Financial Reporting And Analysis 7th Edition By Revsine – Test Bank

Chapter 11
Financial Instruments and Liabilities

True-False

1. A liability that is satisfied through the payment of cash is referred to as a denominational liability.
Answer: False
Learning Objective: 11-01
Difficulty: 1 Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Balance sheet presentation of liabilities

2. A current monetary liability is shown on the financial statements at the undiscounted amount due.
Answer: True
Learning Objective: 11-01
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Topic: Balance sheet presentation of liabilities

3. A product warranty provided with the sale of an item of merchandise gives rise to a nonmon-etary liability.
Answer: True
Learning Objective: 11-01
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Topic: Balance sheet presentation of liabilities

4. Bonds are required by GAAP to be reported on the balance sheet at market value.
Answer: False
Learning Objective: 11-01
Learning Objective: 11-02
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Remember
Topic: Balance sheet presentation of liabilities
Topic: Bonds payable

5. A rise in the market rate of interest will cause the value of a financial instrument such as a bond to rise.
Answer: False
Learning Objective: 11-02
Learning Objective: 11-03
Learning Objective: 11-07
Learning Objective: 11-08
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Bonds payable
Topic: Floating-rate debt
Topic: Derivatives―Swaps
Topic: Hedge accounting

6. When market rates of interest increase, the use of floating-rate debt benefits the issuing company.
Answer: False
Learning Objective: 11-03
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Understand
Topic: Floating-rate debt

7. The retirement of a bond that has a $250,000 maturity value and a $10,000 balance in premi-um on bonds payable (bond premium) creates a $15,000 gain if the bond is retired at a cost of $245,000.
Answer: True
Learning Objective: 11-04
Difficulty: 2 Medium
AACSB: Knowledge Application
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Apply
Topic: Debt extinguishment

8. The gain or loss on the early retirement of a bond is the difference between the amount paid to retire the bond and the bond’s carrying value at the date of retirement.
Answer: True
Learning Objective: 11-04
Difficulty: 2 Medium
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debt extinguishment

9. GAAP guidelines eliminate reporting income statement gains associated with many debt-for-debt and debt-for-equity swaps and instead require disclosure of the effects of the swaps.
Answer: False
Learning Objective: 11-04
Learning Objective: 11-06
Difficulty: 2 Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Understand
Topic: Debt extinguishment
Topic: Debt disclosures

10. A debt-for-debt swap of debts with equal maturity values that occurs when the market rate of interest is higher than the stated rate of the old debt will give rise to a gain on debt extinguishments.
Answer: True
Learning Objective: 11-04
Difficulty: 2 Medium
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: FN Measurement
Blooms: Analyze
Topic: Debt extinguishment