Question 1

The effective-interest method produces a constant dollar amount of interest expense to be reported each interest period.

Accepted Answer

A) True 
 B)False

Question 2

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

Accepted Answer

A) True 
 B)False

Question 3

When authorizing bonds to be issued, the board of directors does not specify the

Accepted Answer

A)  total number of bonds authorized to be sold. 
B)  contractual interest rate. 
C)  selling price. 
D)  total face value of the bonds. 
A)  total number of bonds authorized to be sold. 
B)  contractual interest rate. 
C)  selling price. 
D)  total face value of the bonds.

Question 4

With an interest-bearing note, a borrower must pay the ________________ of the note plus _________________ at maturity.

Accepted Answer

The answer of With an interest-bearing note, a borrower must...

Question 5

Fornelli Corporation borrowed $480,000 from Central Bank on May 31, 2013. The three-year, 7% note required annual payments of $182,904 beginning May 31, 2014. The total amount of interest to be paid over the life of the loan is

Accepted Answer

A)  $33,600. 
B)  $68,712. 
C)  $134,082. 
D)  $100,800. 
A)  $33,600. 
B)  $68,712. 
C)  $134,082. 
D)  $100,800.

Question 6

A company whose current liabilities exceed its current assets may have a liquidity problem.

Accepted Answer

A) True 
 B)False

Question 7

On January 1, 2014, $2,000,000, 5-year, 10% bonds, were issued for $2,120,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize premium on bonds payable, the monthly amortization amount is

Accepted Answer

A)  $17,666. 
B)  $24,000. 
C)  $2,400. 
D)  $2,000. 
A)  $17,666. 
B)  $24,000. 
C)  $2,400. 
D)  $2,000.

Question 8

On January 1, Sewell Corporation issues $2,000,000, 5-year, 12% bonds at 96 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period?

Accepted Answer

A)  $1,968,000 
B)  $1,952,000 
C)  $1,888,000 
D)  $1,856,000 
A)  $1,968,000 
B)  $1,952,000 
C)  $1,888,000 
D)  $1,856,000

Question 9

Garrison Company issued $2,000,000, 7%, 20-year bonds on January 1, 2014, at 105. Interest is payable annually on January 1. Garrison uses straight-line amortization for bond premium or discount.
Instructions
Prepare the journal entries to record the following events.
(a) The issuance of the bonds.
(b) The accrual of interest and the premium amortization on December 31, 2014.
(c) The payment of interest on January 1, 2015.
(d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Accepted Answer

The answer of Garrison Company issued $2,000,000, 7%, 20-year bonds...

Question 10

Very often, failure to record a liability means failure to record a(n)

Accepted Answer

A)  revenue. 
B)  asset conversion. 
C)  footnote. 
D)  expense. 
A)  revenue. 
B)  asset conversion. 
C)  footnote. 
D)  expense.

Question 11

The terms of a bond issue are set forth in a formal legal document called a bond ________________.

Accepted Answer

The answer of The terms of a bond issue are...

Question 12

The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that

Accepted Answer

A)  is less than the amount of cash to be paid for interest for the period. 
B)  exceeds the amount of cash to be paid for interest for the period. 
C)  equals the amount of cash to be paid for interest for the period. 
D)  has no predictable relationship with the amount of cash to be paid for interest for the period. 
A)  is less than the amount of cash to be paid for interest for the period. 
B)  exceeds the amount of cash to be paid for interest for the period. 
C)  equals the amount of cash to be paid for interest for the period. 
D)  has no predictable relationship with the amount of cash to be paid for interest for the period.

Question 13

Warner Company issued $4,000,000 of 6%, 10-year bonds on one of its interest dates for $3,454,800 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. The journal entry to be recorded at the end of the second year for the payment of interest and the amortization of discount will include a

Accepted Answer

A)  debit to Bond Interest Expense for $240,000. 
B)  credit to Cash for $279,295. 
C)  credit to Discount on Bonds Payable for $36,384. 
D)  credit to Discount on Bonds Payable for $39,295. 
A)  debit to Bond Interest Expense for $240,000. 
B)  credit to Cash for $279,295. 
C)  credit to Discount on Bonds Payable for $36,384. 
D)  credit to Discount on Bonds Payable for $39,295.

Question 14

Wolford Company borrowed $1,000,000 from U.S. Bank on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $260,436 and carried an annual interest rate of 9.5%. What is the amount of expense Wolford must recognize on its 2014 income statement?

Accepted Answer

A)  $95,000 
B)  $79,284 
C)  $70,259 
D)  $62,073 
A)  $95,000 
B)  $79,284 
C)  $70,259 
D)  $62,073

Question 15

Winrow Company received proceeds of $565,500 on 10-year, 8% bonds issued on January 1, 2013. The bonds had a face value of $600,000, pay interest annually on December 31st, and have a call price of 101. Winrow uses the straight-line method of amortization. What is the amount of interest Winrow must pay the bondholders in 2013?

Accepted Answer

A)  $45,240 
B)  $48,000 
C)  $51,450 
D)  $44,550 
A)  $45,240 
B)  $48,000 
C)  $51,450 
D)  $44,550

Question 16

Bonds that are issued against the general credit of the borrower are called

Accepted Answer

A)  callable bonds. 
B)  debenture bonds. 
C)  secured bonds. 
D)  term bonds. 
A)  callable bonds. 
B)  debenture bonds. 
C)  secured bonds. 
D)  term bonds.

Question 17

Norlan Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $29,400. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?

Accepted Answer

A)  $1,400 
B)  $1,470 
C)  $70 
D)  It cannot be determined. 
A)  $1,400 
B)  $1,470 
C)  $70 
D)  It cannot be determined.

Question 18

Most companies pay current liabilities

Accepted Answer

A)  out of current assets. 
B)  by issuing interest-bearing notes payable. 
C)  by issuing stock. 
D)  by creating long-term liabilities. 
A)  out of current assets. 
B)  by issuing interest-bearing notes payable. 
C)  by issuing stock. 
D)  by creating long-term liabilities.

Question 19

Selling the bonds at a premium has the effect of

Accepted Answer

A)  causing the total cost of borrowing to be higher than the bond interest paid. 
B)  causing the total cost of borrowing to be lower than the bond interest paid. 
C)  raising the effective interest rate above the state interest rate. 
D)  increasing the amount of cash paid for interest each 6 months. 
A)  causing the total cost of borrowing to be higher than the bond interest paid. 
B)  causing the total cost of borrowing to be lower than the bond interest paid. 
C)  raising the effective interest rate above the state interest rate. 
D)  increasing the amount of cash paid for interest each 6 months.

Question 20

Gomez Corporation issues 600, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 96. The journal entry to record the issuance will show a

Accepted Answer

A)  debit to Cash of $600,000. 
B)  credit to Discount on Bonds Payable for $24,000. 
C)  credit to Bonds Payable for $576,000. 
D)  debit to Cash for $576,000. 
A)  debit to Cash of $600,000. 
B)  credit to Discount on Bonds Payable for $24,000. 
C)  credit to Bonds Payable for $576,000. 
D)  debit to Cash for $576,000.

The effective-interest method produces a constant dollar amount of interest expense to be reported each interest period.

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

When authorizing bonds to be issued, the board of directors does not specify the

With an interest-bearing note, a borrower must pay the of the note plus _ at maturity.

Fornelli Corporation borrowed $480,000 from Central Bank on May 31, 2013. The three-year, 7% note required annual payments of $182,904 beginning May 31, 2014. The total amount of interest to be paid over the life of the loan is

A company whose current liabilities exceed its current assets may have a liquidity problem.

On January 1, 2014, $2,000,000, 5-year, 10% bonds, were issued for $2,120,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize premium on bonds payable, the monthly amortization amount is

On January 1, Sewell Corporation issues $2,000,000, 5-year, 12% bonds at 96 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period?

Very often, failure to record a liability means failure to record a(n)

The terms of a bond issue are set forth in a formal legal document called a bond ________________.

The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that

Wolford Company borrowed $1,000,000 from U.S. Bank on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $260,436 and carried an annual interest rate of 9.5%. What is the amount of expense Wolford must recognize on its 2014 income statement?

Bonds that are issued against the general credit of the borrower are called

Norlan Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $29,400. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?

Most companies pay current liabilities

Selling the bonds at a premium has the effect of

Gomez Corporation issues 600, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 96. The journal entry to record the issuance will show a

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Understanding Investments and Acquisitions in Accounting

Filters

Exam 10: Reporting and Analyzing Liabilities

The effective-interest method produces a constant dollar amount of interest expense to be reported each interest period.

If the straight-line method of amortization is used, the amount of unamortized premium on bonds payable will decrease as the bonds approach maturity.

When authorizing bonds to be issued, the board of directors does not specify the

With an interest-bearing note, a borrower must pay the ________________ of the note plus _________________ at maturity.

Fornelli Corporation borrowed $480,000 from Central Bank on May 31, 2013. The three-year, 7% note required annual payments of $182,904 beginning May 31, 2014. The total amount of interest to be paid over the life of the loan is

A company whose current liabilities exceed its current assets may have a liquidity problem.

On January 1, 2014, $2,000,000, 5-year, 10% bonds, were issued for $2,120,000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize premium on bonds payable, the monthly amortization amount is

On January 1, Sewell Corporation issues $2,000,000, 5-year, 12% bonds at 96 with interest payable on January 1. What is the carrying value of the bonds at the end of the third interest period?

Very often, failure to record a liability means failure to record a(n)

The terms of a bond issue are set forth in a formal legal document called a bond ________________.

The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that

Wolford Company borrowed $1,000,000 from U.S. Bank on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $260,436 and carried an annual interest rate of 9.5%. What is the amount of expense Wolford must recognize on its 2014 income statement?

Bonds that are issued against the general credit of the borrower are called

Norlan Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $29,400. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?

Most companies pay current liabilities

Selling the bonds at a premium has the effect of

Gomez Corporation issues 600, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 96. The journal entry to record the issuance will show a

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Understanding Investments and Acquisitions in Accounting

Filters

With an interest-bearing note, a borrower must pay the of the note plus _ at maturity.