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Exam_2.docx - Intermediate Accounting II Fall 2020Exam 2Nameshowing page 1-2 out of 2

Intermediate
Accounting II Fall 2020
Exam 2
Name Salem
Bogewar
i
Date October
26,
2020
1.
Convertible bonds
a.
have priority over other indebtedness.
b.
are usually secured by a first or second mortgage.
c.
pay interest only in the event earnings are sufficient to cover the interest.
d.
may
be
exchanged
for
equity
securities.
2.
The conversion of bonds is most commonly recorded by the
a.
incremental method.
b.
proportional method.
c.
market value method.
d.
book
value
method.
3.
If a company offers additional considerations to convertible bondholders
in order to encourage conversion, it is called a(an):
a.
forced conversion.
b.
sweetener
.
c.
additional conversion.
d.
end conversion.
4.
Corporations issue convertible debt for two main reasons. One is the
desire to raise equity capital that, assuming conversion, will arise when the
original debt is converted.
The other is
a.
the ease with which convertible debt is sold even if the company has a
poor credit rating.
b.
the fact that equity capital has issue costs that convertible debt does not.
c.
that
many
corporations
can
obtain
debt
financing
at
lower
rates.
d.
that convertible bonds will always sell at a premium.
5.
When convertible debt is retired by the issuer, any material difference
between the cash acquisition price and the carrying amount of the debt
should be
a.
reflected
currently
in
income.
b.
reflected currently in income as a discontinued operations item.
c.
treated as a prior period adjustment.
d.
treated as an adjustment of additional paid-in capital.