Bond Payable and Notes Payable

1. Bonds payable not designated at FVPL shall be measured initially at fair value minus bond issue cost.
2. After initial recognition, bonds payable shall be measured at either amortized cost using the effective interest
method or FVPL.
3. The amortized cost of bonds payable means face amount plus premium on bonds payable, minus discount on
bonds payable and minus bond issue cost.
4. Electing the fair value option for measuring bonds payable is the fair value of the bond and the principal
obligation value must be disclosed.
5. Under the fair value option bonds payable shall be measured initially at fair value.
6. Bonds that mature on a single date are called term bonds
7. Bonds issued with scheduled maturities at various dates are called serial bonds.
8. Cost incurred in connection with the issuance of ten-year bonds which sold at a slight premium should be
reported as a deduction from the bonds payable and amortized over the ten-year bond term.
9. Unamortized debt discount should be reported as direct deduction from the face amount of the debt.
10. The amortization of premium on bonds payable will decrease the carrying amount of bond and increase in net
income .
11. The amortization of discount on bonds payable will increase the carrying amount of bond and decrease in net
income.
12. Debentures are unsecured bonds
13. When bonds are sold between interest dates ,any accrued interest is credited to interest payable
14. Premium on bonds payable is the premium on bonds payable decreased when amortization entries are made
until the balance reaches zero at maturity.
15. The carrying amount of a bond liability is face value of the bond plus related premium or minus related
discount
16. The proceeds from the issue of the bonds payable may be equal more or less that the face amount depending
on market interest rate
17. At the time of extinguishment:
a. any cost of issuing the bonds must be amortized up to the purchase date
b. the premium must be amortized up to the purchase date
c. interest must be accrued from the last interest date to the purchase date
18. When bonds are retired prior to maturity with proceeds from a new bond issue, an gain or loss from the early
extinguishment should be recognized in income from continuing operations.
19. An entity neglected to amortize the discount on outstanding bonds payable the effect is understated in interest
expense and bonds carrying amount.
20. An entity neglected to amortize the premium on outstanding bonds payable the effects is overstated in interest
expense and bonds carrying amount.
21. Bond indenture- is the contract between the issuer of bonds and the bondholders
22. Bearer bonds – the bondholders names are not registered with the issuer
23. Income bonds- bonds that pay no interest unless the issuer is profitable
24. Bond issue cost should be recorded as a reduction in the carrying amount of bonds payable
25. The amortization of discount on bonds payable increase the carrying amount of bonds payable.
26. The effective interest rate of a bond measure at amortized cost the interest rate that exactly discounts
estimated future cash payments through the expected life of the bond or when appropriate, a shorter period
to the net carrying amount of the bond.
27. For a bond issue which sells for less than face amount, the market rate of interest is higher than rate stated on
the bond.
28. The market rate of interest for a bond issue which sells for more than the face amount less than rate stated on
the bond.
29. If the bonds are issued at a premium , the indicated that the nominal rate of interest exceeds the yield rate.
30. A bond maturing a single date when the effective interest method of amortizing bond discount is used interest
expense increases each six-month period
31. The market price of a bond issued at a discount is the PV of the principal amount at the market rate of interest +
the PV of all future interest payments at the market rate of interest.
32. The proceeds from the sale of a bond would be equal to the present value of the principal amount due at the
end of the life of the bond plus the present value of the bond interest payment made during the life of the
bond.
33. The valuation method used for bonds payable is discounted cash flow valuation at yield rate at issuance.
34. The entity calculate the net proceeds to be received from the bond issuance discount the bonds at the market
rate of interest and deduct bond issuance cost.
35. An entity issued a bond with a stated rate of interest that is less than the effective interest rate on the date of
issuance an interest expense that is greater than the cash payments made to bondholders.
36. Under the effective interest method of amortization, the interest expense is equal to the market rate of interest
multiplied by the beginning carrying amount of the bonds.
37. When interest expense for the current year is more than interest paid ,the bonds were issue at discount.
38. When interest expense for the current year is less than interest paid, the bonds were issue at premium.
39. When an entity to failed to recognized amortization of discount on bonds payable for the current year, the
effect on liabilities and equity is understated and overstated.
40. Cost of issuing bonds payable
a. Is included in the measurement of the bond payable measured at amortized cost
b. Is amortized using the interest method over the life of the bonds
c. Will effectively increase the market rate of interest.
41. The interest rate written on the face of the bond is coupon rate, nominal rate or stated rate
42. The rate of interest actually incurred is market,yield or effective rate
43. The effective interest method is used the periodic amortization would increase if the bonds were issued at
either a discount or a premium
44. A discount on bonds payable is charged to interest expense using the effective interest method.
Notes Payable
1. An entity shall measure initially a note payable not designated at FVPL at fair value minus transaction cost
2. After initial recognition an entity shall measure a note payable at either amortized cost or FVPL
3. The amortized cost of note payable is the amount at which the note payable is initially recognized minus
principal repayment, plus or minus the cumulative effective interest amortization of the difference between
the initial carrying amount and maturity amount.
4. The fair value option an entity shall measure the note payable initially at fair value
5. Correct in relation to the FV option of measuring note payable
a. At initial recognition, an entity may irrevocably designate the note payable as at FBPL
b. The interest expense on the note payable is recognized using the nominal or stated interest rate
c. After the initial recognition, the note payable is remeasured at fair value at every year- end and any changes
in fair value are recognized in profit or loss
6. When an entity issued a note payable solely in exchange for cash the PV of the note at issuance is equal to
proceeds received.
7. If the PV of the note issued in exchange for a property is less than face amount ,the difference should be
amortized as interest expense over the life of the note.
8. The discount resulting from the determination of the PV of the note payable should be reported as direct
deduction from the face amount of the note.
9. At issuance date , the PV of a note payable should be equal to the face amount if the note bears a stated rate of
interest which is realistic.
10. A note payable with no ready market is exchanged for property whose fair value is currently indeterminable
when such transactions takes place the present value of the note payable must be approximated using the
imputed interest rate.
11. When a note payable is issued for property, the present value of the note is measured by
a. The fair value of the property
b. The fair value of the note payable
c. Using an imputed interest rate to discount all future payments on the note payable
12. When a note payable is exchanged for property, the stated interest is presumed to be fair when the stated
interest rate is equal to the market rate