Which of the Following Statements Is True with Regard to Early

question 139

Multiple Choice

Which of the following statements is true with regard to early retirement of bonds?

• A)If the carrying value of the bonds is higher than the redemption price,the issuing firm must record a loss.
• B)Firms always find it advantageous to retire bonds issued at lower rates with bonds issued at higher rates.
• C)It is always advantageous to carry out early retirement for bonds issued at a premium but not for bonds issued at a discount.
• D)Any gain or loss resulting from early retirement of bonds would appear on the income statement of the issuing company.

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Definitions:

Financing Activities

Activities that result in changes in the size and composition of the equity capital or borrowings of a company, as reported in the cash flow statement.

Treasury Stock

Treasury stock consists of shares that were issued and later reacquired by the issuing company, reducing the amount of outstanding stock on the open market.

Bonds Payable

Long-term debt instruments issued by a company to raise capital, with the promise to pay back with interest at a future date.

Direct Method

A cash flow statement formulation approach that lists major classes of gross cash receipts and payments.