payable within a year or the operating cycle of the company whichever is longer. Long term liabilities consist of an expected outflow of resources arising from present obligations that are not payable within a year or the operating cycle of the company whichever is longer.

As also understood from the information, the correct answer is E. All of the statements related to liabilities in the options are correct.

Long-term liabilities are the most common way to finance the expansion of a business. Growth usually requires investment in long-term assets and in research and development and other activities that will generate income in coming years. To finance these assets and activities, a company needs long-term funds. The management issues related to long-term debt financing are whether to take on long-term debt, how much long-term debt to carry, and what types of long-term debt to incur.1 Generally, long term liabilities have various covenants or restrictions for the protection of both lenders and borrowers. The covenants and other terms of the agreement between the borrower and the lender are stated in the bond indenture or note agreement.

Long term debt has various covenants or restrictions for the protection of both lenders and borrowers.

To structure long-term financing to the best advantage of their companies, managers should know the characteristics of the various long-term debts. Bonds payable, long-term notes payable, mortgages payable, pension liabilities and lease liabilities can be given as the example to long term liabilities.

As also understood from the information given, the correct answer is E. All of the statements related to longterm liabilities in the options are correct.

To structure long-term financing to the best advantage of their companies, managers should know the characteristics of the various long-term debts. Bonds payable, long-term notes payable, mortgages payable, pension liabilities and lease liabilities can be given as the example to long term liabilities. As also understood from the information given, the correct answer is E.

A bond is the most common type of long-term debt. Bond is a form of interest-bearing notes payable issued by corporations and governmental agencies. A bond is a debt or liability of the issuer. Like a note, a bond requires a promise to pay a sum of money at a designated maturity date, plus periodic interest at a specified rate on the maturity amount (face value). Bonds payable are the most common type of long term debts issued to multiple lenders called bondholders. The main purpose of issuing bonds is to borrow for the long term when the amount of capital needed is too large for one lender to supply. In other words, by issuing bonds, a company can divide a large amount of long-term indebtedness into many small investing units, thus enabling more than one lender to participate in the loan. Each investor can buy a specified amount of the company’s bonds.

As also understood from the information given, the correct answer is E. All of the statements in the options related to bonds are correct.

Each bondholder receives a bond certificate showing the name of the company that borrowed the money, exactly like a note payable. The certificate specifies the face value, which is the amount of the bond issue. The bond’s face value is also called maturity value, principal, or par value. A bond arises from a contract known as a bond indenture and represents a promise to pay:

As also understood from the information given, the correct answer is E. All of the statements related to bonds in the options are correct.

The bond indenture is a contract or loan agreement under which the bonds are issued. A bond indenture deals with matters such as the interest rate, maturity date and maturity amount, possible restrictions on dividends, repayment plans, and other provisions relating to the debt, so the correct answer is E.

The interest rate written in terms of the bond indenture is known as the stated interest rate.

Stated interest rate is also called as coupon or nominal rate.

The interest rate written in terms of the bond indenture is set by the bond issuer.

Stated interest rate is expressed as a percentage of the face value.

Face value is also called as the par value, principal amount or maturity value of the bonds.

As also understood from the information given, all of the statements related to the stated interest rate in the options are correct, so the correct answer is E.

Bonds can be classified into different categories depending on different face amount, interest rates, interest payment dates, and maturity dates, so the correct answer is E.

With respect to whether they are backed by a pledge of some collateral or not, bonds are classified as secured and unsecured bonds. A secured bond is a bond for which a company has pledged specific property to ensure its payment. For example, mortgage bonds are secured by a claim on real estate. A mortgage is a legal claim (lien) on specific property that gives the bondholder the right to possess the pledged property if the company fails to make required payments. Bonds not backed by collateral are called “unsecured bonds” (also called debenture bonds). They are very risky and offer a high interest rate.

As also understood from the information given, all of the statements related to secured and unsecured bonds are correct, so the correct answer is E.

Bond issues that mature on a single date are called term bonds, bond issues that mature in installments are called serial bonds.

Bonds issued in the name of the owner are called registered bonds, bonds not issued in the name of the owner are called bearer (coupon) bonds.

Bonds which pay interest from the profit of issuing company are called “income bonds”, bonds which pay interest from specified revenue sources are called “revenue bonds”.

As also understood from the information given, the correct answer is E. All of the statemnts related to the various types of the bonds in the options are correct.

To calculate the selling price of bonds we need to know the face value of the bond (the principal amount borrowed), the interest payment pattern (annually, semiannually, etc.), the market interest rate per period and number of periods to maturity, so the correct answer is E.

When selling price of a bond is equal to its face value that means it is sold at face value (at par).

When selling price of a bond is different from its face value that means it is sold either at premium or discount.

Bonds issued at face value (at par value) means stated interest rate is equal to market interest rate and no premium and discount exists.

Bonds issued at premium means, market interest rate is less than the stated interest rate of the bond issued.,

As also understood from the information given, the correct answer is E. All of the statements related to bond issues in the options are correct.

As it has been already mentioned, by paying more or less at the issuance, investors earn a rate different than the stated rate on the bond. Remember that, the issuing company pays the stated interest rate over the term of the bonds but also must pay the face value at maturity. If the bond is issued at a discount, the amount paid at maturity is more than the selling price. If issued at premium, the company pays less at maturity relative to the selling price. The company records this adjustment to the cost as bond interest expense over the life of the bonds through a process called amortization. Amortization of a discount increases bond interest expense. Amortization of a premium decreases bond interest expense.

As also understood from the information given, the correct answer is E. All of the statements related to amortization of bond discounts and premiums in the options are correct.

A long-term note is a promissory note that represents a loan from a bank or other creditor. Long-term notes payable is similar to short-term notes payable except that the term of the notes exceeds one year. The basic difference between short term notes payable and long-term notes payable is the maturity date. As we have already mentioned before long term liabilities consist of an expected outflow of resources arising from present obligations that are not payable within a year or the operating cycle of the company whichever is longer. Long-term notes payable is typically reported in the long-term liabilities section of the balance sheet.

As also understood from the information given, the correct answer is E. All of the statements related to long term notes payable in the options are correct.

Installment notes are generally used to purchase specific assets such as equipment, and typically secured by the purchased asset. When a note is secured by an asset, it is called a mortgage note. If the borrower cannot pay the mortgage note, the lender has the right to take ownership of the pledged asset and sell it to pay back the debt. Mortgages payable are very similar to long-term notes payable. The main difference is the mortgages payable is secured with specific assets, whereas long-term notes are not secured with specific assets.

As also understood from the information given, the correct answer is E. All of the statements related to long term notes payable in the options are correct.

Short term liabilities consist of an expected outflow of resources arising from present obligations that are not payable within a year or the operating cycle of the company whichever is longer.

Long term liabilities consist of an expected outflow of resources arising from present obligations that are not payable within a year or the operating cycle of the company whichever is longer.

Bond is a form of interest-bearing notes payable issued by corporations and governmental agencies. A bond is a debt or liability of the issuer.

The interest rate written in terms of the bond indenture is known as the stated interest rate.

Bond issues that mature on a single date are called “term bonds”.