Intermediate Accounting Chapter 16 well answered

Intermediate Accounting Chapter 16Convertible 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. - correct answer D. May be exchanged for equity securities The conversion of bonds is most commonly recorded by the a. incremental method. b. proportional method. c. market value method. d. book value method. - correct answer D. Book Value method When a bond issuer offers some form of additional consideration (a "sweetener") to induce conversion, the sweetener is accounted for as a(n) a. extraordinary item. b. expense. c. loss. d. none of these. - correct answer B. Expense 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 financing at lower rates. d. that convertible bonds will always sell at a premium. - correct answer C. That many corporations can obtain financing at lower rates.