Encana Corp

question 23

Multiple Choice

Encana Corp.is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15,2012.Interest rates fall in the economy so that similar financial investments pay 5%.Encana will:

• A)not be able to issue the bonds from the market because no one will buy them.
• B)receive a higher issue price as buyers compete for the bonds.
• C)have to accept a lower issue price to attract buyers.
• D)have to reprint the bond certificates to change the stated interest rate to 5%.

Recognize the different types of bonds (convertible, callable) and their specific features.

Understand how amortization of bond premium or discount affects interest expense.

Comprehend the accounting treatment for the redemption of bonds and the impact of gains and losses on redemption.

Grasp the concept of bond interest expense and how it is calculated over the life of a bond.

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Definitions:

Manufacturing Overhead

Indirect factory-related costs that are incurred when a product is manufactured, including costs for management, equipment maintenance, and factory utilities.

Direct Labor Cost

This cost includes wages and benefits paid to employees who are directly involved in producing goods or providing services.

Product Costs

Expenses directly associated with the production of goods, including materials, labor, and overhead costs.

Period Costs

Expenses that are not directly tied to production and are expensed on the income statement in the period they are incurred, such as selling and administrative expenses.