Reading 38: Long-Term Liabilities and Leases - LOS a ～ Q1-5 reported, company, payment, actual, issues

mayanfang1

Q1. The actual coupon payment on a bond that a company issues is reported as which type of cash flow under U.S. GAAP, and which cash flow would be overstated by a premium bond?

        Coupon payment              Premium Bond

A) Operating cash outflow             Cash flow from financing

B) Operating cash outflow            Cash flow from operations

C) Financing cash outflow             Cash flow from operations

Q2. Which of the following statements about bonds issued at a discount is FALSE?

A)   Cash flow from operations will be overstated and cash flow from financing will be understated.

B)   Interest expense will have an upward trend for each period.

C)   The original liability will be higher than the bond's par value.

Q3. The actual coupon payment on a bond is reported on the statement of cash flow as:

A)   an operating cash outflow.

B)   a financing cash outflow.

C)   an investing cash outflow.

Q4. Assuming all else equal, if the coupon rate offered on a bond is less than the corresponding market rate of interest, the bond will be issued at:

A)   a discount.

B)   a premium.

C)   par.

Q5. For a given amount of financing, issuing which of the following bonds will result in the largest overstatement in cash flow from operations (CFO) compared to issuing a bond at its face value?

A)   Convertible bond.

B)   Premium bond.

C)   Zero-coupon bond.

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