Question 1

If the market interest rate is greater than the coupon interest rate, bonds will sell

Accepted Answer

A) at a premium. 
B) at face value. 
C) at a discount. 
D) only after the stated interest rate is increased.

Question 2

If bonds are redeemable, they can be retired by the issuer before they mature.

Accepted Answer

A) True 
 B)False

Question 3

Interest rates on notes and loans are usually stated as a(n)

Accepted Answer

A) monthly rate. 
B) daily rate. 
C) semi-annual rate. 
D) annual rate.

Question 4

Harmonized Sales Tax (HST) collected by a retailer are expenses

Accepted Answer

A) of the retailer. 
B) of the customers. 
C) of the government. 
D) that are not recognized by the retailer until they are submitted to the government.

Question 5

As interest is recorded on a bank loan payable, the Interest Expense account is

Accepted Answer

A) increased; the Bank Loan Payable account is increased. 
B) increased; the Bank Loan Payable account is decreased. 
C) increased; the Interest Payable account is increased. 
D) decreased; the Interest Payable account is increased.

Question 6

On March 1, Broke Corp. issues a 5 year, 8%, $60,000 note payable. The terms of the note include monthly blended principal and interest payments of $1,217. The entry to record the first instalment payment will include a

Accepted Answer

A) debit to Notes Payable of $1,217. 
B) debit to Cash of $1,217. 
C) credit to Interest Expense of $4,800. 
D) debit to Interest Expense of $400.

Question 7

Raglan Ltd. issued a five-year note payable for $85,000 on January 1, 2012. Each January the company is required to pay $17,000 on the note. How will this note be reported on the December 31, 2013 statement of financial position?

Accepted Answer

A) Non-current liability, $85,000 
B) Non-current liability, $68,000 
C) Non-current liability, $68,000; Current liability, $17,000 
D) Non-current liability, $51,000; Current liability, $17,000

Question 8

A measure of a company's solvency is the

Accepted Answer

A) inventory turnover ratio. 
B) current ratio. 
C) times interest earned ratio. 
D) asset turnover ratio.

Question 9

If interest is due at maturity, a $50,000, 4%, 9-month note payable requires an interest payment of $1,500.

Accepted Answer

A) True 
 B)False

Question 10

The debt to total assets ratio measures the percentage of the total assets provided by creditors.

Accepted Answer

A) True 
 B)False

Question 11

The coupon interest rate is always equal to the market interest rate on the date that bonds are issued.

Accepted Answer

A) True 
 B)False

Question 12

Most companies pay current liabilities

Accepted Answer

A) out of current assets. 
B) by issuing notes payable. 
C) by issuing common shares. 
D) by creating non-current liabilities.

Question 13

A customer paid a total of $8,960 for a purchase, including 12% HST (Harmonized Sales Tax). How much was the HST?

Accepted Answer

A) $8,960 
B) $8,000 
C) $1,075 
D) $960

Question 14

When a bond is issued at a discount, the amount of interest expense for an interest period is calculated by

Accepted Answer

A) multiplying the carrying amount times the market interest rate. 
B) multiplying the carrying amount times the coupon interest rate. 
C) multiplying the face amount of the bonds by the coupon interest rate. 
D) multiplying the face amount of the bonds by the market interest rate.

Question 15

If bonds have been issued at a discount, then over the life of the bonds the

Accepted Answer

A) carrying amount of the bonds will decrease. 
B) carrying amount of the bonds will increase. 
C) interest expense will decrease. 
D) unamortized discount will increase.

Question 16

When a bond is retired early, a gain on redemption is recorded when the cash paid is less than the carrying amount.

Accepted Answer

A) True 
 B)False

Question 17

At the end of 2012, Jagwar Limited issued ten-year, 9% bonds payable, at a premium. During 2013, the company's accountant failed to amortize any of the bond premium. The omission of the premium amortization will

Accepted Answer

A) not affect profit for 2013. 
B) cause retained earnings at the end of 2013 to be overstated. 
C) cause profit for 2013 to be overstated. 
D) cause profit for 2013 to be understated.

Question 18

A company receives $297, of which $27 is for PST (provincial sales tax). The journal entry to record the sale would include a

Accepted Answer

A) credit to Sales Tax Expense for $27. 
B) credit to Sales Tax Payable for $27. 
C) credit to Sales for $297. 
D) debit to Cash for $270.

Question 19

A five-year, 6%, $50,000 note payable is issued on January 1. Terms include fixed annual principal payments of $10,000, plus interest on the outstanding balance. The entry to record the first instalment payment will include a

Accepted Answer

A) debit to Notes Payable of $10,000. 
B) credit to Interest Expense of $3,000. 
C) credit to Notes Payable of $13,000. 
D) debit to Cash of $10,000.

Question 20

If the market interest rate is greater than the coupon interest rate, bonds will sell at a discount.

Accepted Answer

A) True 
 B)False

Exam 10: Reporting and Analyzing Liabilities

If the market interest rate is greater than the coupon interest rate, bonds will sell

If bonds are redeemable, they can be retired by the issuer before they mature.

Interest rates on notes and loans are usually stated as a(n)

Harmonized Sales Tax (HST) collected by a retailer are expenses

As interest is recorded on a bank loan payable, the Interest Expense account is

On March 1, Broke Corp. issues a 5 year, 8%, $60,000 note payable. The terms of the note include monthly blended principal and interest payments of $1,217. The entry to record the first instalment payment will include a

Raglan Ltd. issued a five-year note payable for $85,000 on January 1, 2012. Each January the company is required to pay $17,000 on the note. How will this note be reported on the December 31, 2013 statement of financial position?

A measure of a company's solvency is the

If interest is due at maturity, a $50,000, 4%, 9-month note payable requires an interest payment of $1,500.

The debt to total assets ratio measures the percentage of the total assets provided by creditors.

The coupon interest rate is always equal to the market interest rate on the date that bonds are issued.

Most companies pay current liabilities

A customer paid a total of $8,960 for a purchase, including 12% HST (Harmonized Sales Tax) . How much was the HST?

When a bond is issued at a discount, the amount of interest expense for an interest period is calculated by

If bonds have been issued at a discount, then over the life of the bonds the

When a bond is retired early, a gain on redemption is recorded when the cash paid is less than the carrying amount.

At the end of 2012, Jagwar Limited issued ten-year, 9% bonds payable, at a premium. During 2013, the company's accountant failed to amortize any of the bond premium. The omission of the premium amortization will

A company receives $297, of which $27 is for PST (provincial sales tax) . The journal entry to record the sale would include a

A five-year, 6%, $50,000 note payable is issued on January 1. Terms include fixed annual principal payments of $10,000, plus interest on the outstanding balance. The entry to record the first instalment payment will include a

If the market interest rate is greater than the coupon interest rate, bonds will sell at a discount.