 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, carrying value of a bond at maturity is either a, equal to the amount of cash originally received, b, equal to the par value of the bond, c, equal to the amount of discount or premium, d, zero, e, equal to the amount received plus interest payments. So we'll go to the process of elimination now. Carrying value of a bond at maturity is. Now if you have a definition you may want to try to give yourself what is the definition first and then go through it. So if you know the definition, you want to basically think about it and see if you can find the correct answer. If you have no idea what the definition is, then we can go through these and look through the process of elimination. So a says equal to the amount of cash originally received. So the carrying amount is going to be equal to the amount of cash originally received. It doesn't seem right to have the carrying amount be the same as the cash received. So I'm just going to say that doesn't sound quite right. I'm going to say a is not it. b says equal to the par value of the bond. And so it's possible that that's the answer equal to the par value of the bond. I'll keep that for now. c says equal to the amount of discount or premium. It doesn't seem that the that the carrying value would be equal to the to the premium or discount. So I don't think that's going to be it. d says zero. And if you think about it, the carrying value of the bond at maturity, you might think maybe it should be zero at the end at the maturity date. So I'll keep that for now. And then e says equal to the amount received plus interest payments. And again you might think maybe that sounds like it could be something. So let's go through this again. We're going to say the carrying value of a bond at maturity. Now if we think through that a little bit more closely, the carrying value remember is going to be when we put the bond on the books, we put it on either at a discount or premium or at par value. So if we bought the bond or if we issued the bond and we've got more cash than the face amount of the bond, then we put the bonds on the book as a liability. And we would debit the cash and the difference then if we got more cash would be a premium, if we got less cash would be a discount. And then the carrying value is going to be whatever the face amount is what we issued it for minus a discount if we issued it as a discount plus the premium. Now the discount on the premium has to go away by the end of the bond. So what's happening here is you've got the face amount of the bond and then a discount or premium likely, that discount or premium then going away at the end of the bond because we're going to amortize it. And so you're left with at the end of the bond just the bond, the face amount of the bond. So in other words between A, D and E, B or B, D and E, E, B says equal to the par value of the bond and that's going to be like the face amount of the bond. So at maturity that's really what you're going to be left with. So it's actually going to be B. D says zero which isn't right because you're going to be left with the before you pay it off you're going to be left with the face amount of the bond. You still have to pay off. Now of course after you pay it off it'll be at zero so you could say well you know after you pay it at maturity it'll be zero but we're not looking for that we're looking for B and then E says equal to the amount received plus interest payments. And that's not going to be correct because the interest payments are already going to be expensed. They're not going to be doing anything to the balance sheet accounts to the bond accounts so the correct answer is going to be B. So once again carrying value of a bond at maturity is B equal to the par value of the bond. Next question. A disadvantage of financing with bonds is A, bonds do not change owner's control. B, interest on bonds is deductible for taxes. C, bonds can be sold to the public or E, bonds pay interest. Let's go through that again using the process of elimination. A disadvantage of financing with bonds is so we're trying to say financing with bonds. So remember what bonds are is where the issuer of the bonds or the corporation issuing bonds we're getting money for it. You want to compare and contrast that in your mind about the other types of things you can do. What else could you do? Well you could get a loan instead of issuing bonds or you could issue stock possibly. Those are your other two options. So when you're thinking about the pros and cons you really kind of think about it well what other pros and cons against what else? Against possibly taking out a loan or issuing stock. So A says bonds do not change owner's control and that's true. Bonds do not change owner's control but that's usually an advantage so it's not a disadvantage. So if we were to issue a bond we're not other people aren't getting ownership in the business and have claims to the dividends and whatnot that's usually a good thing for us because we'd like to get financing without giving up control. And then B says interest on so it's not A. Interest on bonds is deductible for taxes. Now that's true typically but that's again it's a good thing that's not a disadvantage that's typically an advantage. So it's nice that we get to deduct the interest. We don't like having to pay the interest but at least we get to deduct the interest we pay and then most of the time. And then C says bonds can be sold to the public. And again that's typically true because the corporation can sell bonds on an exchange possibly rather than just taking a loan from a bank. So that's usually an advantage because it could allow for more financing not a disadvantage. So E we're left with E here bonds pay interest and that is a disadvantage. And notice that E is is linked to A because A says we get to deduct the interest we pay which is nice but we still don't like paying the interest whereas if you compare it to something else like financing through stocks then we don't have to pay interest which is nice. However we give up control some ownership in the business to the to the stockholders. So answer is going to be E we're going to go through the skin says a disadvantage of financing with bonds is E bonds pay interest.