Question 1

The interest charged on a $70,000 note payable, at the rate of 6%, on a 60-day note would be

Accepted Answer

A)  $4,200. 
B)  $2,100. 
C)  $1,050. 
D)  $700.

Question 2

Restoration Company issued bonds that had the following data associated with them: Interest to be paid is $40,000.
Interest expense to be recorded is $45,000.
Which of the following characteristics is true?

Accepted Answer

A)  The bonds are sold at a premium. 
B)  After recording the interest expense, the amortization will decrease the bond carrying value. 
C)  The difference between the interest expense and the interest to be paid is the bond's par value. 
D)  After recording the interest expense, the amortization will increase the bond carrying value.

Question 3

When authorizing bonds to be issued, the board of directors does not specify the

Accepted Answer

A)  total number of bonds authorized to be sold. 
B)  contractual interest rate. 
C)  selling price. 
D)  total face value of the bonds.

Question 4

The current carrying value of Kennett's $600,000 face value bonds is $597,750. If the bonds are retired at 102, what would be the amount Kennett would pay its bondholders?

Accepted Answer

A)  $597,750 
B)  $600,000 
C)  $603,000 
D)  $612,000

Question 5

With an interest-bearing note, the amount of assets received upon issuance of the note is generally

Accepted Answer

A)  equal to the note's face value. 
B)  greater than the note's face value. 
C)  less than the note's face value. 
D)  equal to the note's maturity value.

Question 6

The sale of bonds above face value

Accepted Answer

A)  is a rare occurrence. 
B)  will cause the total cost of borrowing to be less than the bond interest paid. 
C)  will cause the total cost of borrowing to be more than the bond interest paid. 
D)  will have no net effect on interest expense by the time the bonds mature.

Question 7

The following partial amortization schedule is available for Courtney Company who sold $500,000, five-year, 10% bonds on January 1, 2014 for $520,000 and uses annual straight-line amortization.  Which of the following amounts should be shown in cell (ii)?

Accepted Answer

A)  $54,000 
B)  $46,000 
C)  $52,000 
D)  $40,000

Question 8

Wolford Company borrowed $1,000,000 from U.S. Bank on January 1, 2013 in order to expand its mining capabilities. The five-year note required annual payments of $260,436 and carried an annual interest rate of 9.5%. What is the amount of expense Wolford must recognize on its 2014 income statement?
A) $95,000
B) $79,284
C) $70,259
D) $62,073

Accepted Answer

The answer of Wolford Company borrowed $1,000,000 from U.S. Bank...

Question 9

In general, what are the requirements for the financial statement presentation of long-term liabilities?
(b) What ratios may be computed to evaluate a company's liquidity and solvency?

Accepted Answer

The answer of In general, what are the requirements for...

Question 10

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

Accepted Answer

A)  bond interest is deductible for tax purposes. 
B)  interest must be paid on a periodic basis regardless of earnings. 
C)  income to stockholders may increase as a result of trading on the equity. 
D)  the bondholders do not have voting rights.

Question 11

The calculation of interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance.

Accepted Answer

A) True 
 B)False

Question 12

Bonds with a face value of $300,000 and a quoted price of 97¼ have a selling price of

Accepted Answer

A)  $291,750. 
B)  $291,075. 
C)  $291,006. 
D)  $292,500.

Question 13

The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n)

Accepted Answer

A)  interest rate that is close to the market interest rate. 
B)  uniform rate of interest. 
C)  more variable interest rate. 
D)  interest rate that increases or decreases slightly over time.

Question 14

The following totals for the month of April were taken from the payroll records of Noll Company.  The entry to record the payment of net payroll would include a

Accepted Answer

A)  debit to Salaries and Wages Payable for $39,580. 
B)  debit to Salaries and Wages Payable for $40,660. 
C)  debit to Salaries and Wages Payable for $36,070. 
D)  credit to Cash for $45,250.

Question 15

On January 1, 2014, Michelin Company, a calendar-year company, is issued €9,000,000 of mortgage notes payable, of which €3,000,000 is due on January 1 for each of the next three years. The proper statement of financial position presentation on December 31, 2014, is

Accepted Answer

A)  Current liabilities, €9,000,000. 
B)  Long-term Debt, €9,000,000. 
C)  Current liabilities, €4,500,000; Long-term Debt, €4,500,000. 
D)  Current liabilities, €3,000,000; Long-term Debt, €6,000,000.

Question 16

Convertible bonds are often called callable bonds.

Accepted Answer

A) True 
 B)False

Question 17

The following totals for the month of April were taken from the payroll records of Noll Company.  The entry to record accrual of employer's payroll taxes would include a

Accepted Answer

A)  debit to Payroll Tax Expense for $1,240. 
B)  debit to Payroll Tax Expense for $5,830. 
C)  credit to FICA Taxes Payable for $9,180. 
D)  credit to Payroll Tax Expense for $1,240.

Question 18

Liquidity ratios measure a company's

Accepted Answer

A)  operating cycle. 
B)  revenue-producing ability. 
C)  short-term debt paying ability. 
D)  long-range solvency.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Manuel Company had cash sales of $86,800 (including taxes) for the month of June. Sales are subject to 8.5% sales tax. Prepare the entry to record the sale.

Accepted Answer

The answer of Manuel Company had cash sales of $86,800...

Exam 10: Reporting and Analyzing Liabilities

The interest charged on a $70,000 note payable, at the rate of 6%, on a 60-day note would be

Restoration Company issued bonds that had the following data associated with them: Interest to be paid is $40,000. Interest expense to be recorded is $45,000. Which of the following characteristics is true?

When authorizing bonds to be issued, the board of directors does not specify the

The current carrying value of Kennett's $600,000 face value bonds is $597,750. If the bonds are retired at 102, what would be the amount Kennett would pay its bondholders?

With an interest-bearing note, the amount of assets received upon issuance of the note is generally

The sale of bonds above face value

The following partial amortization schedule is available for Courtney Company who sold $500,000, five-year, 10% bonds on January 1, 2014 for $520,000 and uses annual straight-line amortization. Which of the following amounts should be shown in cell (ii) ?

In general, what are the requirements for the financial statement presentation of long-term liabilities? (b) What ratios may be computed to evaluate a company's liquidity and solvency?

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

The calculation of interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance.

Bonds with a face value of $300,000 and a quoted price of 97¼ have a selling price of

The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n)

The following totals for the month of April were taken from the payroll records of Noll Company. The entry to record the payment of net payroll would include a

On January 1, 2014, Michelin Company, a calendar-year company, is issued €9,000,000 of mortgage notes payable, of which €3,000,000 is due on January 1 for each of the next three years. The proper statement of financial position presentation on December 31, 2014, is

Convertible bonds are often called callable bonds.

The following totals for the month of April were taken from the payroll records of Noll Company. The entry to record accrual of employer's payroll taxes would include a

Liquidity ratios measure a company's

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

Manuel Company had cash sales of $86,800 (including taxes) for the month of June. Sales are subject to 8.5% sales tax. Prepare the entry to record the sale.