Question 1

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

Accepted Answer

A) Liability. 
B) Contra liability. 
C) Expense. 
D) Contra expense. 
E) Contra equity. 
A) Liability. 
B) Contra liability. 
C) Expense. 
D) Contra expense. 
E) Contra equity.

Question 2

____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

Accepted Answer

The answer of ____________________ bonds reduce a bondholder's risk by...

Question 3

A discount reduces the interest expense of a bond over its life.

Accepted Answer

A) True 
 B)False

Question 4

On January 1, a company issues 8%. 8 year, $500,000 bonds that pay interest semiannually. On the issue date, the annual market rate of interest is 10%. The following information is taken from present value tables:   What is the issue (selling) price of the bond, rounded to the nearest whole dollar?

Accepted Answer

A) $500,000 
B) $461,384 
C) $460,000 
D) $450,000 
E) $540,573 
A) $500,000 
B) $461,384 
C) $460,000 
D) $450,000 
E) $540,573

Question 5

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of interest expense will be included in the first annual payment?

Accepted Answer

A) $20,000 
B) $37,258 
C) $25,000 
D) $17,258 
E) $232,742 
A) $20,000 
B) $37,258 
C) $25,000 
D) $17,258 
E) $232,742

Question 6

Return on equity increases when the expected rate of return from the acquired assets is __________________ than the rate of interest on the bonds used to finance the asset acquisition.

Accepted Answer

The answer of Return on equity increases when the expected...

Question 7

All of the following statements regarding accounting treatments for liabilities under U.S. GAAP and IFRS are true except:

Accepted Answer

A) Accounting for bonds and notes under U.S.GAAP and IFRS is similar. 
B) Both U.S.GAAP and IFRS require companies to distinguish between operating leases and capital leases. 
C) The criteria for identifying a lease as a capital lease are more general under IFRS. 
D) Both U.S.GAAP and IFRS require companies to record costs of retirement benefits as employees work and earn them. 
E) Use of the fair value option to account for bonds and notes is not acceptable under U.S.GAAP or IFRS. 
A) Accounting for bonds and notes under U.S.GAAP and IFRS is similar. 
B) Both U.S.GAAP and IFRS require companies to distinguish between operating leases and capital leases. 
C) The criteria for identifying a lease as a capital lease are more general under IFRS. 
D) Both U.S.GAAP and IFRS require companies to record costs of retirement benefits as employees work and earn them. 
E) Use of the fair value option to account for bonds and notes is not acceptable under U.S.GAAP or IFRS.

Question 8

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Accepted Answer

A) True 
 B)False

Question 9

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Accepted Answer

A) Convertible bonds. 
B) Sinking fund bonds. 
C) Callable bonds. 
D) Serial bonds. 
E) Junk bonds. 
A) Convertible bonds. 
B) Sinking fund bonds. 
C) Callable bonds. 
D) Serial bonds. 
E) Junk bonds.

Question 10

Which of the following statements is true?

Accepted Answer

A) Interest on bonds is tax deductible. 
B) Interest on bonds is not tax deductible. 
C) Dividends to stockholders are tax deductible. 
D) Bonds do not have to be repaid. 
E) Bonds always increase return on equity. 
A) Interest on bonds is tax deductible. 
B) Interest on bonds is not tax deductible. 
C) Dividends to stockholders are tax deductible. 
D) Bonds do not have to be repaid. 
E) Bonds always increase return on equity.

Question 11

The _________________________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.

Accepted Answer

The answer of The _________________________ method of amortizing a bond...

Question 12

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 issuance of the bond is:

Accepted Answer

A) Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000. 
B) Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177. 
C) Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177. 
D) Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000. 
E) Debit Cash $312,177; credit Bonds Payable $312,177. 
A) Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000. 
B) Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177. 
C) Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177. 
D) Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000. 
E) Debit Cash $312,177; credit Bonds Payable $312,177.

Question 13

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 $632,000. The company uses the straight-line method of amortizing bond premiums. 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 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 using the straight-line method at a rate of $10,087 every six months. The life of these bonds is:

Accepted Answer

A) 15 years. 
B) 30 years. 
C) 26.5 years. 
D) 32 years. 
E) 35 years. 
A) 15 years. 
B) 30 years. 
C) 26.5 years. 
D) 32 years. 
E) 35 years.

Question 15

Marwick Corporation issues 8%, 5 year bonds with a par value of $1,000,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling) price, assuming the Present Value of $1 factor for 3% and 10 semi-annual periods is .7441 and the Present Value of an Annuity factor for the same rate and period is 8.5302?

Accepted Answer

A) $1,000,000 
B) $789,244 
C) $1,341,208 
D) $1,085,308 
E) $658,792 
A) $1,000,000 
B) $789,244 
C) $1,341,208 
D) $1,085,308 
E) $658,792

Question 16

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

Accepted Answer

A) True 
 B)False

Question 17

On January 1, the Rodrigues Corporation leased some equipment on a 2-year lease, paying $15,000 per year each December 31. The lease is considered to be an operating lease. Prepare the general journal entry to record the first lease payment on December 31.

Accepted Answer

The answer of On January 1, the Rodrigues Corporation leased...

Question 18

Amortizing a bond discount:

Accepted Answer

A) Allocates a portion of the total discount to interest expense each interest period. 
B) Increases the market value of the Bonds Payable. 
C) Decreases the Bonds Payable account. 
D) Decreases interest expense each period. 
E) Increases cash flows from the bond. 
A) Allocates a portion of the total discount to interest expense each interest period. 
B) Increases the market value of the Bonds Payable. 
C) Decreases the Bonds Payable account. 
D) Decreases interest expense each period. 
E) Increases cash flows from the bond.

Question 19

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Accepted Answer

A) True 
 B)False

Question 20

When the contract rate is above the market rate, a bond sells at a discount.

Accepted Answer

A) True 
 B)False

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

____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

A discount reduces the interest expense of a bond over its life.

On January 1, a company issues 8%. 8 year, $500,000 bonds that pay interest semiannually. On the issue date, the annual market rate of interest is 10%. The following information is taken from present value tables: What is the issue (selling) price of the bond, rounded to the nearest whole dollar?

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of interest expense will be included in the first annual payment?

Return on equity increases when the expected rate of return from the acquired assets is __________________ than the rate of interest on the bonds used to finance the asset acquisition.

All of the following statements regarding accounting treatments for liabilities under U.S. GAAP and IFRS are true except:

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Which of the following statements is true?

The _________________________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

On January 1, the Rodrigues Corporation leased some equipment on a 2-year lease, paying $15,000 per year each December 31. The lease is considered to be an operating lease. Prepare the general journal entry to record the first lease payment on December 31.

Amortizing a bond discount:

Mortgage bonds are backed only by the good faith and credit of the issuing company.

When the contract rate is above the market rate, a bond sells 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 Discount on Bonds Payable account is a(n):

____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

A discount reduces the interest expense of a bond over its life.

On January 1, a company issues 8%. 8 year, $500,000 bonds that pay interest semiannually. On the issue date, the annual market rate of interest is 10%. The following information is taken from present value tables: What is the issue (selling) price of the bond, rounded to the nearest whole dollar?

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of interest expense will be included in the first annual payment?

Return on equity increases when the expected rate of return from the acquired assets is __________________ than the rate of interest on the bonds used to finance the asset acquisition.

All of the following statements regarding accounting treatments for liabilities under U.S. GAAP and IFRS are true except:

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Which of the following statements is true?

The _________________________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

On January 1, the Rodrigues Corporation leased some equipment on a 2-year lease, paying $15,000 per year each December 31. The lease is considered to be an operating lease. Prepare the general journal entry to record the first lease payment on December 31.

Amortizing a bond discount:

Mortgage bonds are backed only by the good faith and credit of the issuing company.

When the contract rate is above the market rate, a bond sells 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