Question 1

If a company issues a note payable when the market rate of interest is greater than the stated rate, then

Accepted Answer

A) the cash received will exceed the maturity value of the note. 
B) the note will be issued at a discount. 
C) the note will be issued at a premium. 
D) the cash received will be equal to the maturity value of the note. 
A) the cash received will exceed the maturity value of the note. 
B) the note will be issued at a discount. 
C) the note will be issued at a premium. 
D) the cash received will be equal to the maturity value of the note.

Question 2

Torrey Corporation issued $1,000,000 of ten-year, 10 percent bonds payable dated January 1, 2016. The market rate of interest at that time was 11 percent. The journal entry to record this transaction will include a:

Accepted Answer

A) debit to Discount on Bonds Payable. 
B) credit to Premium on Bonds Payable. 
C) credit to Discount on Bonds Payable. 
D) credit to Cash. 
A) debit to Discount on Bonds Payable. 
B) credit to Premium on Bonds Payable. 
C) credit to Discount on Bonds Payable. 
D) credit to Cash.

Question 3

Bonds payable that are redeemed by the issuer

Accepted Answer

A) typically pay far less interest than the market rate of interest. 
B) are considered unsecured. 
C) have no market value. 
D) are repurchased or retired. 
A) typically pay far less interest than the market rate of interest. 
B) are considered unsecured. 
C) have no market value. 
D) are repurchased or retired.

Question 4

-On January 1, 2016, Justin Corp. leased equipment under a five-year lease with payments of $20,000 on each December 31 of the lease period. The present value of the lease payments is $77,800, using a market interest rate of 9%. Justin depreciates its equipment straight-line over 5 years with zero salvage value. The capital lease criteria are met. Calculate depreciation expense for 2016.

Accepted Answer

$77,800/5

Question 5

On January 1, a 5-year, $4,000 non-interest-bearing note payable was issued for $2,600 when the market rate of interest was 9%. What is the total interest expense that will be recognized over the life of the note? Round your final answer to the nearest dollar.

Accepted Answer

Cash paid ($4,000) -

Question 6

Branson Incorporated is considering leasing equipment. It can either lease the equipment for five or ten years. The five-year lease allows Branson to classify the lease as an operating lease. However, the ten-year lease requires Branson to classify the lease as a capital lease. Branson is operating under a debt covenant that sets a maximum on its debt/equity ratio. If Branson is close to violating this debt covenant, which lease contract would you advise Branson to sign? Why?

Accepted Answer

If Branson is only concerned with the vi

Question 7

If a company issues a non-interest-bearing note payable, then

Accepted Answer

A) no interest expense will be recognized over the life of the note. 
B) no principal payments will be made over the life of the note. 
C) no interest payments will be made over the life of the note. 
D) the covenants should be rewritten to conform to GAAP. 
A) no interest expense will be recognized over the life of the note. 
B) no principal payments will be made over the life of the note. 
C) no interest payments will be made over the life of the note. 
D) the covenants should be rewritten to conform to GAAP.

Question 8

Duncan Industries sold $100,000 of 12 percent bonds on January 1, 2017, when the market interest rate was 10 percent and received $107,732 for them. The bonds mature on January 1, 2022 and pay interest on June 30 and December 31. Duncan uses the effective interest method of amortization. The June 30, 2017 entry will include:

Accepted Answer

A) A $5,000 debit to Interest Expense. 
B) A $5,386.60 debit to Interest Expense 
C) A $5,000 credit to Cash 
D) A $5,386.60 debit to Premium on Bonds Payable 
A) A $5,000 debit to Interest Expense. 
B) A $5,386.60 debit to Interest Expense 
C) A $5,000 credit to Cash 
D) A $5,386.60 debit to Premium on Bonds Payable

Question 9

Darren Company issued $8,000 of 8% bonds on January 1, 2017, at a discount of $940. The market rate of interest on the issue date was 10%. The carrying value of the bonds on December 31, 2017 is

Accepted Answer

A) $6,994. 
B) $7,060. 
C) $8,940. 
D) $7,126. 
A) $6,994. 
B) $7,060. 
C) $8,940. 
D) $7,126.

Question 10

On January 1, 2016, Pacific Corporation issued a 3-year, 8%, $5,000 bond payable. Beginning in 2017, interest is payable every January 1 over the life of the bond. The market rate of interest on January 1, 2016 is 10%. The bond was issued at $4,750. Calculate the total interest expense over the 3-year life of the bond independent of the particular accounting method used to recognize interest expense each year.

Accepted Answer

[$5,000 -

Question 11

Bowlin Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2017, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Bowlin's fiscal year ends on December 31and the company uses the effective interest method of amortization. The book value of the bonds on December 31, 2017 is:

Accepted Answer

A) $1,000,000.00 
B) $ 944,011.00 
C) $ 941,452.90 
D) $ 939,679.50 
A) $1,000,000.00 
B) $ 944,011.00 
C) $ 941,452.90 
D) $ 939,679.50

Question 12

Operating leases are treated as

Accepted Answer

A) increases in liabilities for both the lessor and the lessee. 
B) a sale if the leased asset has been transferred from the lessor to the lessee. 
C) capital leases by the lessee. 
D) rental expense by the lessee. 
A) increases in liabilities for both the lessor and the lessee. 
B) a sale if the leased asset has been transferred from the lessor to the lessee. 
C) capital leases by the lessee. 
D) rental expense by the lessee.

Question 13

If an interest-bearing note payable is issued at a premium, then the contractual cash payment for interest is

Accepted Answer

A) greater than interest expense. 
B) less than interest expense. 
C) equal to interest expense. 
D) based on the market rate of interest. 
A) greater than interest expense. 
B) less than interest expense. 
C) equal to interest expense. 
D) based on the market rate of interest.

Question 14

Interest expense recognized over the life of an obligation is the difference between cash received at the time of issuance and cash paid over the life of the obligation for

Accepted Answer

A) dividends declared. 
B) convertible bonds. 
C) non-interest-bearing obligations. 
D) receivables due from customers. 
A) dividends declared. 
B) convertible bonds. 
C) non-interest-bearing obligations. 
D) receivables due from customers.

Question 15

If interest expense is equal to the contractual interest payment, then

Accepted Answer

A) the note was issued at a premium. 
B) the note was issued at a discount. 
C) the note was issued at par. 
D) It cannot be determined from the information given. 
A) the note was issued at a premium. 
B) the note was issued at a discount. 
C) the note was issued at par. 
D) It cannot be determined from the information given.

Question 16

Calculate the effective interest rate on these bonds. Why is this amount different than the coupon rate?

Accepted Answer

$3,602 = (X) $36,021, so the e

Question 17

On January 1, a 3-year, $1,090 non-interest-bearing note payable was issued for $942 when the market rate of interest was 5%. How much interest expense will Hamlen recognize in each of the first two years using the effective interest method? Round to the nearest dollar.

Accepted Answer

First year interest expense: $

Question 18

On January 1, a 3-year, $10,000 non-interest-bearing note payable was issued for $7,938 when the market rate of interest was 8%. Interest expense is recognized using the effective interest method. Calculate the book value of the note a year after its issuance. Round your final answer to the nearest dollar.

Accepted Answer

$7,938 + (

Question 19

Match between columns
                        Premises: Issued a bond payable at a discount
Issued a non-interest-bearing note at a discount
Issued an interest-bearing note at a premium
Amortized discount to interest expense
Paid interest on bonds payable that was issued at par
Market value of bonds payable increased after issue date
Retired a bond issue by paying cash

Accepted Answer

The Answer of Increase in debt/equity ratio and Decrease in is...

Question 20

Companies generate assets in three different ways. They are

Accepted Answer

A) equity contributed by owners, borrowings, and receivables from affiliates. 
B) equity issuances, borrowings, and interest rates. 
C) borrowings, profitable operations, and equity issuances. 
D) equity issuances, debt issuances, and financial instruments. 
A) equity contributed by owners, borrowings, and receivables from affiliates. 
B) equity issuances, borrowings, and interest rates. 
C) borrowings, profitable operations, and equity issuances. 
D) equity issuances, debt issuances, and financial instruments.

If a company issues a note payable when the market rate of interest is greater than the stated rate, then

Torrey Corporation issued $1,000,000 of ten-year, 10 percent bonds payable dated January 1, 2016. The market rate of interest at that time was 11 percent. The journal entry to record this transaction will include a:

Bonds payable that are redeemed by the issuer

On January 1, a 5-year, $4,000 non-interest-bearing note payable was issued for $2,600 when the market rate of interest was 9%. What is the total interest expense that will be recognized over the life of the note? Round your final answer to the nearest dollar.

If a company issues a non-interest-bearing note payable, then

Darren Company issued $8,000 of 8% bonds on January 1, 2017, at a discount of $940. The market rate of interest on the issue date was 10%. The carrying value of the bonds on December 31, 2017 is

Operating leases are treated as

If an interest-bearing note payable is issued at a premium, then the contractual cash payment for interest is

Interest expense recognized over the life of an obligation is the difference between cash received at the time of issuance and cash paid over the life of the obligation for

If interest expense is equal to the contractual interest payment, then

Calculate the effective interest rate on these bonds. Why is this amount different than the coupon rate?

On January 1, a 3-year, $1,090 non-interest-bearing note payable was issued for $942 when the market rate of interest was 5%. How much interest expense will Hamlen recognize in each of the first two years using the effective interest method? Round to the nearest dollar.

Companies generate assets in three different ways. They are

Financial Accounting and Its Economic Context

A Closer Look at the Financial Statements

The Measurement Fundamentals of Financial Accounting

The Mechanics of Financial Accounting

Using Financial Statement Information

The Current Asset Classification, Cash, and Accounts Receivable

Merchandise Inventory

Investments in Equity Securities

Long-Lived Assets

Introduction to Liabilities: Economic Consequences, Current Liabilities, and Contingencies

Stockholders Equity

The Complete Income Statement

The Statement of Cash Flows

The Time Value of Money

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Exam 11: Long-Term Liabilities: Notes, Bonds, and Leases

If a company issues a note payable when the market rate of interest is greater than the stated rate, then

Torrey Corporation issued $1,000,000 of ten-year, 10 percent bonds payable dated January 1, 2016. The market rate of interest at that time was 11 percent. The journal entry to record this transaction will include a:

Bonds payable that are redeemed by the issuer

On January 1, a 5-year, $4,000 non-interest-bearing note payable was issued for $2,600 when the market rate of interest was 9%. What is the total interest expense that will be recognized over the life of the note? Round your final answer to the nearest dollar.

If a company issues a non-interest-bearing note payable, then

Darren Company issued $8,000 of 8% bonds on January 1, 2017, at a discount of $940. The market rate of interest on the issue date was 10%. The carrying value of the bonds on December 31, 2017 is

Operating leases are treated as

If an interest-bearing note payable is issued at a premium, then the contractual cash payment for interest is

Interest expense recognized over the life of an obligation is the difference between cash received at the time of issuance and cash paid over the life of the obligation for

If interest expense is equal to the contractual interest payment, then

Calculate the effective interest rate on these bonds. Why is this amount different than the coupon rate?

On January 1, a 3-year, $1,090 non-interest-bearing note payable was issued for $942 when the market rate of interest was 5%. How much interest expense will Hamlen recognize in each of the first two years using the effective interest method? Round to the nearest dollar.

Companies generate assets in three different ways. They are

Financial Accounting and Its Economic Context

A Closer Look at the Financial Statements

The Measurement Fundamentals of Financial Accounting

The Mechanics of Financial Accounting

Using Financial Statement Information

The Current Asset Classification, Cash, and Accounts Receivable

Merchandise Inventory

Investments in Equity Securities

Long-Lived Assets

Introduction to Liabilities: Economic Consequences, Current Liabilities, and Contingencies

Stockholders Equity

The Complete Income Statement

The Statement of Cash Flows

The Time Value of Money

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