Question 1

An advantage of bonds is:

Accepted Answer

A) Bond payments can be burdensome when income and cash flow are low. 
B) Bonds require payment of par value at maturity. 
C) Bonds require payment of periodic interest. 
D) Bonds can decrease return on equity. 
E) Bonds do not affect owner control. 
A) Bond payments can be burdensome when income and cash flow are low. 
B) Bonds require payment of par value at maturity. 
C) Bonds require payment of periodic interest. 
D) Bonds can decrease return on equity. 
E) Bonds do not affect owner control.

Question 2

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

Accepted Answer

A bond is a written promise to pay an am

Question 3

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

Accepted Answer

A) True 
 B)False

Question 4

The contract rate on previously issued bonds changes as the market rate of interest changes.

Accepted Answer

A) True 
 B)False

Question 5

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

Accepted Answer

A) True 
 B)False

Question 6

A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is:

Accepted Answer

A) $10,000 loss. 
B) $22,000 gain. 
C) $0. 
D) $10,000 gain. 
E) $22,000 loss. 
A) $10,000 loss. 
B) $22,000 gain. 
C) $0. 
D) $10,000 gain. 
E) $22,000 loss.

Question 7

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

Accepted Answer

A) Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386. 
B) Debit Notes Payable $11,250; credit Cash $11,250. 
C) Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136. 
D) Debit Notes Payable $32,136; credit Cash $32,136. 
E) Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136. 
A) Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386. 
B) Debit Notes Payable $11,250; credit Cash $11,250. 
C) Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136. 
D) Debit Notes Payable $32,136; credit Cash $32,136. 
E) Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.

Question 8

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Accepted Answer

A) True 
 B)False

Question 9

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Accepted Answer

A) True 
 B)False

Question 10

A discount on bonds payable:

Accepted Answer

A) Is not allowed in many states to protect creditors. 
B) Increases the Bond Payable account. 
C) Occurs when a company issues bonds with a contract rate more than the market rate. 
D) Occurs when a company issues bonds with a contract rate less than the market rate. 
E) Decreases the total bond interest expense. 
A) Is not allowed in many states to protect creditors. 
B) Increases the Bond Payable account. 
C) Occurs when a company issues bonds with a contract rate more than the market rate. 
D) Occurs when a company issues bonds with a contract rate less than the market rate. 
E) Decreases the total bond interest expense.

Question 11

Sharmer Company issues 5%, 5-year bonds with a par value of $1,000,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling)price, assuming the following factors: $\begin{array}{rlll}
&&\text { Present Value of an }\
n=&i=&\text { Annuity }&\text { Present value of } \mathbb{\$1}\
5 & 5 \% & 4.3295 & 0.7835 \
10 & 3 \% & 8.7521 & 0.7812 \
5 & 6 \% & 4.2124 & 0.7473 \
10 & 3 \% & 8.5307 & 0.7441
\end{array}$

Accepted Answer

A) $1,213,255 
B) $957,355 
C) $1,000,000 
D) $786,745 
E) $1,250,000 
A) $1,213,255 
B) $957,355 
C) $1,000,000 
D) $786,745 
E) $1,250,000

Question 12

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

Accepted Answer

A) True 
 B)False

Question 13

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

Accepted Answer

A) True 
 B)False

Question 14

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Accepted Answer

A) $1,500 loss. 
B) $3,000 loss. 
C) $3,000 gain. 
D) $0 gain or loss. 
E) $1,500 gain. 
A) $1,500 loss. 
B) $3,000 loss. 
C) $3,000 gain. 
D) $0 gain or loss. 
E) $1,500 gain.

Question 15

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of principal will be included in the first annual payment?

Accepted Answer

A) $17,258 
B) $232,742 
C) $20,000 
D) $37,258 
E) $25,000 
A) $17,258 
B) $232,742 
C) $20,000 
D) $37,258 
E) $25,000

Question 16

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

Accepted Answer

A) True 
 B)False

Question 17

Identify the advantages and disadvantages of bond financing.

Accepted Answer

The advantages of bond financing include

Question 18

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.

Accepted Answer

A) True 
 B)False

Question 19

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Accepted Answer

A) True 
 B)False

Question 20

On January 1, Year 1, Stratton Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the payment on the note on December 31, Year 2 is:

Accepted Answer

A) Debit Interest Expense $6,493; debit Notes Payable $7,745; credit Cash $14,238. 
B) Debit Notes Payable $14,238; credit Cash $14,238. 
C) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
D) Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238. 
E) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238. 
A) Debit Interest Expense $6,493; debit Notes Payable $7,745; credit Cash $14,238. 
B) Debit Notes Payable $14,238; credit Cash $14,238. 
C) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
D) Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238. 
E) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.

An advantage of bonds is:

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

The contract rate on previously issued bonds changes as the market rate of interest changes.

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

A discount on bonds payable:

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of principal will be included in the first annual payment?

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

Identify the advantages and disadvantages of bond financing.

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

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Exam 14: Long-Term Liabilities

An advantage of bonds is:

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

The contract rate on previously issued bonds changes as the market rate of interest changes.

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

A discount on bonds payable:

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of principal will be included in the first annual payment?

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

Identify the advantages and disadvantages of bond financing.

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters