 In this presentation, we will take a look at multiple choice questions related to bonds, notes payable, and long-term liabilities. First question. 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 then 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. Bonds with options to retire them before maturity at a set dollar amount are A, convertible bonds, B, notes payable, C, stock, D, serial bonds, or E, callable, callable bonds. So let's go through this again and see if we can use the process of elimination. We have bonds with options to retire them before maturity at a set dollar amount are either A, convertible bonds. I'll keep that for now. It sounds kind of reasonable, possibly B says notes payable and it's probably not the case that a bond is like a note payable to those are, you know, they're both liabilities, but not exactly the same. So I don't think it's going to be that C says stock. And again, stocks and bonds, you can kind of think of them as they go together when we talk about investments, but they're not the same thing. So stock doesn't seem reasonable. B says serial bonds. And again, if we don't really know all the different types of bonds, well, that could be one type of bond. So I'll keep that for now. And then E says callable, callable bonds. And again, if we don't really know all the different types of bonds, it could be that. So we're left with A, D, and E convertible bonds, serial bonds and callable bonds. If we read through it again, we have bonds with options to retire them before maturity at a set dollar amount, either convertible bonds, serial bonds, or callable bonds. Between those three, I would think serial bonds sounds the least likely because callable or convertible sound like something will happen before the maturity date. So I'm going to cross out D. And between convertible and callable, it's actually going to be the callable bond. So if we read through this again, we're going to say the bonds with options to retire them before maturity at a set dollar amount are, E, callable bonds. Next question, amortizing a bond discount, A, allocates part of the discount to interest expense each time interest is paid on the bond, B, is how we calculate interest payments, C, decreases the bond payable account, D, decreases interest expense each period, and E increases cash flow from the bond. So if we go through this, then we're going to say, we'll use the process of elimination. Amortizing a bond discount, A, allocates part of the discount to interest expense each time interest is paid on the bond. That sounds kind of reasonable. I'm going to keep A for now. B says, is how we calculate interest payments. And that's actually not the case because the bond discount is not how we figure out the payments we're going to make because the payments we're going to make are on the bond. So the actual money that we're going to be giving in terms of interest payments is not going to be influenced by the bond, although it will influence the interest expense that we'll be recording. So it's not B. C says, decreases the bond payable account. And the discount doesn't actually do anything to the actual bonds payable account. It's going to be, they're kind of linked together because the two are tied together to get the carrying amount. You would subtract the two to get the carrying amount of the bond, but it's not part of the payable account. So it's not C. D says, decreases interest expense each period. Now if we think about that, that could get a little confusing. So we'll have to, it's possible, it's doing something to interest expense. If A is true and D is true, then something's happening to interest expense. The question is, is it decreasing or increasing? And then E says, increases cash flow. So I'll keep that one for now. So E says, increases cash flows from the bond. And the amortization of the bond doesn't do anything to cash flow because it's just, it's just, we're trying to amortize that difference between the premium price or the price of the bond, the face amount of the bond, and the amount that it was issued for at a discount. And that's what the discount is there for. So we're just amortizing the discount if not doing anything to cash. So it's not E. So we're left with A and D. If we read through this again, amortizing a bond discount, either A, allocates part of the discount to interest expense each time interest is paid on the bond, or D, decreases interest expense each period. Now note that these two are kind of related because the first one says allocates part of the discount to interest expense. Well that means it's doing something to interest expense and it doesn't really say what, but and then D says decreases interest expense each period. So it can't be the case, if we're narrowing down to these two, it can't be the case that they're both true. And if D is true, A must be true because A is allocating the discount, which would result in D. So in other words, it can't, either D, if D is true, A has to be true. And if A is true, D doesn't necessarily have to be true. And therefore, if you go down to these two, it kind of has to be A here. But if we think through it another way, we're going to say, yeah, this is what we're doing. A is what's happening. We're allocating the bond discount to the interest expense to kind of get rid of it over the time period. And when we do that, remember the discount is a contraliability account. So it has a debit balance. So the debit balance has to go down. So we credit, when we do the journal entry, we credit the discount. So the bond discount would be a credit. And then we would debit interest expense. And interest expense is a debit balance account. So if we debit it again, it would be increasing interest expense. And of course, this would be saying decreasing. So it's going the wrong way. So the answer is going to be A. Amortizing a bond discount, A allocates part of the discount to interest expense each time interest is paid on the bond. Also note, if you see like one answer that's longer and more detailed, then it may be that that's the answer because it's trying to be more lawyerly. It's trying to cover all the places where it wouldn't be correct and therefore it takes more words to do so sometimes. So if you see one answer that's longer and it's kind of hedging everything, doesn't use any absolute terms like always or never. But it says in this case, in that case and whatnot, that it might be that the answer is trying to be more legalese in order to be correct. So it might be another indication that that would be the correct answer.