Question 1

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker for collection, are called:

Accepted Answer

A) Coupon bonds. 
B) Callable bonds. 
C) Serial bonds. 
D) Convertible bonds. 
E) Registered bonds. 
A) Coupon bonds. 
B) Callable bonds. 
C) Serial bonds. 
D) Convertible bonds. 
E) Registered bonds.

Question 2

Johanna Corporation issued $3,000,000 of 8%, 20-year bonds payable at par value on January 1. Interest is payable each June 30 and December 31.
(a) Prepare the general journal entry to record the issuance of the bonds on January 1.
(b) Prepare the general journal entry to record the first interest payment on June 30.

Accepted Answer

The answer of Johanna Corporation issued $3,000,000 of 8%, 20-year...

Question 3

On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $473,845. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30 is $25,000.
Interest Expense = Cash Paid + Discount Amortization
Interest Expense = ($500,000 * 10% * 6/12) + ($26,155/16) = $26,634.69

Accepted Answer

A) True 
 B)False

Question 4

The party that has the right to exercise a call option on callable bonds is:

Accepted Answer

A) The bondholder. 
B) The bond issuer. 
C) The bond indenture. 
D) The bond trustee. 
E) The bond underwriter. 
A) The bondholder. 
B) The bond issuer. 
C) The bond indenture. 
D) The bond trustee. 
E) The bond underwriter.

Question 5

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Accepted Answer

A) True 
 B)False

Question 6

Mercy Hospital issued $1,000,000 of 5% 20-year bonds on January 1 that pay interest semiannually each June 30 and December 31. The market interest rate at the time of issue was 5%. The journal entry Mercy Hospital records for the issuance of the bonds is:

Accepted Answer

A) Debit Bonds Payable $1,000,000; credit Cash $1,000,000. 
B) Debit Cash $1,050,000; credit Bond Interest Payable $50,000; credit Bonds Payable $1,000,000. 
C) Debit Cash $1,000,000; credit Bonds Payable $1,000,000. 
D) Debit Bond Interest Expense $50,000; credit Cash $50,000. 
E) Debit Bond Investment $1,000,000; credit Cash $1,000,000. 
A) Debit Bonds Payable $1,000,000; credit Cash $1,000,000. 
B) Debit Cash $1,050,000; credit Bond Interest Payable $50,000; credit Bonds Payable $1,000,000. 
C) Debit Cash $1,000,000; credit Bonds Payable $1,000,000. 
D) Debit Bond Interest Expense $50,000; credit Cash $50,000. 
E) Debit Bond Investment $1,000,000; credit Cash $1,000,000.

Question 7

A company may retire bonds by all but which of the following means?

Accepted Answer

A) Exercising a call option. 
B) The holders converting them to stock. 
C) Purchasing the bonds on the open market. 
D) Paying them off at maturity. 
E) Paying all future interest and cancelling the debt. 
A) Exercising a call option. 
B) The holders converting them to stock. 
C) Purchasing the bonds on the open market. 
D) Paying them off at maturity. 
E) Paying all future interest and cancelling the debt.

Question 8

Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

Accepted Answer

A) True 
 B)False

Question 9

On March 1, a company issues 6%, 10 year $300,000 par value bonds that pay semiannual interest each June 30 and December 31. The bonds sell at par value plus interest accrued since January 1. Prepare the general journal entry to record the issuance of the bonds on March 1.

Accepted Answer

@#IMG-DLM& Interest

Question 10

The contract between the bond issuer and the bondholders identifying the rights and obligations of the parties, is called a(n):

Accepted Answer

A) Debenture. 
B) Bond indenture. 
C) Mortgage. 
D) Installment note. 
E) Mortgage contract. 
A) Debenture. 
B) Bond indenture. 
C) Mortgage. 
D) Installment note. 
E) Mortgage contract.

Question 11

Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals):

Accepted Answer

A) 0.56 
B) 1.80 
C) 0.44 
D) 0.80 
E) 1.25 
A) 0.56 
B) 1.80 
C) 0.44 
D) 0.80 
E) 1.25

Question 12

A corporation plans to invest $1 million in oil exploration. The corporation is considering two plans to raise the money. Under Plan #1, bonds with a contract rate of interest of 6% would be issued. Under Plan #2, 50,000 additional shares of common stock would be issued at $20 per share. The corporation currently has 300,000 shares of stock outstanding, and it expects to earn $700,000 per year before bond interest and income taxes. The net income and return on investment for both plans is shown below:   Comment on the relative effects of each alternative, including when one form of financing is preferred to another.

Accepted Answer

Plan #1 provides a slightly higher retur

Question 13

A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

Accepted Answer

A) True 
 B)False

Question 14

On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,087 every six months. The company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Accepted Answer

A) $3,220,000. 
B) $3,340,063. 
C) $3,097,500. 
D) $3,780,000. 
E) $3,902,500. 
A) $3,220,000. 
B) $3,340,063. 
C) $3,097,500. 
D) $3,780,000. 
E) $3,902,500.

Question 15

When applying equal total payments to a note, with each payment the amount applied to the note principal ____________ while the interest expense for the note _____________.

Accepted Answer

increases;

Question 16

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 amount of interest expense each semi-annual period using straight-line amortization is:

Accepted Answer

A) $14,000.00. 
B) $28,000.00. 
C) $17,620.70. 
D) $31,241.40. 
E) $15,620.70. 
A) $14,000.00. 
B) $28,000.00. 
C) $17,620.70. 
D) $31,241.40. 
E) $15,620.70.

Question 17

A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into. The loan is at 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan (rounded) is:

Accepted Answer

A) $15,877. 
B) $12,400. 
C) $5,592. 
D) $9,200. 
E) $47,630. 
A) $15,877. 
B) $12,400. 
C) $5,592. 
D) $9,200. 
E) $47,630.

Question 18

Bonds that give the issuer an option of retiring them before they mature are:

Accepted Answer

A) Debentures. 
B) Serial bonds. 
C) Sinking fund bonds. 
D) Registered bonds. 
E) Callable bonds. 
A) Debentures. 
B) Serial bonds. 
C) Sinking fund bonds. 
D) Registered bonds. 
E) Callable bonds.

Question 19

Explain the accounting procedures when a bond's interest period does not coincide with the issuer's accounting period.

Accepted Answer

If the bond's interest period does not c

Question 20

An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

Accepted Answer

A) True 
 B)False

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker for collection, are called:

The party that has the right to exercise a call option on callable bonds is:

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Mercy Hospital issued $1,000,000 of 5% 20-year bonds on January 1 that pay interest semiannually each June 30 and December 31. The market interest rate at the time of issue was 5%. The journal entry Mercy Hospital records for the issuance of the bonds is:

A company may retire bonds by all but which of the following means?

Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

On March 1, a company issues 6%, 10 year $300,000 par value bonds that pay semiannual interest each June 30 and December 31. The bonds sell at par value plus interest accrued since January 1. Prepare the general journal entry to record the issuance of the bonds on March 1.

The contract between the bond issuer and the bondholders identifying the rights and obligations of the parties, is called a(n):

Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals):

A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

When applying equal total payments to a note, with each payment the amount applied to the note principal while the interest expense for the note _.

A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into. The loan is at 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan (rounded) is:

Bonds that give the issuer an option of retiring them before they mature are:

Explain the accounting procedures when a bond's interest period does not coincide with the issuer's accounting period.

An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

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

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker for collection, are called:

The party that has the right to exercise a call option on callable bonds is:

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Mercy Hospital issued $1,000,000 of 5% 20-year bonds on January 1 that pay interest semiannually each June 30 and December 31. The market interest rate at the time of issue was 5%. The journal entry Mercy Hospital records for the issuance of the bonds is:

A company may retire bonds by all but which of the following means?

Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

On March 1, a company issues 6%, 10 year $300,000 par value bonds that pay semiannual interest each June 30 and December 31. The bonds sell at par value plus interest accrued since January 1. Prepare the general journal entry to record the issuance of the bonds on March 1.

The contract between the bond issuer and the bondholders identifying the rights and obligations of the parties, is called a(n):

Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals):

A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

When applying equal total payments to a note, with each payment the amount applied to the note principal ____________ while the interest expense for the note _____________.

A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into. The loan is at 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan (rounded) is:

Bonds that give the issuer an option of retiring them before they mature are:

Explain the accounting procedures when a bond's interest period does not coincide with the issuer's accounting period.

An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

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

When applying equal total payments to a note, with each payment the amount applied to the note principal while the interest expense for the note _.