Question 1

The times interest earned is computed by dividing

Accepted Answer

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

Question 2

Wynne Company issued $900,000 of 10%, 5-year bonds at 108. Interest is paid annually, and the effective interest method is used for amortization. Assume that the market rate for similar investments is 8%. The bonds are issued on the date of the bonds.
a. What amount was received for the bonds?
b. How much interest is paid each interest period?
c. What is the premium amortization for the first interest period?
d. How much interest expense is recorded on the first interest date?
e. What is the carrying value of the bonds after the first interest date?

Accepted Answer

The answer of Wynne Company issued $900,000 of 10%, 5-year...

Question 3

Neufeld Company issued $800,000 of 6%, 5-year bonds at 98, which pays interest annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?

Accepted Answer

A)  $784,000 
B)  $785,600 
C)  $787,200 
D)  $790,400 
A)  $784,000 
B)  $785,600 
C)  $787,200 
D)  $790,400

Question 4

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 5

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 6

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 amount owed on the mortgage after the first payment will be

Accepted Answer

A)  $2,520,000. 
B)  $2,517,900. 
C)  $2,499,000. 
D)  $2,496,900. 
A)  $2,520,000. 
B)  $2,517,900. 
C)  $2,499,000. 
D)  $2,496,900.

Question 7

Interest expense is reported under Other Expenses and Losses in the income statement.

Accepted Answer

A) True 
 B)False

Question 8

In the balance sheet, the account Premium on Bonds Payable is

Accepted Answer

A)  added to bonds payable. 
B)  deducted from bonds payable. 
C)  classified as a stockholders' equity account. 
D)  classified as a revenue account. 
A)  added to bonds payable. 
B)  deducted from bonds payable. 
C)  classified as a stockholders' equity account. 
D)  classified as a revenue account.

Question 9

From an accounting standpoint, all of the following are contingencies that must be evaluated for off-balance sheet purposes except

Accepted Answer

A)  product warranties. 
B)  general business risks. 
C)  money-back guarantees for products. 
D)  environmental cleanup obligations. 
A)  product warranties. 
B)  general business risks. 
C)  money-back guarantees for products. 
D)  environmental cleanup obligations.

Question 10

When a monthly mortgage payment is made and recorded, the debit to Mortgage Payable represents the reduction in the principal balance.

Accepted Answer

A) True 
 B)False

Question 11

In a recent year Hart Corporation had net income of $125,000, interest expense of $30,000, and tax expense of $40,000. What was Hart Corporation's times interest earned for the year?

Accepted Answer

A)  6.50 
B)  4.17 
C)  5.17 
D)  5.50 
A)  6.50 
B)  4.17 
C)  5.17 
D)  5.50

Question 12

All of the following statements regarding convertible bonds are true except

Accepted Answer

A)  if the market price of common stock increases substantially, bondholders with convertible bonds benefit. 
B)  convertible bonds can be converted into common stock at the option of the issuing company. 
C)  bondholders with convertible bonds receive interest on the bonds until conversion. 
D)  convertible bonds sell at a higher price and pay a low rate of interest than those without the conversion option. 
A)  if the market price of common stock increases substantially, bondholders with convertible bonds benefit. 
B)  convertible bonds can be converted into common stock at the option of the issuing company. 
C)  bondholders with convertible bonds receive interest on the bonds until conversion. 
D)  convertible bonds sell at a higher price and pay a low rate of interest than those without the conversion option.

Question 13

If any portion of a long-term debt is to be paid in the next year, the entire debt should be classified as a current liability.

Accepted Answer

A) True 
 B)False

Question 14

The interest charged on a $250,000 note payable, at the rate of 6%, for a year would be

Accepted Answer

A)  $15,000. 
B)  $7,500. 
C)  $3,750. 
D)  $1,250. 
A)  $15,000. 
B)  $7,500. 
C)  $3,750. 
D)  $1,250.

Question 15

A retailer that collects sales taxes is acting as an agent for the

Accepted Answer

A)  wholesaler. 
B)  customer. 
C)  taxing authority. 
D)  chamber of commerce. 
A)  wholesaler. 
B)  customer. 
C)  taxing authority. 
D)  chamber of commerce.

Question 16

Unearned revenues should be classified as Other Revenues and Gains on the income statement.

Accepted Answer

A) True 
 B)False

Question 17

If $150,000 face value bonds are issued at 102, the proceeds received will be $102,000.

Accepted Answer

A) True 
 B)False

Question 18

When the straight-line method of amortization is used for a bond discount, the amount of interest expense for an interest period is calculated by

Accepted Answer

A)  adding the amount of discount amortized for that period to the amount of cash paid for interest during the period. 
B)  subtracting the amount of discount amortized for that period from the amount of cash paid for interest during the period. 
C)  multiplying the face value of the bonds by the stated interest rate. 
D)  multiplying the face value of the bonds by the market interest rate. 
A)  adding the amount of discount amortized for that period to the amount of cash paid for interest during the period. 
B)  subtracting the amount of discount amortized for that period from the amount of cash paid for interest during the period. 
C)  multiplying the face value of the bonds by the stated interest rate. 
D)  multiplying the face value of the bonds by the market interest rate.

Question 19

Which of the following statements concerning bonds is not a true statement?

Accepted Answer

A)  Bonds are generally sold through an investment company. 
B)  The bond indenture is prepared after the bonds are printed. 
C)  The bond indenture and bond certificate are separate documents. 
D)  The trustee keeps records of each bondholder. 
A)  Bonds are generally sold through an investment company. 
B)  The bond indenture is prepared after the bonds are printed. 
C)  The bond indenture and bond certificate are separate documents. 
D)  The trustee keeps records of each bondholder.

Question 20

A current liability must be paid out of current earnings.

Accepted Answer

A) True 
 B)False

The times interest earned is computed by dividing

Neufeld Company issued $800,000 of 6%, 5-year bonds at 98, which pays interest annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?

A measure of a company's solvency is the

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%?

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 amount owed on the mortgage after the first payment will be

Interest expense is reported under Other Expenses and Losses in the income statement.

In the balance sheet, the account Premium on Bonds Payable is

From an accounting standpoint, all of the following are contingencies that must be evaluated for off-balance sheet purposes except

When a monthly mortgage payment is made and recorded, the debit to Mortgage Payable represents the reduction in the principal balance.

In a recent year Hart Corporation had net income of $125,000, interest expense of $30,000, and tax expense of $40,000. What was Hart Corporation's times interest earned for the year?

All of the following statements regarding convertible bonds are true except

If any portion of a long-term debt is to be paid in the next year, the entire debt should be classified as a current liability.

The interest charged on a $250,000 note payable, at the rate of 6%, for a year would be

A retailer that collects sales taxes is acting as an agent for the

Unearned revenues should be classified as Other Revenues and Gains on the income statement.

If $150,000 face value bonds are issued at 102, the proceeds received will be $102,000.

When the straight-line method of amortization is used for a bond discount, the amount of interest expense for an interest period is calculated by

Which of the following statements concerning bonds is not a true statement?

A current liability must be paid out of current earnings.

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

Time Value of Money

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Exam 10: Reporting and Analyzing Liabilities

The times interest earned is computed by dividing

Neufeld Company issued $800,000 of 6%, 5-year bonds at 98, which pays interest annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?

A measure of a company's solvency is the

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%?

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 amount owed on the mortgage after the first payment will be

Interest expense is reported under Other Expenses and Losses in the income statement.

In the balance sheet, the account Premium on Bonds Payable is

From an accounting standpoint, all of the following are contingencies that must be evaluated for off-balance sheet purposes except

When a monthly mortgage payment is made and recorded, the debit to Mortgage Payable represents the reduction in the principal balance.

In a recent year Hart Corporation had net income of $125,000, interest expense of $30,000, and tax expense of $40,000. What was Hart Corporation's times interest earned for the year?

All of the following statements regarding convertible bonds are true except

If any portion of a long-term debt is to be paid in the next year, the entire debt should be classified as a current liability.

The interest charged on a $250,000 note payable, at the rate of 6%, for a year would be

A retailer that collects sales taxes is acting as an agent for the

Unearned revenues should be classified as Other Revenues and Gains on the income statement.

If $150,000 face value bonds are issued at 102, the proceeds received will be $102,000.

When the straight-line method of amortization is used for a bond discount, the amount of interest expense for an interest period is calculated by

Which of the following statements concerning bonds is not a true statement?

A current liability must be paid out of current earnings.

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

Time Value of Money

Filters