Question 1

The market interest rate is also called the face interest rate.

Accepted Answer

A) True 
 B)False  False

Question 2

When bonds are sold between interest dates,the interest collected when the bonds are sold is returned to investors on the next interest payment date.

Accepted Answer

A) True 
 B)False  True

Question 3

A bond with a face value of $10,000 has a current price quote of 102.62.The price in dollars and cents is

Accepted Answer

A) $10,002.62. 
B) $10,200.62. 
C) $10,026.20. 
D) $10,262.00. 
A) $10,002.62. 
B) $10,200.62. 
C) $10,026.20. 
D) $10,262.00. D

Question 4

Deferred income taxes are a type of long-term liability that result from using different accounting methods to calculate income taxes on the income statement and income tax liability on the income tax return.

Accepted Answer

A) True 
 B)False

Question 5

On January 2,20x5,Preston Corporation issued 20-year bonds payable with a face value of $300,000 and a face interest rate of 8 percent.The bonds were issued to yield a market interest rate of 9 percent.Interest is payable semi-annually on January 1 and July 1.In calculating the present value of the bond issue of January 2,20x5,the periodic interest payments to be used are

Accepted Answer

A) $24,000 
B) $12,000 
C) $27,000 
D) $13,500 
A) $24,000 
B) $12,000 
C) $27,000 
D) $13,500

Question 6

The lower the debt to equity ratio,the greater the financial risk the company is taking.

Accepted Answer

A) True 
 B)False

Question 7

Piper Company issued ten-year,8 percent bonds payable in 20x5 at a premium.During 20x5,the company's accountant failed to amortize any of the bond premium.The omission of the premium amortization will

Accepted Answer

A) cause net income for 20x5 to be overstated. 
B) not affect net income reported for 20x5. 
C) cause net income for 20x5 to be understated. 
D) cause retained earnings at the end of 20x5 to be overstated. 
A) cause net income for 20x5 to be overstated. 
B) not affect net income reported for 20x5. 
C) cause net income for 20x5 to be understated. 
D) cause retained earnings at the end of 20x5 to be overstated.

Question 8

Under a capital lease,the lessee does all of the following except:

Accepted Answer

A) debits Capital Lease Equipment. 
B) debits Rent Expense. 
C) records depreciation on the leased asset. 
D) credits Capital Lease Obligations. 
A) debits Capital Lease Equipment. 
B) debits Rent Expense. 
C) records depreciation on the leased asset. 
D) credits Capital Lease Obligations.

Question 9

The calculation of cash for interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance.

Accepted Answer

A) True 
 B)False

Question 10

When bonds payable are converted into stock,the carrying value of the bonds should be

Accepted Answer

A) credited to Retained Earnings. 
B) credited to contributed capital accounts. 
C) debited to Retained Earnings. 
D) debited to Loss on Conversion of Bonds. 
A) credited to Retained Earnings. 
B) credited to contributed capital accounts. 
C) debited to Retained Earnings. 
D) debited to Loss on Conversion of Bonds.

Question 11

A company has $1,606,000 in bonds payable with an unamortized premium of $40,000.If one-fourth of the bonds are converted to common stock,the carrying value of the bonds will decrease by

Accepted Answer

A) $401,500. 
B) $441,500. 
C) $391,500. 
D) $411,500. 
A) $401,500. 
B) $441,500. 
C) $391,500. 
D) $411,500.

Question 12

If a bond with a face value of $1,000 and a face interest rate of 7 percent is issued for $970,the market interest rate at the date of issuance must have been less than 7 percent.

Accepted Answer

A) True 
 B)False

Question 13

Bondholders are creditors of the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 14

When a bond sells at a discount,what is probably true about the market interest versus the face interest rate? Discuss.

Accepted Answer

For someone to purchase a bond at a disc

Question 15

The debt to equity ratio is expressed in terms of

Accepted Answer

A) a percentage. 
B) dollars. 
C) units. 
D) times. 
A) a percentage. 
B) dollars. 
C) units. 
D) times.

Question 16

On January 2,20x5,Fresh Inc.issued 20-year bonds payable with a face value of $1,000,000 and a face interest rate of 10 percent.The bonds were issued to yield a market interest rate of 9 percent.Interest is payable semi-annually on January 1 and July 1.In calculating the present value of the bond issue of January 2,20x5,the periodic interest payments to be used are

Accepted Answer

A) $100,000 
B) $50,000 
C) $90,000 
D) $45,000 
A) $100,000 
B) $50,000 
C) $90,000 
D) $45,000

Question 17

Greco Co.issued ten-year term bonds on January 1,20x5,with a face value of $1,600,000.The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $1,381,920 to yield an effective annual rate of 8 percent.The effective interest method of amortization is to be used.The carrying value of the bonds payable on the December 31,20x5,balance sheet date should be

Accepted Answer

A) $1,392,824. 
B) $1,396,472. 
C) $1,396,764. 
D) $1,381,920. 
A) $1,392,824. 
B) $1,396,472. 
C) $1,396,764. 
D) $1,381,920.

Question 18

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,and sells them on the same date for their face value.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the first interest payment includes

Accepted Answer

A) a credit to Cash for $28,000. 
B) a debit to Interest Expense for $14,000. 
C) a debit to Unamortized Discount on Bonds Payable for $14,000. 
D) All of these choices. 
A) a credit to Cash for $28,000. 
B) a debit to Interest Expense for $14,000. 
C) a debit to Unamortized Discount on Bonds Payable for $14,000. 
D) All of these choices.

Question 19

On January 2,20x5,Clair Inc.signed a 9% mortgage payable for $200,000 with equal monthly payments of $2,400.When Clair makes the second payment,how much interest expense will be recorded?

Accepted Answer

A) $0 
B) $1,494. 
C) $1,500. 
D) $1,482. 
A) $0 
B) $1,494. 
C) $1,500. 
D) $1,482.

Question 20

If bonds payable were issued initially at a premium,the carrying value of the bonds at a balance sheet date will be calculated by

Accepted Answer

A) deducting the amount of premium amortized between the issuance date and the balance sheet date from the face value. 
B) deducting the balance of unamortized bond premium from the face value. 
C) adding the balance of unamortized bond premium to the face value. 
D) adding the amount of premium amortized between the issuance date and the balance sheet date to the face value. 
A) deducting the amount of premium amortized between the issuance date and the balance sheet date from the face value. 
B) deducting the balance of unamortized bond premium from the face value. 
C) adding the balance of unamortized bond premium to the face value. 
D) adding the amount of premium amortized between the issuance date and the balance sheet date to the face value.

Exam 14: Long Term Liabilities

The market interest rate is also called the face interest rate.

When bonds are sold between interest dates,the interest collected when the bonds are sold is returned to investors on the next interest payment date.

A bond with a face value of $10,000 has a current price quote of 102.62.The price in dollars and cents is

Deferred income taxes are a type of long-term liability that result from using different accounting methods to calculate income taxes on the income statement and income tax liability on the income tax return.

The lower the debt to equity ratio,the greater the financial risk the company is taking.

Piper Company issued ten-year,8 percent bonds payable in 20x5 at a premium.During 20x5,the company's accountant failed to amortize any of the bond premium.The omission of the premium amortization will

Under a capital lease,the lessee does all of the following except:

The calculation of cash for interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance.

When bonds payable are converted into stock,the carrying value of the bonds should be

A company has $1,606,000 in bonds payable with an unamortized premium of $40,000.If one-fourth of the bonds are converted to common stock,the carrying value of the bonds will decrease by

If a bond with a face value of $1,000 and a face interest rate of 7 percent is issued for $970,the market interest rate at the date of issuance must have been less than 7 percent.

Bondholders are creditors of the issuing corporation.

When a bond sells at a discount,what is probably true about the market interest versus the face interest rate? Discuss.

The debt to equity ratio is expressed in terms of

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,and sells them on the same date for their face value.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the first interest payment includes

On January 2,20x5,Clair Inc.signed a 9% mortgage payable for $200,000 with equal monthly payments of $2,400.When Clair makes the second payment,how much interest expense will be recorded?

If bonds payable were issued initially at a premium,the carrying value of the bonds at a balance sheet date will be calculated by

Accounting Principles and the Financial Statements

Analyzing and Recording Business Transactions

Adjusting the Accounts

Completing the Accounting Cycle

Foundations of Financial Reporting and the Classified Balance Sheet

Accounting for Merchandising Operations

Inventories

Cash and Internal Control

Receivables

Long -Term Assets

Current Liabilities and Fair Value Accounting

Accounting for Partnerships

Accounting for Corporations

The Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting and Cost Concepts

Costing Systems: Job Order Costing

Costing Systems Process Costing

Value-Based Systems: Activity-Based Costing and Lean Accounting

Cost-Volume-Profit Analysis

The Budgeting Process

Flexible Budgets and Performance Analysis

Standard Costing and Variance Analysis

Short-Run Decision Analysis and Capital Budgeting

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