Question 1

Which type of contingent liability would most likely be reported on a balance sheet prepared in accordance with GAAP?

Accepted Answer

A)  Remote contingent liability 
B)  Reasonably possible contingent liability 
C)  Probable contingent liability that can be estimated 
D)  Quite likely contingent liability 
A)  Remote contingent liability 
B)  Reasonably possible contingent liability 
C)  Probable contingent liability that can be estimated 
D)  Quite likely contingent liability

Question 2

Use the information above to answer the following question.Assuming Disco World adjusts its accounts only at its December 31 year end,what entry must Disco World make to account for the services provided through that date?

Accepted Answer

A)  Debit Cash and credit Dance Lessons Revenue for $3,000 
B)  Debit Unearned Revenue and credit Dance Lessons Revenue for $4,500 
C)  Debit Unearned Revenue and credit Dance Lessons Revenue for $3,000 
D)  Debit Dance Lessons Revenue and credit Unearned Revenue for $3,000 
A)  Debit Cash and credit Dance Lessons Revenue for $3,000 
B)  Debit Unearned Revenue and credit Dance Lessons Revenue for $4,500 
C)  Debit Unearned Revenue and credit Dance Lessons Revenue for $3,000 
D)  Debit Dance Lessons Revenue and credit Unearned Revenue for $3,000

Question 3

On January 1,2016,a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%.Because the market interest rate is 9%,the company receives $47,469 for the bond.
Required:
Part a.Determine the interest expense,the cash payment for interest,and the amount of the premium that will be amortized during the year ending December 31,2016.
Part b.Prepare the journal entry to record the first interest payment on December 31,2016.

Accepted Answer

Part a
Interest expense = Carrying value

Question 4

During the year,a $1,000,000 lawsuit was filed against a US company for unsafe working conditions.Management and the attorneys feel that it is not likely that the company will lose the case.The plaintiff who filed the lawsuit has offered to settle for $600,000.Management estimates that lawsuits for unsafe working conditions are generally settled for $300,000.What amount of contingent liability would be recorded for this lawsuit on the current balance sheet?

Accepted Answer

A)  $100,000 
B)  $600,000 
C)  $300,000 
D)  $0 
A)  $100,000 
B)  $600,000 
C)  $300,000 
D)  $0

Question 5

Which of the following events does not create a liability?

Accepted Answer

A)  Buying goods and services on credit 
B)  Obtaining a short-term loan 
C)  Issuing long-term debt 
D)  Remitting sales tax to the government 
A)  Buying goods and services on credit 
B)  Obtaining a short-term loan 
C)  Issuing long-term debt 
D)  Remitting sales tax to the government

Question 6

A company has current assets of $5 million and net income of $10 million.Current liabilities total $2.5 million,interest expense is $2 million,and income tax expense is $3 million.What is the times interest earned ratio for this company?

Accepted Answer

A)  0.5 
B)  7.5 
C)  0.3 
D)  2.0 
A)  0.5 
B)  7.5 
C)  0.3 
D)  2.0

Question 7

Bonds with a stated interest rate of 9% and a face value totaling $600,000 were issued for $624,000 on January 1,2016,when the market interest rate was 8%.The company uses effective-interest bond amortization.
Required:
Determine the carrying value of the bonds at December 31,2017.

Accepted Answer

The answer of Bonds with a stated interest rate of...

Question 8

The Discount on Bonds Payable account is:

Accepted Answer

A)  a contra account to Bonds Payable. 
B)  a miscellaneous revenue account. 
C)  an expense account. 
D)  expensed only at the bond's maturity. 
A)  a contra account to Bonds Payable. 
B)  a miscellaneous revenue account. 
C)  an expense account. 
D)  expensed only at the bond's maturity.

Question 9

Travis County Bank agrees to lend Brickyard Corporation $200,000 on January 1.Brickyard signs a $200,000, 4%, 9-month note.Interest is due at maturity on September 30.The company's fiscal year ends June 30 and adjusting entries are recorded at that time only.
-Use the information above to answer the following question.On January 1,which of the following journal entries will be made by Brickyard to record the issuance of the note?

Accepted Answer

A)  Debit Interest Expense for $6,000, debit Cash $194,000, and credit Notes Payable for $200,000 
B)  Debit Cash and credit Notes Payable for $200,000 
C)  Debit Cash for $200,000, debit Interest Expense for $6,000, and credit Notes Payable for $206,000 
D)  Debit Cash for $200,000, debit Interest Expense for $6,000, credit Notes Payable for $200,000, and credit Interest Payable for $6,000 
A)  Debit Interest Expense for $6,000, debit Cash $194,000, and credit Notes Payable for $200,000 
B)  Debit Cash and credit Notes Payable for $200,000 
C)  Debit Cash for $200,000, debit Interest Expense for $6,000, and credit Notes Payable for $206,000 
D)  Debit Cash for $200,000, debit Interest Expense for $6,000, credit Notes Payable for $200,000, and credit Interest Payable for $6,000

Question 10

A bond discount is:

Accepted Answer

A)  a result of the interest payments being less than the cost of borrowing. 
B)  essentially free money. 
C)  a result of the interest payments being more than the cost of borrowing. 
D)  reported on the income statement as a loss on the issuance of a bond. 
A)  a result of the interest payments being less than the cost of borrowing. 
B)  essentially free money. 
C)  a result of the interest payments being more than the cost of borrowing. 
D)  reported on the income statement as a loss on the issuance of a bond.

Question 11

Which one of the following statements about amortization of discounts and premiums is not correct?

Accepted Answer

A)  Under straight-line amortization, when a bond is sold at a premium, the annual premium amortization is the total premium divided by the number of years until bond maturity. 
B)  When a bond is sold at a discount, interest expense recorded using the effective-interest method is less than the interest paid on the bond. 
C)  The effective-interest method of amortization is considered to be conceptually superior to straight-line amortization. 
D)  When a bond discount is amortized using the effective-interest method, the promised interest payment is less than the interest expense, so the bond liability will increase as a result of the contra-liability account decreasing. 
A)  Under straight-line amortization, when a bond is sold at a premium, the annual premium amortization is the total premium divided by the number of years until bond maturity. 
B)  When a bond is sold at a discount, interest expense recorded using the effective-interest method is less than the interest paid on the bond. 
C)  The effective-interest method of amortization is considered to be conceptually superior to straight-line amortization. 
D)  When a bond discount is amortized using the effective-interest method, the promised interest payment is less than the interest expense, so the bond liability will increase as a result of the contra-liability account decreasing.

Question 12

Issuing a note payable for cash immediately results in a(n):

Accepted Answer

A)  increase in assets and an increase in liabilities. 
B)  decrease in assets and an increase in liabilities. 
C)  decrease in assets and a decrease liabilities. 
D)  increase in liabilities and a decrease in stockholders' equity. 
A)  increase in assets and an increase in liabilities. 
B)  decrease in assets and an increase in liabilities. 
C)  decrease in assets and a decrease liabilities. 
D)  increase in liabilities and a decrease in stockholders' equity.

Question 13

Callable bonds can be converted to stock.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements about the issuance of bonds at a discount is not correct?

Accepted Answer

A)  The contra liability account, Discount on Bonds Payable, is amortized each year by shifting part of its balance to interest expense. 
B)  As the current date approaches the maturity date, the carrying value of the bond approaches the face value of the bond. 
C)  At the date of issuance, the market interest rate was higher than the stated interest rate. 
D)  The account used to record the discount is a normal credit balance account. 
A)  The contra liability account, Discount on Bonds Payable, is amortized each year by shifting part of its balance to interest expense. 
B)  As the current date approaches the maturity date, the carrying value of the bond approaches the face value of the bond. 
C)  At the date of issuance, the market interest rate was higher than the stated interest rate. 
D)  The account used to record the discount is a normal credit balance account.

Question 15

Using the simplified effective-interest amortization,the credit to Cash each interest payment is calculated as:

Accepted Answer

A)  Bonds Payable, Net x Market Interest Rate x Time. 
B)  Bonds Payable, Net x Stated Interest Rate x Time. 
C)  Face Value x Stated Interest Rate x Time. 
D)  Face Value x Market Interest Rate x Time. 
A)  Bonds Payable, Net x Market Interest Rate x Time. 
B)  Bonds Payable, Net x Stated Interest Rate x Time. 
C)  Face Value x Stated Interest Rate x Time. 
D)  Face Value x Market Interest Rate x Time.

Question 16

At the beginning of the year,a firm had $120,000 in total assets and a debt-to-assets ratio of 0.5 or 50%.During the year,the firm's assets increased by $40,000,and its liabilities increased by $36,000.What is the debt-to-assets ratio at the end of the year?

Accepted Answer

A)  0.6 or 60% 
B)  0.4 or 40% 
C)  0.9 or 90% 
D)  1.7 or 170% 
A)  0.6 or 60% 
B)  0.4 or 40% 
C)  0.9 or 90% 
D)  1.7 or 170%

Question 17

Using the simplified effective-interest amortization,interest expense is calculated as:

Accepted Answer

A)  Bonds Payable, Net x Market Interest Rate x Time. 
B)  Bonds Payable, Net x Stated Interest Rate x Time. 
C)  Face Value x Stated Interest Rate x Time. 
D)  Face Value x Market Interest Rate x Time. 
A)  Bonds Payable, Net x Market Interest Rate x Time. 
B)  Bonds Payable, Net x Stated Interest Rate x Time. 
C)  Face Value x Stated Interest Rate x Time. 
D)  Face Value x Market Interest Rate x Time.

Question 18

The following data came from the financial statements of a company:
 
What is the company's times interest earned ratio?

Accepted Answer

A)  130 
B)  129 
C)  122 
D)  139 
A)  130 
B)  129 
C)  122 
D)  139

Question 19

Travis County Bank agrees to lend Brickyard Corporation $200,000 on January 1.Brickyard signs a $200,000, 4%, 9-month note.Interest is due at maturity on September 30.The company's fiscal year ends June 30 and adjusting entries are recorded at that time only.
-Use the information above to answer the following question.What adjusting entry should Brickyard make on June 30 before preparing its annual financial statements?
Debit Interest Expense and credit Interest Payable for $4,000

Accepted Answer

Debit Interest Expen

Question 20

When interest expense is calculated using the effective-interest amortization method,interest expense on a bond that pays interest annually is equal to the:

Accepted Answer

A)  actual amount of interest paid. 
B)  carrying value of the bonds payable multiplied by the effective interest rate. 
C)  maturity value of the bonds payable multiplied by the effective interest rate. 
D)  carrying value of the bonds payable multiplied by the stated interest rate. 
A)  actual amount of interest paid. 
B)  carrying value of the bonds payable multiplied by the effective interest rate. 
C)  maturity value of the bonds payable multiplied by the effective interest rate. 
D)  carrying value of the bonds payable multiplied by the stated interest rate.

Which type of contingent liability would most likely be reported on a balance sheet prepared in accordance with GAAP?

Use the information above to answer the following question.Assuming Disco World adjusts its accounts only at its December 31 year end,what entry must Disco World make to account for the services provided through that date?

Which of the following events does not create a liability?

A company has current assets of $5 million and net income of $10 million.Current liabilities total $2.5 million,interest expense is $2 million,and income tax expense is $3 million.What is the times interest earned ratio for this company?

Bonds with a stated interest rate of 9% and a face value totaling $600,000 were issued for $624,000 on January 1,2016,when the market interest rate was 8%.The company uses effective-interest bond amortization. Required: Determine the carrying value of the bonds at December 31,2017.

The Discount on Bonds Payable account is:

A bond discount is:

Which one of the following statements about amortization of discounts and premiums is not correct?

Issuing a note payable for cash immediately results in a(n):

Callable bonds can be converted to stock.

Which of the following statements about the issuance of bonds at a discount is not correct?

Using the simplified effective-interest amortization,the credit to Cash each interest payment is calculated as:

At the beginning of the year,a firm had $120,000 in total assets and a debt-to-assets ratio of 0.5 or 50%.During the year,the firm's assets increased by $40,000,and its liabilities increased by $36,000.What is the debt-to-assets ratio at the end of the year?

Using the simplified effective-interest amortization,interest expense is calculated as:

The following data came from the financial statements of a company: What is the company's times interest earned ratio?

When interest expense is calculated using the effective-interest amortization method,interest expense on a bond that pays interest annually is equal to the:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

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Exam 10: Reporting and Interpreting Liabilities

Which type of contingent liability would most likely be reported on a balance sheet prepared in accordance with GAAP?

Use the information above to answer the following question.Assuming Disco World adjusts its accounts only at its December 31 year end,what entry must Disco World make to account for the services provided through that date?

Which of the following events does not create a liability?

A company has current assets of $5 million and net income of $10 million.Current liabilities total $2.5 million,interest expense is $2 million,and income tax expense is $3 million.What is the times interest earned ratio for this company?

Bonds with a stated interest rate of 9% and a face value totaling $600,000 were issued for $624,000 on January 1,2016,when the market interest rate was 8%.The company uses effective-interest bond amortization. Required: Determine the carrying value of the bonds at December 31,2017.

The Discount on Bonds Payable account is:

A bond discount is:

Which one of the following statements about amortization of discounts and premiums is not correct?

Issuing a note payable for cash immediately results in a(n):

Callable bonds can be converted to stock.

Which of the following statements about the issuance of bonds at a discount is not correct?

Using the simplified effective-interest amortization,the credit to Cash each interest payment is calculated as:

At the beginning of the year,a firm had $120,000 in total assets and a debt-to-assets ratio of 0.5 or 50%.During the year,the firm's assets increased by $40,000,and its liabilities increased by $36,000.What is the debt-to-assets ratio at the end of the year?

Using the simplified effective-interest amortization,interest expense is calculated as:

The following data came from the financial statements of a company: What is the company's times interest earned ratio?

When interest expense is calculated using the effective-interest amortization method,interest expense on a bond that pays interest annually is equal to the:

Business Decisions and Financial Accounting

Reporting Investing and Financing Results on the Balance Sheet

Reporting Operating Results on the Income Statement

Adjustments,financial Statements,and Financial Results

Fraud, Internal Control, and Cash

Internal Control and Financial Reporting for Cash and Merchandising Operations

Reporting and Interpreting Inventories and Cost of Goods Sold

Reporting and Interpreting Receivables,bad Debt Expense,and Interest Revenue

Reporting and Interpreting Long-Lived Tangible and Intangible Assets

Reporting and Interpreting Stockholders Equity

Reporting and Interpreting the Statement of Cash Flows

Measuring and Evaluating Financial Performance

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