Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

The carrying (book) value of a bond at the time when it is issued is always equal to its par value.

Accepted Answer

A) True 
 B)False  False

Question 3

On January 1, Year 1 a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 annual year-end payments of $21,607, the first of which is due on December 31, Year 1.
(a) Prepare the company's journal entry to record the note's issuance.
(b) Prepare the journal entries to record the first and second installment payments.

Accepted Answer

Second year Note Payable Carrying Value = 70,000 - 15,307 = 54,693

Question 4

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

Accepted Answer

A) True 
 B)False

Question 5

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Accepted Answer

A) True 
 B)False

Question 6

A pension plan:

Accepted Answer

A) Is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire. 
B) Can be underfunded if the plan assets are more than the accumulated benefit obligation. 
C) Is always funded fully by employers. 
D) Can be a defined benefit plan or an undefined benefit plan. 
E) Is the same as Other Postretirement Benefits. 
A) Is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire. 
B) Can be underfunded if the plan assets are more than the accumulated benefit obligation. 
C) Is always funded fully by employers. 
D) Can be a defined benefit plan or an undefined benefit plan. 
E) Is the same as Other Postretirement Benefits.

Question 7

A company issues 6%, 5 year bonds with a par value of $800,000 and semiannual interest payments. On the issue date, the annual market rate of interest is 8%. Compute the issue (selling) price of the bonds. The following information is taken from present value tables:

Accepted Answer

The answer of A company issues 6%, 5 year bonds...

Question 8

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity factor at 8% for 5 years is 3.9927. Each annual payment equals $75,000. The present value of the note is:

Accepted Answer

A) $56,352.84. 
B) $93,921.41. 
C) $375,000.00. 
D) $299,452.50. 
E) $187,842.81. 
A) $56,352.84. 
B) $93,921.41. 
C) $375,000.00. 
D) $299,452.50. 
E) $187,842.81.

Question 9

The issue price of a bond is equal to:

Accepted Answer

A) The present value of the bond's cash payments discounted at the bond's market rate. 
B) The present value of all future interest payments provided by a bond. 
C) The present value of the principal for an interest-bearing bond. 
D) The future value of all future cash payments provided by a bond. 
E) The future value of all future interest payments provided by a bond. 
A) The present value of the bond's cash payments discounted at the bond's market rate. 
B) The present value of all future interest payments provided by a bond. 
C) The present value of the principal for an interest-bearing bond. 
D) The future value of all future cash payments provided by a bond. 
E) The future value of all future interest payments provided by a bond.

Question 10

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

Accepted Answer

A) True 
 B)False

Question 11

The carrying (book) value of a bond payable is the par value of the bonds plus any discount or minus any premium.

Accepted Answer

A) True 
 B)False

Question 12

The market value (issue price) of a bond is equal to the present value of all future cash payments provided by the bond.

Accepted Answer

A) True 
 B)False

Question 13

On January 1, $300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock. The entry to record the conversion of the bonds includes all of the following entries except:

Accepted Answer

A) Debit to Bonds Payable $310,000. 
B) Debit to Premium on Bonds Payable $10,000. 
C) Credit to Common Stock $250,000. 
D) Credit to Paid-In Capital in Excess of Par Value, Common Stock $60,000. 
E) Debit to Bonds Payable $300,000. 
A) Debit to Bonds Payable $310,000. 
B) Debit to Premium on Bonds Payable $10,000. 
C) Credit to Common Stock $250,000. 
D) Credit to Paid-In Capital in Excess of Par Value, Common Stock $60,000. 
E) Debit to Bonds Payable $300,000.

Question 14

An annuity is a series of equal payments at equal time intervals.

Accepted Answer

A) True 
 B)False

Question 15

On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the issuance of the bond.

Accepted Answer

The answer of On January 1, a company issued 10%,...

Question 16

Describe installment notes and the nature of the typical payment pattern.

Accepted Answer

Installment notes are agreements to repa

Question 17

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 first payment on the note on December 31, Year 1 is:

Accepted Answer

A) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
B) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238. 
C) Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000. 
D) Debit Notes Payable $14,238; credit Cash $14,238. 
E) Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238. 
A) Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238. 
B) Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238. 
C) Debit Notes Payable $10,000; debit Interest Expense $7,000; credit Cash $17,000. 
D) Debit Notes Payable $14,238; credit Cash $14,238. 
E) Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.

Question 18

When the contract rate on a bond issue is less than the market rate, the bonds will generally sell at a discount.

Accepted Answer

A) True 
 B)False

Question 19

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A) Debit Interest Payable $13,500; credit Cash $13,500.00. 
B) Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
C) Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
D) Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E) Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
A) Debit Interest Payable $13,500; credit Cash $13,500.00. 
B) Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
C) Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
D) Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E) Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.

Question 20

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the issuance of the bond is:

Accepted Answer

A) Debit Cash $400,000; debit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207. 
B) Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000. 
C) Debit Bonds Payable $400,000; debit Bond Interest Expense $16,207; credit Cash $416,207. 
D) Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000. 
E) Debit Cash $383,793; credit Bonds Payable $383,793. 
A) Debit Cash $400,000; debit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207. 
B) Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000. 
C) Debit Bonds Payable $400,000; debit Bond Interest Expense $16,207; credit Cash $416,207. 
D) Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000. 
E) Debit Cash $383,793; credit Bonds Payable $383,793.

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

The carrying (book) value of a bond at the time when it is issued is always equal to its par value.

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

A pension plan:

A company issues 6%, 5 year bonds with a par value of $800,000 and semiannual interest payments. On the issue date, the annual market rate of interest is 8%. Compute the issue (selling) price of the bonds. The following information is taken from present value tables:

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity factor at 8% for 5 years is 3.9927. Each annual payment equals $75,000. The present value of the note is:

The issue price of a bond is equal to:

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

The carrying (book) value of a bond payable is the par value of the bonds plus any discount or minus any premium.

The market value (issue price) of a bond is equal to the present value of all future cash payments provided by the bond.

On January 1, $300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock. The entry to record the conversion of the bonds includes all of the following entries except:

An annuity is a series of equal payments at equal time intervals.

On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the issuance of the bond.

Describe installment notes and the nature of the typical payment pattern.

When the contract rate on a bond issue is less than the market rate, the bonds will generally sell at a discount.

Introducing Financial Accounting

Accounting System and Financial Statements

Adjusting Accounts for Financial Statements

Reporting and Analyzing Merchandising Operations

Reporting and Analyzing Inventories

Reporting and Analyzing Cash and Internal Controls

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Term Assets

Reporting and Analyzing Current Liabilities

Reporting and Analyzing Equity

Reporting and Analyzing Cash Flows

Analyzing and Interpreting Financial Statements

Applying Present and Future Values

Investments and International Operations

Reporting and Analyzing Partnerships

Filters

Exam 10: Reporting and Analyzing Long-Term Liabilities

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

The carrying (book) value of a bond at the time when it is issued is always equal to its par value.

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

A pension plan:

A company issues 6%, 5 year bonds with a par value of $800,000 and semiannual interest payments. On the issue date, the annual market rate of interest is 8%. Compute the issue (selling) price of the bonds. The following information is taken from present value tables:

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity factor at 8% for 5 years is 3.9927. Each annual payment equals $75,000. The present value of the note is:

The issue price of a bond is equal to:

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

The carrying (book) value of a bond payable is the par value of the bonds plus any discount or minus any premium.

The market value (issue price) of a bond is equal to the present value of all future cash payments provided by the bond.

On January 1, $300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock. The entry to record the conversion of the bonds includes all of the following entries except:

An annuity is a series of equal payments at equal time intervals.

On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the issuance of the bond.

Describe installment notes and the nature of the typical payment pattern.

When the contract rate on a bond issue is less than the market rate, the bonds will generally sell at a discount.

Introducing Financial Accounting

Accounting System and Financial Statements

Adjusting Accounts for Financial Statements

Reporting and Analyzing Merchandising Operations

Reporting and Analyzing Inventories

Reporting and Analyzing Cash and Internal Controls

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Term Assets

Reporting and Analyzing Current Liabilities

Reporting and Analyzing Equity

Reporting and Analyzing Cash Flows

Analyzing and Interpreting Financial Statements

Applying Present and Future Values

Investments and International Operations

Reporting and Analyzing Partnerships

Filters