Question 1

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

Accepted Answer

A)  bond interest is deductible for tax purposes. 
B)  interest must be paid on a periodic basis regardless of earnings. 
C)  income to stockholders may increase as a result of trading on the equity. 
D)  the bondholders do not have voting rights. 
A)  bond interest is deductible for tax purposes. 
B)  interest must be paid on a periodic basis regardless of earnings. 
C)  income to stockholders may increase as a result of trading on the equity. 
D)  the bondholders do not have voting rights.

Question 2

Yanik Corporation issues 4,000, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 97. The journal entry to record the issuance will show a

Accepted Answer

A)  debit to Cash of $4,000,000. 
B)  debit to Discount on Bonds Payable for $120,000. 
C)  credit to Bonds Payable for $3,880,000. 
D)  credit to Cash for $3,880,000. 
A)  debit to Cash of $4,000,000. 
B)  debit to Discount on Bonds Payable for $120,000. 
C)  credit to Bonds Payable for $3,880,000. 
D)  credit to Cash for $3,880,000.

Question 3

The market rate of interest is often called the

Accepted Answer

A)  stated rate. 
B)  effective rate. 
C)  coupon rate. 
D)  contractual rate. 
A)  stated rate. 
B)  effective rate. 
C)  coupon rate. 
D)  contractual rate.

Question 4

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. The entry made by Drake Builders Company on January 1 to record the proceeds and issuance of the note is

Accepted Answer

A)  Interest Expense 6,000 Cash. 194,000
Notes Payable 200,000 
B)  Cash 200,000 Notes Payable 200,000 
C)  Cash 200,000 Interest Expense 6,000
Notes Payable 206,000 
D)  Cash 200,000 Interest Expense 6,000
Notes Payable 200,000
Interest Payable 6,000 
A)  Interest Expense 6,000 Cash. 194,000
Notes Payable 200,000 
B)  Cash 200,000 Notes Payable 200,000 
C)  Cash 200,000 Interest Expense 6,000
Notes Payable 206,000 
D)  Cash 200,000 Interest Expense 6,000
Notes Payable 200,000
Interest Payable 6,000

Question 5

Which of the following is not an advantage of issuing bonds instead of common stock?

Accepted Answer

A)  Stockholder control is not affected 
B)  Earnings per share on common stock may be lower 
C)  Tax savings result 
D)  Each of these answer choices is an advantage. 
A)  Stockholder control is not affected 
B)  Earnings per share on common stock may be lower 
C)  Tax savings result 
D)  Each of these answer choices is an advantage.

Question 6

Susan Jones works for Trend Press, a fairly large book publishing firm. Her best friend and rival, Diane Nilson, works for Lifeline Books, a smaller publisher. Both companies issue $100,000 in bonds on July 1. Trend's bonds were issued at a discount, while Lifeline's were issued at a premium. Diane sent Susan a fax the next day. She told Susan that it was obvious who the better publisher was and the market had shown its preference! She reminded Susan again of her recent increase in salary as further proof of the superiority of Lifeline Books.
Required:
Draft a short note for Susan to send to Diane. Explain how such a result could occur.

Accepted Answer

Many answers are possible. The format sh

Question 7

Bonds are a form of interest-bearing notes payable.

Accepted Answer

A) True 
 B)False

Question 8

Morgan Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $25,440. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes?

Accepted Answer

A)  $1,527 
B)  $1,440 
C)  $1,435 
D)  It cannot be determined. 
A)  $1,527 
B)  $1,440 
C)  $1,435 
D)  It cannot be determined.

Question 9

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Accepted Answer

A)  a bond certificate. 
B)  a bond debenture. 
C)  trading on the equity. 
D)  a convertible bond. 
A)  a bond certificate. 
B)  a bond debenture. 
C)  trading on the equity. 
D)  a convertible bond.

Question 10

The following totals for the month of April were taken from the payroll records of Noll Company. Salaries $60,000
FICA taxes withheld 4,590
Income taxes withheld 12,500
Medical insurance deductions 2,250
Federal unemployment taxes 160
State unemployment taxes 1,080
The entry to record accrual of employer's payroll taxes would include a

Accepted Answer

A)  debit to Payroll Tax Expense for $1,240. 
B)  debit to Payroll Tax Expense for $5,830. 
C)  credit to FICA Taxes Payable for $9,180. 
D)  credit to Payroll Tax Expense for $1,240. 
A)  debit to Payroll Tax Expense for $1,240. 
B)  debit to Payroll Tax Expense for $5,830. 
C)  credit to FICA Taxes Payable for $9,180. 
D)  credit to Payroll Tax Expense for $1,240.

Question 11

A $150,000 bond with a quoted priced of 102 ¼ is sold for $153,375.

Accepted Answer

A) True 
 B)False

Question 12

A note payable must always be paid before an account payable.

Accepted Answer

A) True 
 B)False

Question 13

A current liability is a debt that can be expected to be paid within ____________ year(s) or the ______________, whichever is longer.

Accepted Answer

one ,opera

Question 14

If a corporation issued $8,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

Accepted Answer

A)  $4,000,000 
B)  $120,000 
C)  $400,000 
D)  $280,000 
A)  $4,000,000 
B)  $120,000 
C)  $400,000 
D)  $280,000

Question 15

Restoration Company issued bonds that had the following data associated with them: Interest to be paid is $40,000.
Interest expense to be recorded is $45,000.
Which of the following characteristics is true?

Accepted Answer

A)  The bonds are sold at a premium. 
B)  After recording the interest expense, the amortization will decrease the bond carrying value. 
C)  The difference between the interest expense and the interest to be paid is the bond's par value. 
D)  After recording the interest expense, the amortization will increase the bond carrying value. 
A)  The bonds are sold at a premium. 
B)  After recording the interest expense, the amortization will decrease the bond carrying value. 
C)  The difference between the interest expense and the interest to be paid is the bond's par value. 
D)  After recording the interest expense, the amortization will increase the bond carrying value.

Question 16

Thayer Company purchased a building on January 2 by signing a long-term $2,520,000 mortgage with monthly payments of $23,100. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

Accepted Answer

A)  debit to the Cash account for $23,100. 
B)  credit to the Cash account for $21,000. 
C)  debit to the Interest Expense account for $21,000. 
D)  credit to the Mortgage Payable account for $23,100. 
A)  debit to the Cash account for $23,100. 
B)  credit to the Cash account for $21,000. 
C)  debit to the Interest Expense account for $21,000. 
D)  credit to the Mortgage Payable account for $23,100.

Question 17

A measure of a company's solvency is the

Accepted Answer

A)  acid-test ratio. 
B)  current ratio. 
C)  times interest earned. 
D)  asset turnover ratio. 
A)  acid-test ratio. 
B)  current ratio. 
C)  times interest earned. 
D)  asset turnover ratio.

Question 18

Bonds with a face value of $300,000 and a quoted price of 97¼ have a selling price of

Accepted Answer

A)  $291,750. 
B)  $291,075. 
C)  $291,006. 
D)  $292,500. 
A)  $291,750. 
B)  $291,075. 
C)  $291,006. 
D)  $292,500.

Question 19

The relationship between current assets and current liabilities is

Accepted Answer

A)  useful in determining income. 
B)  useful in evaluating a company's liquidity. 
C)  called the matching principle. 
D)  useful in determining the amount of a company's long-term debt. 
A)  useful in determining income. 
B)  useful in evaluating a company's liquidity. 
C)  called the matching principle. 
D)  useful in determining the amount of a company's long-term debt.

Question 20

When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of

Accepted Answer

A)  interest paid over the life of the bond. 
B)  interest paid over the life of the bond plus the amount of premium at sale point. 
C)  interest paid over the life of the bond minus the amount of premium at sale point. 
D)  premium at sale point. 
A)  interest paid over the life of the bond. 
B)  interest paid over the life of the bond plus the amount of premium at sale point. 
C)  interest paid over the life of the bond minus the amount of premium at sale point. 
D)  premium at sale point.

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

Yanik Corporation issues 4,000, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 97. The journal entry to record the issuance will show a

The market rate of interest is often called the

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. The entry made by Drake Builders Company on January 1 to record the proceeds and issuance of the note is

Which of the following is not an advantage of issuing bonds instead of common stock?

Bonds are a form of interest-bearing notes payable.

Morgan Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $25,440. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes?

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

A $150,000 bond with a quoted priced of 102 ¼ is sold for $153,375.

A note payable must always be paid before an account payable.

A current liability is a debt that can be expected to be paid within year(s) or the __, whichever is longer.

If a corporation issued $8,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

Restoration Company issued bonds that had the following data associated with them: Interest to be paid is $40,000. Interest expense to be recorded is $45,000. Which of the following characteristics is true?

Thayer Company purchased a building on January 2 by signing a long-term $2,520,000 mortgage with monthly payments of $23,100. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

A measure of a company's solvency is the

Bonds with a face value of $300,000 and a quoted price of 97¼ have a selling price of

The relationship between current assets and current liabilities is

When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of

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

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

Yanik Corporation issues 4,000, 10-year, 8%, $1,000 bonds dated January 1, 2014, at 97. The journal entry to record the issuance will show a

The market rate of interest is often called the

West County Bank agrees to lend Drake Builders Company $200,000 on January 1. Drake Builders Company signs a $200,000, 6%, 6-month note. The entry made by Drake Builders Company on January 1 to record the proceeds and issuance of the note is

Which of the following is not an advantage of issuing bonds instead of common stock?

Bonds are a form of interest-bearing notes payable.

Morgan Company does not ring up sales taxes separately on the cash register. Total receipts for February amounted to $25,440. If the sales tax rate is 6%, what amount must be remitted to the state for February's sales taxes?

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

A $150,000 bond with a quoted priced of 102 ¼ is sold for $153,375.

A note payable must always be paid before an account payable.

A current liability is a debt that can be expected to be paid within ____________ year(s) or the ______________, whichever is longer.

If a corporation issued $8,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

Restoration Company issued bonds that had the following data associated with them: Interest to be paid is $40,000. Interest expense to be recorded is $45,000. Which of the following characteristics is true?

Thayer Company purchased a building on January 2 by signing a long-term $2,520,000 mortgage with monthly payments of $23,100. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

A measure of a company's solvency is the

Bonds with a face value of $300,000 and a quoted price of 97¼ have a selling price of

The relationship between current assets and current liabilities is

When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of

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

A current liability is a debt that can be expected to be paid within year(s) or the __, whichever is longer.