 In this presentation, we will take a look at multiple choice questions related to bonds, notes payable, and long-term liabilities. Support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more, like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. First question, which is true? A. Interest on bonds is tax deductible. B. Interest on bonds is not tax deductible. C. Bonds to stockholders lower bond prices. Or D. Bonds are the same as notes. Okay, so let's go through this again. Which is true? A. Interest on bonds is taxable. Or B. Interest on bonds is not taxable. Now notice if you have a question like that. I mean there's no other way to go here. It's either it's taxable or non-taxable. So what that really does is that basically if you see something like that it pretty much eliminates the other two options here because one of those has to be true. That covers all the options. So if a multiple choice question does something like that you can pretty much say, hmm, it's pretty much narrowed down to A or B. But if we look at C and D we're going to say, okay, C. Dividends to stockholder lower the price. So dividends to stockholders lower the bond prices. So dividends don't have anything to do with bond prices. Or D. Says bonds are the same as notes. And that's not true. Bonds are not the same as notes. So we're left with A and B. So which is true? A. Interest on bonds is tax deductible. Or B. Interest on bonds is not tax deductible. And typically it is. And remember what this means is we're the issuer of the bond. So we issued the bonds. We have to pay interest. And that's not good for us. We don't like paying interest. But at least we get to deduct it from net income or taxable income. And to get to taxable income and lower the taxes. So again, paying interest is not good. We don't like that. But it is typically something that will be tax deductible. Next question. A bond is issued at par value when? A. The bond does not pay interest. B. The market rate of interest is higher than the contract rate. C. The market rate of interest is the same as the contract rate of interest. Or D. The bond is callable. So if we go through the process of elimination. A bond is issued at par value when? So at par value it means it's going to be issued basically at the face amount of the bond. So when would that happen? Either A. The bond does not pay interest. That's unlikely because pretty much all bonds pay interest. Who's going to give us money unless we pay them interest for the rent on the money? So that's not the case. B. Says the market rate of interest is higher than the contract rate. So you might think it probably has something to do with the rates of interest. Let's keep that one for now. C. Says the market rate of interest is the same as the contract rate of interest. So those two sounds very similar. So again if there's two that sound kind of similar except for like one word's different. Probably it could be one of those two. And I'm thinking that looks like one of those two. And then D. Says the bond is callable. And so that's not the case. And again if I see B and C I'm probably leaning towards one of those. So I'm going to cross out D and go through this again. A bond is issued at par value when? Either B. The market rate of interest is higher than the contract rate or C. The market rate of interest is the same as the contract rate of interest. And it's actually going to be C. And if you think about it that basically what we're saying here is remember that the interest rate is the thing that can't change on the bond. So because it's already printed on the bond. Whereas if it was a note it's the thing that we would change. If we're trying to get a loan from the bank. And we would set the amount at whatever 100,000. And we would haggle over the interest rate. That's what would change. But if the bond was already written. Then the face amount of the bond the 100,000 or whatever thousand is already there. And the interest rate is already there. So that's not what we can haggle over. All we can haggle over is how much we're going to issue at the price. And so if the price if the interest rate was the same as the market rate. That would be just like the situation if we got a loan basically. So that would be like you can think of that situation as if we just issued the bond. Then the two you would think would be pretty much the same. Because we would try to put the market rate on the bond. But if any time passes that those two things are going to differ. And that's when we have a problem. So if the two things are exactly the same. That's when we would issue it just at the face amount of the bond.