Question 1

The times interest earned ratio is calculated by dividing

Accepted Answer

A)  net earnings by interest expense. 
B)  net earnings before interest expense and income taxes by interest expense. 
C)  net earnings before interest expense by interest expense. 
D)  net earnings before income taxes by interest expense. 
A)  net earnings by interest expense. 
B)  net earnings before interest expense and income taxes by interest expense. 
C)  net earnings before interest expense by interest expense. 
D)  net earnings before income taxes by interest expense.

Question 2

On Bennett's 20A year-end statement of financial position, the book value of the liability for notes payable related to this purchase would equal which of the following?

Accepted Answer

A)  An amount more than $317,520. 
B)  An amount less than $317,520. 
C)  An amount more or less than $317,520 depending upon Bennett's income for the year. 
D)  $317,520 
A)  An amount more than $317,520. 
B)  An amount less than $317,520. 
C)  An amount more or less than $317,520 depending upon Bennett's income for the year. 
D)  $317,520

Question 3

If bonds have been issued at a premium, then over the life of the bonds the

Accepted Answer

A)  carrying amount of the bonds will decrease. 
B)  carrying amount of the bonds will increase. 
C)  unamortized discount will increase. 
D)  interest expense will remain unchanged. 
A)  carrying amount of the bonds will decrease. 
B)  carrying amount of the bonds will increase. 
C)  unamortized discount will increase. 
D)  interest expense will remain unchanged.

Question 4

A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market rate of interest.

Accepted Answer

A) True 
 B)False

Question 5

On June 30, 20A, Reagan Corporation sold (issued) a $1,000, ten-year, 8% bonds payable (interest payable each June 30 and December 31).
For the three assumptions below, complete the following schedule assuming the accounting year end December 31, and straight-line depreciation is used:

Accepted Answer

The answer of On June 30, 20A, Reagan Corporation sold...

Question 6

Which of the following statements is not true?

Accepted Answer

A)  The times interest earned ratio gives an indication of a company's ability to meet interest payments as they come due. 
B)  EBIT can be calculated by adding interest expense and income tax expense to net earnings. 
C)  The times interest earned ratio is calculated by dividing the sum of net earnings, interest expense, and income tax expense, by interest expense. 
D)  The higher a company's debt to total assets ratio, the lower the company's times interest earned ratio will be. 
A)  The times interest earned ratio gives an indication of a company's ability to meet interest payments as they come due. 
B)  EBIT can be calculated by adding interest expense and income tax expense to net earnings. 
C)  The times interest earned ratio is calculated by dividing the sum of net earnings, interest expense, and income tax expense, by interest expense. 
D)  The higher a company's debt to total assets ratio, the lower the company's times interest earned ratio will be.

Question 7

Which of the following is true?

Accepted Answer

A)  It is common for companies to both retire debt and issue new bonds in the same year as a way to replace higher interest rate debt with lower rate issuances. 
B)  The corporation will have to pay cash to bond investors when those investors demand to call the bonds. 
C)  Payment of interest is an investing activity since we would not have interest unless we borrowed money or sold bonds to the public. 
D)  Retractable bonds require cash outflow connected to investing when the issuing corporation redeems the bonds. 
A)  It is common for companies to both retire debt and issue new bonds in the same year as a way to replace higher interest rate debt with lower rate issuances. 
B)  The corporation will have to pay cash to bond investors when those investors demand to call the bonds. 
C)  Payment of interest is an investing activity since we would not have interest unless we borrowed money or sold bonds to the public. 
D)  Retractable bonds require cash outflow connected to investing when the issuing corporation redeems the bonds.

Question 8

Bonds often are a superior method of financing in comparison with sale and issuance of capital shares because of both the (a) leverage effects and (b) tax deductibility of interest payments.

Accepted Answer

A) True 
 B)False

Question 9

On January 1, 20A, Washer Company sold (issued) 600, $1,000, five-year, 8% bonds at 95. The bonds were dated January 1, 20A, and interest is payable each June 30 and December 31. The company uses the straight-line method of amortization. What is the amount of the net liability for bonds payable that would be reported on the December 31, 20A, statement of financial position?

Accepted Answer

A)  $573,000 
B)  $576,000 
C)  $600,000 
D)  $597,000 
A)  $573,000 
B)  $576,000 
C)  $600,000 
D)  $597,000

Question 10

Most notes are not interest bearing.

Accepted Answer

A) True 
 B)False

Question 11

If the market interest rate is higher than the coupon interest rate (or stated rate) of the bond, the bond sells:

Accepted Answer

A)  at a premium. 
B)  at a discount. 
C)  at face value. 
D)  It is undeterminable. 
A)  at a premium. 
B)  at a discount. 
C)  at face value. 
D)  It is undeterminable.

Question 12

On January 1, 20A, Winston Corporation sold a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, the interest expense on the 20A income statement would be which of the following amounts (to the nearest dollar)?

Accepted Answer

A)  $1,547 
B)  $700 
C)  $773 
D)  $883 
A)  $1,547 
B)  $700 
C)  $773 
D)  $883

Question 13

The following table values are provided for use in solving the following independent problems (show computations):
   *Ordinary annuity
A. Company A deposited $20,000 in a savings account on January 1, 19A that will accumulate 6% interest each December 21.
1. What will be the fund balance at the end of Year 5
2. How much interest will be earned by the end of Year 5?
B. Company B needs to accumulate a $50,000 fund by making five equal annual deposits. Assuming a 7% interest accumulation, how much must be deposited at the end of the year?
C. Company C has new machine that has an estimated life of five years and a $5,000 residual value. Assuming an 8% interest rate, what is the present value of the estimated residual value?
D. Company D owes a $50,000 debt that is now due (January 1, 19A). Arrangements have been made to pay it off in five equal annual installments, starting December 31, 19A (an ordinary annuity situation).
1. Assuming 8% interest, how much will the annual payment be?
2. Give the entry for Company D above for the first payment on December 31, 19A on the note payable.

Accepted Answer

A. 1. $20,000 × 2.3382 (Fn = 5:1; I = 6%

Question 14

Accrued interest was recorded annually. On December 31, 20C, the due date of the note, Bennett paid the amount due and recorded the transaction with which of the following?

Accepted Answer

A)  A debit to notes payable for $317,520. 
B)  A debit to notes payable for $400,000. 
C)  A credit to notes payable for $400,000. 
D)  A credit to notes payable for $317,520. 
A)  A debit to notes payable for $317,520. 
B)  A debit to notes payable for $400,000. 
C)  A credit to notes payable for $400,000. 
D)  A credit to notes payable for $317,520.

Question 15

The financial leverage ratio is a measure of a company's profitability.

Accepted Answer

A) True 
 B)False

Question 16

The times interest earned ratio measures the ability of a company to meet its interest obligations with resources from its profit-making activities.

Accepted Answer

A) True 
 B)False

Question 17

An amount is to be deposited in a savings account at the end of each year in order to provide funds for a trip to Europe, at the end of the fourth year. You have been asked to determine the amount of the annual deposit. What is the interest concept that best describes this application?

Accepted Answer

A)  Future value of an annuity. 
B)  Future value of a single amount. 
C)  Present value of a single amount. 
D)  Present value of an annuity. 
A)  Future value of an annuity. 
B)  Future value of a single amount. 
C)  Present value of a single amount. 
D)  Present value of an annuity.

Question 18

How much would Kristen have to deposit in the bank at the end of each of the next five years if she wishes to have $5,000 in the bank at the end of that time period, assuming she will be earning 6% annual rate of return? (Round to the nearest dollar).

Accepted Answer

A)  $1,000 
B)  $1,187 
C)  $943 
D)  $887 
A)  $1,000 
B)  $1,187 
C)  $943 
D)  $887

Question 19

A $100,000 bond was retired at 96 when the carrying amount of the bond was $105,000. The entry to record the retirement would include a:

Accepted Answer

A)  gain on bond redemption of $4,000. 
B)  gain on bond redemption of $9,000. 
C)  loss on bond redemption of $8,000. 
D)  loss on bond redemption of $4,000. 
A)  gain on bond redemption of $4,000. 
B)  gain on bond redemption of $9,000. 
C)  loss on bond redemption of $8,000. 
D)  loss on bond redemption of $4,000.

Question 20

Which item listed below does not influence the issue price (present value) of a bond?

Accepted Answer

A)  The market rate of interest 
B)  The dollar amounts to be received 
C)  The reason the bond was issued 
D)  The length of time until the amounts are received 
A)  The market rate of interest 
B)  The dollar amounts to be received 
C)  The reason the bond was issued 
D)  The length of time until the amounts are received

The times interest earned ratio is calculated by dividing

On Bennett's 20A year-end statement of financial position, the book value of the liability for notes payable related to this purchase would equal which of the following?

If bonds have been issued at a premium, then over the life of the bonds the

A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market rate of interest.

On June 30, 20A, Reagan Corporation sold (issued) a $1,000, ten-year, 8% bonds payable (interest payable each June 30 and December 31). For the three assumptions below, complete the following schedule assuming the accounting year end December 31, and straight-line depreciation is used:

Which of the following statements is not true?

Which of the following is true?

Bonds often are a superior method of financing in comparison with sale and issuance of capital shares because of both the (a) leverage effects and (b) tax deductibility of interest payments.

Most notes are not interest bearing.

If the market interest rate is higher than the coupon interest rate (or stated rate) of the bond, the bond sells:

Accrued interest was recorded annually. On December 31, 20C, the due date of the note, Bennett paid the amount due and recorded the transaction with which of the following?

The financial leverage ratio is a measure of a company's profitability.

The times interest earned ratio measures the ability of a company to meet its interest obligations with resources from its profit-making activities.

An amount is to be deposited in a savings account at the end of each year in order to provide funds for a trip to Europe, at the end of the fourth year. You have been asked to determine the amount of the annual deposit. What is the interest concept that best describes this application?

How much would Kristen have to deposit in the bank at the end of each of the next five years if she wishes to have $5,000 in the bank at the end of that time period, assuming she will be earning 6% annual rate of return? (Round to the nearest dollar).

A $100,000 bond was retired at 96 when the carrying amount of the bond was $105,000. The entry to record the retirement would include a:

Which item listed below does not influence the issue price (present value) of a bond?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bond Securities

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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Exam 11: Reporting and Interpreting Stockholders Equity

The times interest earned ratio is calculated by dividing

On Bennett's 20A year-end statement of financial position, the book value of the liability for notes payable related to this purchase would equal which of the following?

If bonds have been issued at a premium, then over the life of the bonds the

A corporation that issues bonds at a discount will recognize interest expense at a rate which is greater than the market rate of interest.

On June 30, 20A, Reagan Corporation sold (issued) a $1,000, ten-year, 8% bonds payable (interest payable each June 30 and December 31). For the three assumptions below, complete the following schedule assuming the accounting year end December 31, and straight-line depreciation is used:

Which of the following statements is not true?

Which of the following is true?

Bonds often are a superior method of financing in comparison with sale and issuance of capital shares because of both the (a) leverage effects and (b) tax deductibility of interest payments.

Most notes are not interest bearing.

If the market interest rate is higher than the coupon interest rate (or stated rate) of the bond, the bond sells:

Accrued interest was recorded annually. On December 31, 20C, the due date of the note, Bennett paid the amount due and recorded the transaction with which of the following?

The financial leverage ratio is a measure of a company's profitability.

The times interest earned ratio measures the ability of a company to meet its interest obligations with resources from its profit-making activities.

An amount is to be deposited in a savings account at the end of each year in order to provide funds for a trip to Europe, at the end of the fourth year. You have been asked to determine the amount of the annual deposit. What is the interest concept that best describes this application?

How much would Kristen have to deposit in the bank at the end of each of the next five years if she wishes to have $5,000 in the bank at the end of that time period, assuming she will be earning 6% annual rate of return? (Round to the nearest dollar).

A $100,000 bond was retired at 96 when the carrying amount of the bond was $105,000. The entry to record the retirement would include a:

Which item listed below does not influence the issue price (present value) of a bond?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Accounting System

Operating Decisions and the Accounting System

Adjustments, Financial Statements, and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Sales Revenue, Receivables, and Cash

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources

Reporting and Interpreting Liabilities

Reporting and Interpreting Bond Securities

Statement of Cash Flows

Analyzing Financial Statements

Reporting and Interpreting Investments in Other Corporations

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