Question 1

A discount on bonds payable is reported in the financial statements as

Accepted Answer

A)  a reduction from the bond liability on the balance sheet. 
B)  an expense on the income statement. 
C)  an assets on the balance sheet. 
D)  revenue on the income statement.

Question 2

Bonds that are backed with a pledge of the company's assets are called

Accepted Answer

A)  debenture bonds. 
B)  convertible bonds. 
C)  secured bonds. 
D)  registered bonds.

Question 3

What is the employer's payroll tax expense for the week?

Accepted Answer

A)  $113.00 
B)  $119.20 
C)  $174.20 
D)  $235.40

Question 4

A corporate bond with a face value of $1,000 is issued at 107. This means that the bond actually sold for:

Accepted Answer

A)  $107 dollars, and the stated interest rate was higher than the market interest rate. 
B)  $1,070 dollars, and the stated interest rate was higher than the market interest rate. 
C)  $107 dollars, and the stated interest rate was lower than the market interest rate. 
D)  $1,070 dollars, and the stated interest rate was lower than the market interest rate.

Question 5

Payroll taxes are contingent liabilities.

Accepted Answer

A) True 
 B)False

Question 6

Some bonds allow the borrower to repay the bond by issuing stock. These bonds are known as:

Accepted Answer

A)  convertible bonds. 
B)  bonds with a loan covenant. 
C)  callable bonds. 
D)  senior bonds.

Question 7

Obligations due to be paid within one year or the company's operating cycle, which ever is longer, are:

Accepted Answer

A)  current assets 
B)  current liabilities 
C)  earned revenues 
D)  non-current liabilities

Question 8

What is the total amount of interest expense that will be recorded over the life of these bonds?

Accepted Answer

A)  $300,000 
B)  $285,000 
C)  $315,000 
D)  $330,000

Question 9

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15, 2022. If interest rates fall in the economy so that similar financial investments pay 5%, IBM will:.

Accepted Answer

A)  not be able to issue the bonds because no one will buy them. 
B)  receive a higher issue price as buyers compete for the bonds. 
C)  have to accept a lower issue price to attract buyers. 
D)  have to reprint the bond certificates to change stated interest rate to 5%.

Question 10

A company's total assets and total liabilities at the end of the year are as follows:  The quick ratio for this company is approximately:

Accepted Answer

A)  1.09. 
B)  0.80. 
C)  1.16. 
D)  0.50.

Question 11

If a company's gross wages are $12,000, and it withholds $1,800 for income taxes and $800 for FICA taxes and other deductions, the journal entry to record the employees' pay should include a:

Accepted Answer

A)  debit to Wages Expense for $9,400. 
B)  debit to Wages Payable for $9,400. 
C)  credit to Wages Payable for $12,000. 
D)  credit to Cash for $9,400.

Question 12

On January 1, which of the following journal entries will be made by Backyard to record the proceeds and issue of the note?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 13

A company issued 10-year, 7% bonds with a face value of $100,000. The company received $97,947 for the bonds. Using the straight-line method of amortization, the amount of interest expense for the first interest period is:

Accepted Answer

A)  $7,000.00 
B)  $7,205.30 
C)  $6,794.70 
D)  $2,053.00

Question 14

You are considering buying a bond from a company that has a quick ratio of 0.45. This means that:

Accepted Answer

A)  the company has 45% of its total assets in the current category. 
B)  the company does not have the ability to pay off all the debt it owes with all the assets it owns. 
C)  the company does not have the ability to pay off all the debt that is due in the near future with assets that are available in the near future. 
D)  stockholders currently own 45% of the company's assets.

Question 15

A company receives $95 for merchandise sold to a consumer, of which $5 is for sales tax. The $5 of sales tax:

Accepted Answer

A)  increases sales revenue. 
B)  increases current liabilities. 
C)  increases selling expenses. 
D)  is not recorded.

Question 16

A company has liquid assets of $600,000 and current liabilities of $500,000. What is the effect on the quick ratio if the company records an accrual adjustment for salaries of $100,000 and pays accounts payable in the amount of $50,000?

Accepted Answer

A)  The quick ratio will not change as a result of either of these transactions. 
B)  The accrual adjustment will cause the quick ratio to decrease and the payment of accounts payable will not affect the quick ratio. 
C)  The accrual adjustment will cause the quick ratio to increase and the payment of accounts payable will not affect the quick ratio. 
D)  The accrual adjustment and the payment of accounts payable will both cause the quick ratio to decrease.

Question 17

The issuance price of a bond does not depend on

Accepted Answer

A)  the face value of the bond. 
B)  the market rate of interest. 
C)  the perceived risk associated with the bond. 
D)  the method used to amortize the discount or premium.

Question 18

Using straight-line amortization, when a bond is sold at a premium:

Accepted Answer

A)  the amortized premium is added to the interest payable to calculate interest expense. 
B)  bonds payable rises by a constant amount each year. 
C)  interest expense is calculated by subtracting the amortized premium from the interest payment that is to be made. 
D)  interest expense rises each year.

Question 19

When the amount of a contingent liability can be estimated and its likelihood is probable, the company should:

Accepted Answer

A)  include a description in the footnotes to the financial statements. 
B)  record the estimated amount of the liability times the probability of its occurrence. 
C)  record the estimated amount of the liability on the balance sheet. 
D)  omit the information about the contingent liability from its financial statements and footnotes.

Question 20

A 4-month, $6,500, 9% note payable incurs total interest of

Accepted Answer

A)  $585 
B)  $292 
C)  $146 
D)  $195

Exam 10: Reporting and Interpreting Liabilities