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:

Cancellable

The property of being able to be cancelled or terminated, often referring to contracts, policies, or agreements that can be ended before the agreed-upon term.

Fixed Purchase Contract

A contractual agreement to buy or sell goods and services at predetermined prices and terms.

Journal Entry

A record in the books of accounts that represents each transaction with debits and credits recorded to maintain the accounting equation.

Lower of Cost or Market

An accounting principle requiring inventory to be recorded at either its historical cost or its current market value, whichever is lower.