Question 1

The issue price of bonds is found by computing the future value of the bond's cash payments, discounted at the market rate of interest.

Accepted Answer

A) True 
 B)False

Question 2

On January 1, a company issued 10%, 10-year bonds with a par value of $720,000. The bonds pay interest each July 1 and January 1. The bonds were sold for $817,860 cash, based on an annual market rate of 8%. Prepare the issuer's journal entry to record the first semiannual interest payment assuming the effective interest method is used.

Accepted Answer

@#IMG-DLM& Cash payment: $720,000 * 10%

Question 3

An advantage of bond financing is that issuing bonds does not affect owner control.

Accepted Answer

A) True 
 B)False

Question 4

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 first interest payment using straight-line amortization is:

Accepted Answer

A) Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
B) Debit Interest Expense $14,000.00; credit Cash $14,000.00. 
C) Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
D) Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
E) Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00. 
A) Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
B) Debit Interest Expense $14,000.00; credit Cash $14,000.00. 
C) Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
D) Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
E) Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00.

Question 5

A company issued 10%, 5-year bonds with a par value of $2,000,000, on January 1. Interest is to be paid semiannually each June 30 and December 31. The bonds were sold at $2,162,290 based on an annual market rate of 8%. The company uses the effective interest method of amortization.
(1) Prepare an amortization table for the first two semiannual payment periods using the format shown below.   (2) Prepare the journal entry to record the first semiannual interest payment.

Accepted Answer

(1) @#IMG-DLM& 6/30
Cash payment: $2,000,000 * 10%

Question 6

The carrying value of a long-term note payable is computed as:

Accepted Answer

A) The future value of all remaining payments, using the market rate of interest. 
B) The face value of the long-term note less the total of all future interest payments. 
C) The present value of all remaining payments, discounted using the market rate of interest at the time of issuance. 
D) The present value of all remaining interest payments, discounted using the note's rate of interest. 
E) The face value of the long-term note plus the total of all future interest payments. 
A) The future value of all remaining payments, using the market rate of interest. 
B) The face value of the long-term note less the total of all future interest payments. 
C) The present value of all remaining payments, discounted using the market rate of interest at the time of issuance. 
D) The present value of all remaining interest payments, discounted using the note's rate of interest. 
E) The face value of the long-term note plus the total of all future interest payments.

Question 7

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 8

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 discount amortized each period is $1,634.69.
($500,000 - $473,845)/16 = $1,634.69

Accepted Answer

A) True 
 B)False

Question 9

On August 1, a company issues 6%, 10 year, $600,000 par value bonds that pay interest semiannually each February 1 and August 1. The bonds sold at $592,000. The company uses the straight-line method of amortizing bond discounts. The company's year-end is December 31. Prepare the general journal entry to record the interest accrued at December 31.

Accepted Answer

@#IMG-DLM& Interest payable = $600,000 *

Question 10

A company purchased two new delivery vans for a total of $250,000 on January 1, Year 1. The company paid $40,000 cash and signed a $210,000, 3-year, 8% note for the remaining balance. The note is to be paid in three annual end-of-year payments of $81,487 each, with the first payment on December 31, Year 1. Each payment includes interest on the unpaid balance plus principal.
(1) Prepare a note amortization table using the format below:   (2) Prepare the journal entries to record the purchase of the vans on January 1, Year 1 and the second annual installment payment on December 31, Year 2.

Accepted Answer

(1) @#IMG-DLM& 12/31/Yr 1:
Interest expense: $210,

Question 11

A company's total liabilities divided by its total stockholders' equity is called the:

Accepted Answer

A) Equity ratio. 
B) Return on total assets ratio. 
C) Pledged assets to secured liabilities ratio. 
D) Debt-to-equity ratio. 
E) Times secured liabilities earned ratio. 
A) Equity ratio. 
B) Return on total assets ratio. 
C) Pledged assets to secured liabilities ratio. 
D) Debt-to-equity ratio. 
E) Times secured liabilities earned ratio.

Question 12

_________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

Accepted Answer

The answer of _________________________ leases are short-term or cancelable leases...

Question 13

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

Accepted Answer

The answer of An _______________ is a series of equal...

Question 14

The Premium on Bonds Payable account is a(n):

Accepted Answer

A) Revenue account. 
B) Adjunct or accretion liability account. 
C) Contra revenue account. 
D) Contra asset account. 
E) Equity account. 
A) Revenue account. 
B) Adjunct or accretion liability account. 
C) Contra revenue account. 
D) Contra asset account. 
E) Equity account.

Question 15

A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.

Accepted Answer

The answer of A company has 10%, 20-year bonds outstanding...

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Debentures always have specific assets of the issuing company pledged as collateral.

Accepted Answer

A) True 
 B)False

Question 18

Secured bonds:

Accepted Answer

A) Are called debentures. 
B) Have specific assets of the issuing company pledged as collateral. 
C) Are backed by the issuer's bank. 
D) Are subordinated to those of other unsecured liabilities. 
E) Are the same as sinking fund bonds. 
A) Are called debentures. 
B) Have specific assets of the issuing company pledged as collateral. 
C) Are backed by the issuer's bank. 
D) Are subordinated to those of other unsecured liabilities. 
E) Are the same as sinking fund bonds.

Question 19

A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6.
If total assets and total liabilities are $350,000 and $200,000, respectively, stockholders' equity must be $150,000. Thus, the debt-to-equity ratio is $200,000/$150,000 or 1.3.

Accepted Answer

A) True 
 B)False

Question 20

A company issues 9% bonds with a par value of $100,000 at par on April 1, which is 4 months after the most recent interest date. The journal entry to record the bond issue includes a:

Accepted Answer

A) $100,000 debit to Cash. 
B) $3,000 debit to Interest Expense. 
C) $100,000 credit to Bonds Payable. 
D) $103,000 credit to Bonds Payable. 
E) $3,000 debit to Interest PayablE.$100,000 * .09 * 4/12 year = $3,000 accrued interest 
A) $100,000 debit to Cash. 
B) $3,000 debit to Interest Expense. 
C) $100,000 credit to Bonds Payable. 
D) $103,000 credit to Bonds Payable. 
E) $3,000 debit to Interest PayablE.$100,000 * .09 * 4/12 year = $3,000 accrued interest

The issue price of bonds is found by computing the future value of the bond's cash payments, discounted at the market rate of interest.

An advantage of bond financing is that issuing bonds does not affect owner control.

The carrying value of a long-term note payable is computed as:

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 company's total liabilities divided by its total stockholders' equity is called the:

_________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

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

The Premium on Bonds Payable account is a(n):

A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.

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

Debentures always have specific assets of the issuing company pledged as collateral.

Secured bonds:

A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6. If total assets and total liabilities are $350,000 and $200,000, respectively, stockholders' equity must be $150,000. Thus, the debt-to-equity ratio is $200,000/$150,000 or 1.3.

A company issues 9% bonds with a par value of $100,000 at par on April 1, which is 4 months after the most recent interest date. The journal entry to record the bond issue includes a:

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 issue price of bonds is found by computing the future value of the bond's cash payments, discounted at the market rate of interest.

An advantage of bond financing is that issuing bonds does not affect owner control.

The carrying value of a long-term note payable is computed as:

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 company's total liabilities divided by its total stockholders' equity is called the:

_________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

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

The Premium on Bonds Payable account is a(n):

A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.

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

Debentures always have specific assets of the issuing company pledged as collateral.

Secured bonds:

A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6. If total assets and total liabilities are $350,000 and $200,000, respectively, stockholders' equity must be $150,000. Thus, the debt-to-equity ratio is $200,000/$150,000 or 1.3.

A company issues 9% bonds with a par value of $100,000 at par on April 1, which is 4 months after the most recent interest date. The journal entry to record the bond issue includes a:

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