Multiple Choice: Noncurrent Liabilities Select the correct answer for each of the following:

1. The amount of the cash interest payment on a long-term bond is determined by:

a. Issue price times the effective interest rate.

b. Issue price times the nominal interest rate.

c. Par value times the effective interest rate.

d. Par value times the nominal interest rate.

2. When bonds are sold at a premium:

a. Interest expense is greater than the interest payment.

b. Interest expense is the same as the interest payment.

c. Interest expense is less than the interest payment.

d. Interest expense is unaffected by the existence of a bond premium.

A bond sells at a discount when:

a. Bond rating services rate the bond as risky compared to other bonds sold at the same time.

b. The nominal interest rate is less than the stated interest rate.

c. The effective interest rate is greater than the stated interest rate.

d. The effective interest rate is less than the stated interest rate.

4. Bonds issued with a call provision are:

a. Convertible into common or preferred stock on a specified date.

b. Subject to retirement by the issuer at any time after the call date.

c. Almost always sold at a premium because of the value of the call provision to the purchasers.

d. Reported as current liabilities because they may be called in the current year.