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Finance practice problems

If the market price of a bond exceeds its face amount:
a. the coupon rate is less than the market interest rate.
b. the coupon rate is more than the market interest rate.
c. the company's ROI and working capital have been increasing over time.
d. the maturity rate has been declining.

The amortization of bond discount:
a. increases the cash paid to bondholders for interest.
b. results in bond interest expense being greater than the interest paid to bondholders.
c. results in bond interest expense being less than the interest paid to bondholders.
d. reduces the carrying value of bonds payable on the balance sheet.

Many airlines have frequent flyer programs that permit travelers to accumulate credits that can be applied to the cost of tickets for future flights. Most airlines recognize the cost of their frequent flyer programs when the credits are used to purchase tickets. This practice, which seems to ignore the matching concept, results in:

a. stating liabilities and expenses at appropriate amounts.
b. overstating liabilities and expenses.
c. understating liabilities and expenses.
d. understating liabilities and overstating expenses.

Solution Preview

If the market price of a bond exceeds its face amount:
b. the coupon rate is more than the market interest rate.

The high interest rate on the bond makes it attractive compared to other bonds (above market) so the price is bid higher than face until it reaches the market returns.

The amortization of bond discount:
b. results in bond ...

Solution Summary

Classic questions! A sentence explains each choice.

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