Which of the Following Statements Concerning the Use of Sinking

question 58

Multiple Choice

Which of the following statements concerning the use of sinking funds to repurchase a bond issue is most correct?

• A)The firm makes a single payment into a sinking fund administered by a trustee at the beginning of the life of the bond.
• B)The firm can reduce the amount of outstanding debt without affecting the cash flows of the remaining bonds.
• C)Payments into the sinking fund are held in reserve to protect the firm from default.
• D)Bonds can be issued with a sinking fund provision or a call provision,but not both.
• E)Sinking fund provisions require the issuer to repay the entire principal balance on the maturity date.

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Definitions:

Unit Product Cost

Unit product cost is the total cost to produce one unit of product, calculated by dividing total production costs by the number of units produced.

Direct Labor Cost

The total amount of money a company spends on wages for employees who are directly involved in the manufacturing of products or providing services.

Absorption Costing

An accounting method that includes both variable and fixed manufacturing costs in the cost of a product.

Net Operating Income

The profit realized from a business's operations after subtracting operating expenses but before deducting taxes and interest.