Question

I. Contingent liabilities that are 'probable' and can be reasonably estimated are recorded on the balance sheet as a liability and as an expense in the income statement.

II. Bonds sold at less than their face value are selling at a discount.

III. Bonds sold at more than their face value are selling at a premium. At the end of first year, the interest payment will be less than interest expense recognized.

IV. Bonds sold at par is equal to its face value.

Are all of these statements True or False

Answer 1

I.Contingent liabilities that are 'probable' and can be reasonably estimated are recorded on the balance sheet as a liability and as an expense in the income statement.

True

anything less Than probable liabilities are referenced in footnotes.

II.Bonds sold at less than their face value are selling at a discount.

True

Discount bands selling at less than face value.

Example:

Company D has printed 1,000 bonds of $100 par value having a maturity of 5 years and an annual coupon of $8 per year. When it was finally ready to issue the bond on 1 July 2012 the interest rate prevailing in the market has soared to 10%.

III. Bonds sold at more than their face value are selling at a premium. At the end of first year, the interest payment will be less than interest expense recognized.

True

a bond that is trading above its par value in the secondary market is a premium bond. A bond will trade at a premium when it offers a coupon (interest) rate that is higher than the current prevailing interest rates being offered for new bonds. This is because investors want a higher yield, which such a bond gives them, and thus they will pay more for it.

IV. Bonds sold at par is equal to its face value.

True

Par Value is the nominal or face value of a bond, share of stock, or coupon as indicated on a bond or stock certificate