Question 1

If the market rate of interest is 6%, a $10,000, 10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Accepted Answer

A)  less than face value. 
B)  equal to the face value. 
C)  greater than face value. 
D)  equal to the face value minus a discount. 
A)  less than face value. 
B)  equal to the face value. 
C)  greater than face value. 
D)  equal to the face value minus a discount.

Question 2

Your company issued bonds at a premium. Which of the following statements is NOT true?

Accepted Answer

A)  The contra account, premium on bonds payable, is amortized each year by shifting part of its balance to interest expense. 
B)  On the date of issuance, the stated interest rate was greater than the market interest rate. 
C)  As the current date approaches the maturity date, the carrying value of the bond approaches the face value of the bond. 
D)  The account used to record the premium has a normal debit balance. 
A)  The contra account, premium on bonds payable, is amortized each year by shifting part of its balance to interest expense. 
B)  On the date of issuance, the stated interest rate was greater than the market interest rate. 
C)  As the current date approaches the maturity date, the carrying value of the bond approaches the face value of the bond. 
D)  The account used to record the premium has a normal debit balance.

Question 3

What adjusting entry should Backyard make on June 30 before preparing its annual financial statements?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 4

The quick ratio is similar to the current ratio because it is also used to evaluate the ability to pay current liabilities.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following must be paid by both the employee and the employer?

Accepted Answer

A)  FICA taxes 
B)  State unemployment tax 
C)  State withholding tax 
D)  Federal unemployment tax 
A)  FICA taxes 
B)  State unemployment tax 
C)  State withholding tax 
D)  Federal unemployment tax

Question 6

On October 1, 2010, you borrow $200,000 at 6% interest and record the promissory note. In April and again in October of the following year, you are required to pay half the annual interest to your creditor. On December 31, 2010, your journal entry for the quarter should:

Accepted Answer

A)  debit Interest Expense for $3,000 and credit Interest Payable for $3,000. 
B)  debit Cash for $3,000 and credit Accrued Interest for $3,000. 
C)  debit Interest Expense for $6,000 and credit Cash for $6,000. 
D)  debit Interest Expense for $6,000 and credit Notes Payable for $6,000. 
A)  debit Interest Expense for $3,000 and credit Interest Payable for $3,000. 
B)  debit Cash for $3,000 and credit Accrued Interest for $3,000. 
C)  debit Interest Expense for $6,000 and credit Cash for $6,000. 
D)  debit Interest Expense for $6,000 and credit Notes Payable for $6,000.

Question 7

A contingent liability is recorded by making an appropriate journal entry if the likelihood of a loss is remote.

Accepted Answer

A) True 
 B)False

Question 8

A company sells a bond with a face value of $10,000 and receives a premium of $800. Using Bonds Payable, net (shortcut method), the company would make the following journal entry:

Accepted Answer

A)  Debit Cash for $10,800 and credit Bonds Payable, net for $10,800. 
B)  Debit Cash for $10,800, credit Bonds Payable, net for $10,000, and credit Premium on Bond Payable for $800. 
C)  Debit Cash for $10,000, debit Interest Expense for $800, credit Bonds Payable, net for $10,000, and credit Premium on Bonds Payable for $800. 
D)  Debit Cash for $10,000, debit Interest Expense for $800, credit Bonds Payable for $10,000 and credit 
A)  Debit Cash for $10,800 and credit Bonds Payable, net for $10,800. 
B)  Debit Cash for $10,800, credit Bonds Payable, net for $10,000, and credit Premium on Bond Payable for $800. 
C)  Debit Cash for $10,000, debit Interest Expense for $800, credit Bonds Payable, net for $10,000, and credit Premium on Bonds Payable for $800. 
D)  Debit Cash for $10,000, debit Interest Expense for $800, credit Bonds Payable for $10,000 and credit

Question 9

How many of the following statements regarding amortization of discounts or premiums are true? Under straight-line amortization, when a bond is sold at a premium, the annual premium amortization is the total premium divided by the number of years until bond maturity.
When a bond is sold at a discount, interest expense recorded using the effective-interest method is less than the
Interest paid on the bond.
The effective-interest method of amortization is considered to be conceptually superior to straight -line
Amortization.
When a bond premium is amortized using the effective-interest method, the promised interest payment is less
Than the interest expense, so the bond liability will increase as a result of the contra-liability account decreasing.

Accepted Answer

A)  One 
B)  Two 
C)  Three 
D)  Four 
A)  One 
B)  Two 
C)  Three 
D)  Four

Question 10

Accrued liabilities could include all of the following except:

Accepted Answer

A)  salaries payable. 
B)  current portion of long-term debt. 
C)  income tax payable. 
D)  interest payable. 
A)  salaries payable. 
B)  current portion of long-term debt. 
C)  income tax payable. 
D)  interest payable.

Question 11

Which of the following accounts could have a non-zero balance on a post-closing trial balance?

Accepted Answer

A)  Dividends declared 
B)  Premium on bonds payable 
C)  Income tax expense 
D)  Interest expense 
A)  Dividends declared 
B)  Premium on bonds payable 
C)  Income tax expense 
D)  Interest expense

Question 12

No disclosure is required for contingent liabilities that are

Accepted Answer

A)  probable. 
B)  remote. 
C)  possible. 
D)  likely. 
A)  probable. 
B)  remote. 
C)  possible. 
D)  likely.

Question 13

The three key pieces of information that are stated on a bond certificate are:

Accepted Answer

A)  the interest payment, the face value of the bond, and the credit rating of the company. 
B)  the market interest rate, the price of the bond, and the maturity date. 
C)  the stated interest rate, the face value of the bond, and the maturity date. 
D)  the interest payment, the issue price of the bond, and the credit rating of the company. 
A)  the interest payment, the face value of the bond, and the credit rating of the company. 
B)  the market interest rate, the price of the bond, and the maturity date. 
C)  the stated interest rate, the face value of the bond, and the maturity date. 
D)  the interest payment, the issue price of the bond, and the credit rating of the company.

Question 14

When bonds are retired, the balance in the bonds payable account is equal to the issuance price of the bonds.

Accepted Answer

A) True 
 B)False

Question 15

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15, 2022. If interest rates rise in the economy so that similar financial investments pay 9%, IBM will:

Accepted Answer

A)  not be able to issue the bonds because no one will buy them. 
B)  receive a higher issue price to compensate buyers for the lower stated interest rate. 
C)  have to accept a lower issue price to attract buyers. 
D)  have to reprint the bond certificates to change the stated interest rate to 9%. 
A)  not be able to issue the bonds because no one will buy them. 
B)  receive a higher issue price to compensate buyers for the lower stated interest rate. 
C)  have to accept a lower issue price to attract buyers. 
D)  have to reprint the bond certificates to change the stated interest rate to 9%.

Question 16

The net amount of a bond payable on the balance sheet is the call price of the bond plus any related discount or minus any related premium.

Accepted Answer

A) True 
 B)False

Question 17

A company's current liabilities are the total amount it currently owes at a single point in time.

Accepted Answer

A) True 
 B)False

Question 18

When a company encounters a contingent liability that is remote in likelihood, the company should:

Accepted Answer

A)  include a description in the footnotes to the financial statements. 
B)  record the amount of the liability times the probability of its occurrence. 
C)  record the amount of the liability as a long-term liability on the balance sheet. 
D)  omit the information about the contingent liability from its financial statements and footnotes. 
A)  include a description in the footnotes to the financial statements. 
B)  record the amount of the liability times the probability of its occurrence. 
C)  record the amount of the liability as a long-term liability on the balance sheet. 
D)  omit the information about the contingent liability from its financial statements and footnotes.

Question 19

Bonds allow a company to borrow a lot of money from a lot of different people.

Accepted Answer

A) True 
 B)False

Question 20

A company issues a 5-year bond with a $7,500 discount. Using straight-line amortization, the company should:

Accepted Answer

A)  debit discount on bonds payable for $1,500 per year. 
B)  credit discount on bonds payable for $1,500 per year. 
C)  debit interest payable for $1,500 per year. 
D)  credit interest payable for $1,500 per year. 
A)  debit discount on bonds payable for $1,500 per year. 
B)  credit discount on bonds payable for $1,500 per year. 
C)  debit interest payable for $1,500 per year. 
D)  credit interest payable for $1,500 per year.

If the market rate of interest is 6%, a $10,000, 10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Your company issued bonds at a premium. Which of the following statements is NOT true?

What adjusting entry should Backyard make on June 30 before preparing its annual financial statements?

The quick ratio is similar to the current ratio because it is also used to evaluate the ability to pay current liabilities.

Which of the following must be paid by both the employee and the employer?

On October 1, 2010, you borrow $200,000 at 6% interest and record the promissory note. In April and again in October of the following year, you are required to pay half the annual interest to your creditor. On December 31, 2010, your journal entry for the quarter should:

A contingent liability is recorded by making an appropriate journal entry if the likelihood of a loss is remote.

A company sells a bond with a face value of $10,000 and receives a premium of $800. Using Bonds Payable, net (shortcut method), the company would make the following journal entry:

Accrued liabilities could include all of the following except:

Which of the following accounts could have a non-zero balance on a post-closing trial balance?

No disclosure is required for contingent liabilities that are

The three key pieces of information that are stated on a bond certificate are:

When bonds are retired, the balance in the bonds payable account is equal to the issuance price of the bonds.

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15, 2022. If interest rates rise in the economy so that similar financial investments pay 9%, IBM will:

The net amount of a bond payable on the balance sheet is the call price of the bond plus any related discount or minus any related premium.

A company's current liabilities are the total amount it currently owes at a single point in time.

When a company encounters a contingent liability that is remote in likelihood, the company should:

Bonds allow a company to borrow a lot of money from a lot of different people.

A company issues a 5-year bond with a $7,500 discount. Using straight-line amortization, the company should:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments, Financial Statements, and Financial Results

Financial Reporting and Analysis

Internal Control and Financial Reporting for Cash and Merchandise Sales

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Receivables, Bad Debt Expense, and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

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Exam 10: Reporting and Interpreting Liabilities

If the market rate of interest is 6%, a $10,000, 10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Your company issued bonds at a premium. Which of the following statements is NOT true?

What adjusting entry should Backyard make on June 30 before preparing its annual financial statements?

The quick ratio is similar to the current ratio because it is also used to evaluate the ability to pay current liabilities.

Which of the following must be paid by both the employee and the employer?

On October 1, 2010, you borrow $200,000 at 6% interest and record the promissory note. In April and again in October of the following year, you are required to pay half the annual interest to your creditor. On December 31, 2010, your journal entry for the quarter should:

A contingent liability is recorded by making an appropriate journal entry if the likelihood of a loss is remote.

A company sells a bond with a face value of $10,000 and receives a premium of $800. Using Bonds Payable, net (shortcut method), the company would make the following journal entry:

Accrued liabilities could include all of the following except:

Which of the following accounts could have a non-zero balance on a post-closing trial balance?

No disclosure is required for contingent liabilities that are

The three key pieces of information that are stated on a bond certificate are:

When bonds are retired, the balance in the bonds payable account is equal to the issuance price of the bonds.

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15, 2022. If interest rates rise in the economy so that similar financial investments pay 9%, IBM will:

The net amount of a bond payable on the balance sheet is the call price of the bond plus any related discount or minus any related premium.

A company's current liabilities are the total amount it currently owes at a single point in time.

When a company encounters a contingent liability that is remote in likelihood, the company should:

Bonds allow a company to borrow a lot of money from a lot of different people.

A company issues a 5-year bond with a $7,500 discount. Using straight-line amortization, the company should:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments, Financial Statements, and Financial Results

Financial Reporting and Analysis

Internal Control and Financial Reporting for Cash and Merchandise Sales

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Receivables, Bad Debt Expense, and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

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