Question 1

Which of the following statements is TRUE about a debenture that is issued at a premium?

Accepted Answer

A) It will be sold above par. 
B) Its interest rate is lower than the prevailing market rate. 
C) It will be sold at par. 
D) It will repay principal at more than the face value. 
A) It will be sold above par. 
B) Its interest rate is lower than the prevailing market rate. 
C) It will be sold at par. 
D) It will repay principal at more than the face value.

Question 2

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable account is a debit of $1 500. How much is the debenture carrying amount?

Accepted Answer

A) $50 000 
B) $48 500 
C) $51 500 
D) $1 500 
A) $50 000 
B) $48 500 
C) $51 500 
D) $1 500

Question 3

On 1 July 2013, Avery Services issued a 4% long- term note payable for $10 000. It is payable over a 5- year term in $2 000 principal instalments on 1 July of each year. Each yearly instalment will include both principal repayment of $2 000 and interest payment for the preceding one- year period. What happens on 1 July 2014?

Accepted Answer

A) Avery pays out $400 of interest plus $2 000 of principal. 
B) Avery pays out the $200 of interest that was accrued at year- end. 
C) Avery pays out $400 of interest only. 
D) Avery pays out $2 000 of principal only. 
A) Avery pays out $400 of interest plus $2 000 of principal. 
B) Avery pays out the $200 of interest that was accrued at year- end. 
C) Avery pays out $400 of interest only. 
D) Avery pays out $2 000 of principal only.

Question 4

A debenture is sold for an amount equal to its face value. Which of the following statements would explain why?

Accepted Answer

A) The debenture is not secured by specific assets of the issuer. 
B) The debenture's stated rate is higher than the prevailing market rate at time of sale. 
C) The debenture's stated rate is the same as the prevailing market rate at time of sale. 
D) The debenture's stated rate is lower than the prevailing market rate at time of sale. 
A) The debenture is not secured by specific assets of the issuer. 
B) The debenture's stated rate is higher than the prevailing market rate at time of sale. 
C) The debenture's stated rate is the same as the prevailing market rate at time of sale. 
D) The debenture's stated rate is lower than the prevailing market rate at time of sale.

Question 5

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at discount, for a total of $19 000. The debentures pay half- yearly interest payments on 30 June and 31 December of each year. On 30 June 2014, how much is the total amount paid to debenture holders?

Accepted Answer

A) $253.33 
B) $760.00 
C) $1 520.00 
D) $800.00 
A) $253.33 
B) $760.00 
C) $1 520.00 
D) $800.00

Question 6

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable account is a debit of $1 500. The debenture carrying amount is $51 500.

Accepted Answer

A) True 
 B)False

Question 7

On 2 January 2014, Mahoney Sales issued $10 000 in debentures for $9 400. They were 5- year debentures with a stated rate of 4%, and pay half- yearly interest payments. Mahoney Sales uses the straight- line method to amortise the debenture discount. After the second interest payment on 31 December 2014, what was the debenture carrying amount?

Accepted Answer

A) $9 460 
B) $9 520 
C) $9 880 
D) $9 400 
A) $9 460 
B) $9 520 
C) $9 880 
D) $9 400

Question 8

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at discount, for a total of $19 000. On 1 January 2019, when the debentures mature, Davie Services will make the final principal payment. That entry will be which of the following?

Accepted Answer

A) Debit Debenture discount for $1 000 and credit Cash for $1 000. 
B) Debit Debentures payable for $19 000, debit Debenture discount for $1 000 and credit Cash for $19 000. 
C) Debit Debentures payable for $19 000 and credit Cash for $1 000. 
D) Debit Debentures payable for $20 000 and credit Cash for $20 000. 
A) Debit Debenture discount for $1 000 and credit Cash for $1 000. 
B) Debit Debentures payable for $19 000, debit Debenture discount for $1 000 and credit Cash for $19 000. 
C) Debit Debentures payable for $19 000 and credit Cash for $1 000. 
D) Debit Debentures payable for $20 000 and credit Cash for $20 000.

Question 9

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at par. The debentures pay half- yearly interest payments on 30 June and 31 December of each year. On 30 June 2014, how much are the total interest payments made to debenture holders?

Accepted Answer

A) $800.00 
B) $133.33 
C) $1 600.00 
D) $160.00 
A) $800.00 
B) $133.33 
C) $1 600.00 
D) $160.00

Question 10

On 1 November 2015, Archangel Services issued $200 000 of 10- year debentures with a stated rate of 3%. The debentures were sold at par, and make half- yearly payments on 30 April and 31 October. At 31 December 2015, Archangel made an adjusting entry to accrue interest at year- end. How much interest expense will be recorded at 31 December 2015?

Accepted Answer

A) $500 
B) $1 000 
C) $1 500 
D) $6 000 
A) $500 
B) $1 000 
C) $1 500 
D) $6 000

Question 11

On 1 November 2013, EZ Products borrowed $48 000 on a 5%, 10- year note with annual instalment payments of $4 800 plus interest due on 1 November of each succeeding year. How will the note be shown on the balance sheet dated 31 December 2013?

Accepted Answer

A) $4 800 shown as current liability, $48 000 shown as non- current liability 
B) $48 000 shown as current liability only 
C) Entire $48 000 shown as non- current liability 
D) $4 800 shown as current liability, $43 200 shown as non- current liability 
A) $4 800 shown as current liability, $48 000 shown as non- current liability 
B) $48 000 shown as current liability only 
C) Entire $48 000 shown as non- current liability 
D) $4 800 shown as current liability, $43 200 shown as non- current liability

Question 12

McDonald Sales prepared a debenture issue of $20 000 dated 1 January 2013. The debentures have a stated rate of 3% and a term of 6 years. The debenture issue was delayed, and the debentures were finally sold on 1 March 2013 at par. How much cash will McDonald receive for the debentures?

Accepted Answer

A) $20 300 
B) $19 900 
C) $20 000 
D) $20 100 
A) $20 300 
B) $19 900 
C) $20 000 
D) $20 100

Question 13

If a debenture's stated interest rate is the same as the market rate, which of the following is TRUE?

Accepted Answer

A) The debenture will be issued for an amount lower than the maturity value. 
B) The debenture will be issued at par. 
C) The debenture will be issued at a premium. 
D) The debenture will be issued at a discount. 
A) The debenture will be issued for an amount lower than the maturity value. 
B) The debenture will be issued at par. 
C) The debenture will be issued at a premium. 
D) The debenture will be issued at a discount.

Question 14

Blanding Company issues $1 000 000 of 8%, 10- year debentures at 98 on 28 February 2013. The debenture pays interest on 28 February and 31 August. The market rate of interest on the issue date was 10%. On 31 August 2013, how much cash did Blanding pay out to debenture holders?

Accepted Answer

A) $41 000 
B) $40 000 
C) $39 000 
D) $80 000 
A) $41 000 
B) $40 000 
C) $39 000 
D) $80 000

Question 15

The Amazing Widget Company issues $500 000 of 6%, 10- year debentures at 103 on 31 March 2013. The debenture pays interest on 31 March and 30 September. The market rate of interest on the issue date was 4%. On 30 September 2013, how much cash did the company pay out to debenture holders?

Accepted Answer

A) $14 250 
B) $7 500 
C) $15 000 
D) $30 000 
A) $14 250 
B) $7 500 
C) $15 000 
D) $30 000

Question 16

If debentures with a face value of $100 000 are sold at 102, the amount of cash proceeds is:

Accepted Answer

A) $108 800. 
B) $99 898. 
C) $102 000. 
D) $100 000. 
A) $108 800. 
B) $99 898. 
C) $102 000. 
D) $100 000.

Question 17

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at a premium, for a total of $20 750. On 1 January 2019, when the debentures mature, Davie Services will make the final principal payment. That entry will include which of the following?

Accepted Answer

A) Debit Debentures payable for $20 000 and credit Cash for $20 000. 
B) Debit Debenture premium for $250 and credit Cash for $250. 
C) Debit Debentures payable for $20 000, credit Debenture premium for $750 and Credit Cash for $19 250. 
D) Debit Debentures payable for $20 750 and credit Cash for $20 750. 
A) Debit Debentures payable for $20 000 and credit Cash for $20 000. 
B) Debit Debenture premium for $250 and credit Cash for $250. 
C) Debit Debentures payable for $20 000, credit Debenture premium for $750 and Credit Cash for $19 250. 
D) Debit Debentures payable for $20 750 and credit Cash for $20 750.

Question 18

Using the present value tables, please compute the present value of an annuity which pays $2 000 per year for 10 years, discounted at 7%.

Accepted Answer

A) $14 048 
B) $16 440 
C) $19 240 
D) $18 180 
A) $14 048 
B) $16 440 
C) $19 240 
D) $18 180

Question 19

When a long- term note payable that requires annual instalment payments is initially recorded, it is first recorded as a long- term note payable. Then, at the same date, a second entry is made to reclassify the current portion.

Accepted Answer

A) True 
 B)False

Question 20

Accounts payable is always shown on the balance sheet in current liabilities.

Accepted Answer

A) True 
 B)False

Which of the following statements is TRUE about a debenture that is issued at a premium?

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable account is a debit of $1 500. How much is the debenture carrying amount?

A debenture is sold for an amount equal to its face value. Which of the following statements would explain why?

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable account is a debit of $1 500. The debenture carrying amount is $51 500.

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at discount, for a total of $19 000. On 1 January 2019, when the debentures mature, Davie Services will make the final principal payment. That entry will be which of the following?

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at par. The debentures pay half- yearly interest payments on 30 June and 31 December of each year. On 30 June 2014, how much are the total interest payments made to debenture holders?

On 1 November 2013, EZ Products borrowed $48 000 on a 5%, 10- year note with annual instalment payments of $4 800 plus interest due on 1 November of each succeeding year. How will the note be shown on the balance sheet dated 31 December 2013?

McDonald Sales prepared a debenture issue of $20 000 dated 1 January 2013. The debentures have a stated rate of 3% and a term of 6 years. The debenture issue was delayed, and the debentures were finally sold on 1 March 2013 at par. How much cash will McDonald receive for the debentures?

If a debenture's stated interest rate is the same as the market rate, which of the following is TRUE?

Blanding Company issues $1 000 000 of 8%, 10- year debentures at 98 on 28 February 2013. The debenture pays interest on 28 February and 31 August. The market rate of interest on the issue date was 10%. On 31 August 2013, how much cash did Blanding pay out to debenture holders?

The Amazing Widget Company issues $500 000 of 6%, 10- year debentures at 103 on 31 March 2013. The debenture pays interest on 31 March and 30 September. The market rate of interest on the issue date was 4%. On 30 September 2013, how much cash did the company pay out to debenture holders?

If debentures with a face value of $100 000 are sold at 102, the amount of cash proceeds is:

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at a premium, for a total of $20 750. On 1 January 2019, when the debentures mature, Davie Services will make the final principal payment. That entry will include which of the following?

Using the present value tables, please compute the present value of an annuity which pays $2 000 per year for 10 years, discounted at 7%.

When a long- term note payable that requires annual instalment payments is initially recorded, it is first recorded as a long- term note payable. Then, at the same date, a second entry is made to reclassify the current portion.

Accounts payable is always shown on the balance sheet in current liabilities.

The Role of Accounting in Business

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Retailing Operations

Retail Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Non-Current Assets: Property, Plant and Equipment, and Intangibles

Current Liabilities and Payroll

Partnerships

Companies: Share Capital and the Balance Sheet

Companies: Effects on Retained Earnings, Share Splits and Buy-Backs, and the Income Statement

The Cash Flow Statement

The Framework of Accounting

Financial Statement Analysis

Introduction to Managerial Accounting and the Master Budget

Job Costing

Short-Term Business Decisions

Capital Investment Decisions and the Time Value of Money

Appendix

Filters

Exam 12: Non-Current Liabilities, Debentures Payable and Classification of Liabilities on the Balance Sheet

Which of the following statements is TRUE about a debenture that is issued at a premium?

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable account is a debit of $1 500. How much is the debenture carrying amount?

A debenture is sold for an amount equal to its face value. Which of the following statements would explain why?

The balance in the Debentures payable account is a credit of $50 000. The balance in the Discount on debentures payable account is a debit of $1 500. The debenture carrying amount is $51 500.

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at discount, for a total of $19 000. On 1 January 2019, when the debentures mature, Davie Services will make the final principal payment. That entry will be which of the following?

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at par. The debentures pay half- yearly interest payments on 30 June and 31 December of each year. On 30 June 2014, how much are the total interest payments made to debenture holders?

On 1 November 2013, EZ Products borrowed $48 000 on a 5%, 10- year note with annual instalment payments of $4 800 plus interest due on 1 November of each succeeding year. How will the note be shown on the balance sheet dated 31 December 2013?

McDonald Sales prepared a debenture issue of $20 000 dated 1 January 2013. The debentures have a stated rate of 3% and a term of 6 years. The debenture issue was delayed, and the debentures were finally sold on 1 March 2013 at par. How much cash will McDonald receive for the debentures?

If a debenture's stated interest rate is the same as the market rate, which of the following is TRUE?

Blanding Company issues $1 000 000 of 8%, 10- year debentures at 98 on 28 February 2013. The debenture pays interest on 28 February and 31 August. The market rate of interest on the issue date was 10%. On 31 August 2013, how much cash did Blanding pay out to debenture holders?

The Amazing Widget Company issues $500 000 of 6%, 10- year debentures at 103 on 31 March 2013. The debenture pays interest on 31 March and 30 September. The market rate of interest on the issue date was 4%. On 30 September 2013, how much cash did the company pay out to debenture holders?

If debentures with a face value of $100 000 are sold at 102, the amount of cash proceeds is:

On 1 January 2014, Davie Services issued $20 000 of 8% debentures that mature in five years. They were sold at a premium, for a total of $20 750. On 1 January 2019, when the debentures mature, Davie Services will make the final principal payment. That entry will include which of the following?

Using the present value tables, please compute the present value of an annuity which pays $2 000 per year for 10 years, discounted at 7%.

When a long- term note payable that requires annual instalment payments is initially recorded, it is first recorded as a long- term note payable. Then, at the same date, a second entry is made to reclassify the current portion.

Accounts payable is always shown on the balance sheet in current liabilities.

The Role of Accounting in Business

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Retailing Operations

Retail Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Non-Current Assets: Property, Plant and Equipment, and Intangibles

Current Liabilities and Payroll

Partnerships

Companies: Share Capital and the Balance Sheet

Companies: Effects on Retained Earnings, Share Splits and Buy-Backs, and the Income Statement

The Cash Flow Statement

The Framework of Accounting

Financial Statement Analysis

Introduction to Managerial Accounting and the Master Budget

Job Costing

Short-Term Business Decisions

Capital Investment Decisions and the Time Value of Money

Appendix

Filters