Question 1

Which of the following statements about callable debentures is true?

Accepted Answer

A)  Callable debentures give the issuer the flexibility to pay off the debentures whenever it benefits the company. 
B)  Whether the debentures are called or purchased, the journal entry is the same. 
C)  The call price is usually 100 or a few percentage points above maturity value to provide an incentive to the debenture holder. 
D)  All of the above

Question 2

On 1 January 2017,Bratios Company purchases equipment and signs a 6-year mortgage payable for $80,000 at 15%.The mortgage will be paid in equal annual instalments of $21,139,beginning 1 January 2018.Calculate the portion of interest expense paid on the third instalment.(Round to the nearest dollar.)

Accepted Answer

A)  $21,139 
B)  $70,861 
C)  $9053 
D)  $12,000

Question 3

Trek Company signed a 9%,10-year note for $155,000.The company paid $2900 as the instalment for the first month.After the first payment,what is the updated principal balance? (Round to the nearest dollar.)

Accepted Answer

A)  $153,837 
B)  $157,900 
C)  $153,263 
D)  $152,100

Question 4

Premium on debentures payable is considered to be additional interest expense of the company that issues the debenture.

Accepted Answer

A) True 
 B)False

Question 5

Premium on debentures payable is spread over the term of the debentures and reduces total interest expense.

Accepted Answer

A) True 
 B)False

Question 6

The time value of money is based on which of the following concepts?

Accepted Answer

A)  The concept that money can be converted into other currencies over time 
B)  The concept that money loses its purchasing power over time 
C)  The concept that money becomes obsolete over time 
D)  The concept that money earns income over time

Question 7

A debenture is sold for an amount less than its face value.Which of the following statements would explain why?

Accepted Answer

A)  The debenture's stated rate is higher than the prevailing market rate at time of sale. 
B)  The debenture is not secured by specific assets of the issuer. 
C)  The debenture's stated rate is lower than the prevailing market rate at time of sale. 
D)  The debenture's stated rate is the same as the prevailing market rate at time of sale.

Question 8

GST clearing would normally be shown on the balance sheet in non-current liabilities.

Accepted Answer

A) True 
 B)False

Question 9

Balances for debentures payable on the balance sheet will show the balances minus any discount or plus any premium.

Accepted Answer

A) True 
 B)False

Question 10

On 1 March 2017,Vinnie Services issued a 9% long-term note payable for $21,000.It is payable over a 3-year term in $7000 principal instalments on 1 March of each year,beginning 1 March 2018.Which of the following entries needs to be made at 1 March 2017?

Accepted Answer

A)   
B)  $$\begin{array} { | c | l | l | } 
\hline \text { Long-term note payable } & \$ 21,000 & \
\hline \text { Accounts payable } & & 21,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | c | l | l | } 
\hline \text { Cash } & \$ 21,000 & \
\hline \text { Long-term note payable } & & 21,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | l | l | } 
\hline \text { Current portion of long-term note payable } & \$ 21,000 & \
\hline \text { Long-term note payable } & & 21,000 \
\hline
\end{array}$$

Question 11

Which of the following statements is TRUE about a debenture that is issued at a premium?

Accepted Answer

A)  Its interest rate is lower than the prevailing market rate. 
B)  It will repay principal at more than the face value. 
C)  It will be sold at par. 
D)  It will be sold above par.

Question 12

On 1 January 2017,Carter Sales issued $25,000 in debentures for $22,300.They were eight year debentures with a stated rate of 11% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the debenture discount.After the second interest payment on 31 December 2017,what was the debenture carrying amount? (Round to the nearest dollar.)

Accepted Answer

A)  $22,300 
B)  $22,638 
C)  $22,469 
D)  $25,000

Question 13

On 1 November 2016,Archangel Services issued $301,000 of 5-year debentures with a stated rate of 15%.The debentures were sold at par,and Archangel makes semiannual payments on 30 April and 31 October.At 31 December 2016,Archangel made an adjusting entry to accrue interest at year-end.No further entries were made until 30 April 2017,when the first payment was sent out.How much interest expense was recorded for the period of 1 January to 30 April 2017? (Round to the nearest dollar.)

Accepted Answer

A)  $45,150 
B)  $22,575 
C)  $36,120 
D)  $15,050

Question 14

Trek Company signed a 11%,10-year note for $158,000.The company paid $2700 as the instalment for the first month.What portion of the first monthly payment is interest expense? (Round to the nearest dollar.)

Accepted Answer

A)  $1448 
B)  $1252 
C)  $15,867 
D)  $30,547

Question 15

The balance in the Debentures payable account is a credit of $67,000.The balance in the Discount on debentures payable account is a debit of $2150.How much is the debentures' carrying amount?

Accepted Answer

A)  $2150 
B)  $67,000 
C)  $69,150 
D)  $64,850

Question 16

The current portion of notes payable would normally be shown on the balance sheet in non-current liabilities.

Accepted Answer

A) True 
 B)False

Question 17

Blanding Company issues $1,174,000 of 12%,10-year debentures at 99 on 28 February 2017.The debentures pay interest on 28 February and 31 August.Assume that Blanding uses the straight-line method for amortisation.What is the journal entry to record the first interest payment on 31 August 2017? (Round to the nearest dollar.)

Accepted Answer

A)  debit to Discount on debentures payable for $587 
B)  debit to Cash for $70,440 
C)  debit to Interest expense for $71,027 
D)  debit to Interest expense for $69,853

Question 18

On 1 January 2017,Carter Sales issued $39,000 in debentures for $20,700.They were six year debentures with a stated rate of 9% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the Debentures discount.On 30 June 2017,when Carter makes the first payment to investors,how much will they report as Interest expense? (Round to the nearest dollar.)

Accepted Answer

A)  $1525 
B)  $37,185 
C)  $1755 
D)  $3280

Question 19

The balance in the Debentures payable account is a credit of $50 000.The balance in the Discount on debentures payable account is a debit of $1 500.The debenture carrying amount is $51 500.

Accepted Answer

A) True 
 B)False

Question 20

On 1 March 2017,Vinnie Services issued a 6% long-term note payable for $20,000.It is payable over a 5-year term in $4000 annual principal payments on 1 March of each year plus interest,beginning 1 March 2018.How will this information be shown on the balance sheet dated 31 December 2017?

Accepted Answer

A)  $20,000 shown as current liability only 
B)  $4000 shown as current liability; $16,000 shown as long-term liability 
C)  the entire $20,000 shown as long-term liability 
D)  $4000 shown as current liability; $20,000 shown as long-term liability

Exam 12: Non-Current Liabilities,debentures Payable and Classification of Liabilities on the Balance Sheet

Which of the following statements about callable debentures is true?

Trek Company signed a 9%,10-year note for $155,000.The company paid $2900 as the instalment for the first month.After the first payment,what is the updated principal balance? (Round to the nearest dollar.)

Premium on debentures payable is considered to be additional interest expense of the company that issues the debenture.

Premium on debentures payable is spread over the term of the debentures and reduces total interest expense.

The time value of money is based on which of the following concepts?

A debenture is sold for an amount less than its face value.Which of the following statements would explain why?

GST clearing would normally be shown on the balance sheet in non-current liabilities.

Balances for debentures payable on the balance sheet will show the balances minus any discount or plus any premium.

On 1 March 2017,Vinnie Services issued a 9% long-term note payable for $21,000.It is payable over a 3-year term in $7000 principal instalments on 1 March of each year,beginning 1 March 2018.Which of the following entries needs to be made at 1 March 2017?

Which of the following statements is TRUE about a debenture that is issued at a premium?

Trek Company signed a 11%,10-year note for $158,000.The company paid $2700 as the instalment for the first month.What portion of the first monthly payment is interest expense? (Round to the nearest dollar.)

The balance in the Debentures payable account is a credit of $67,000.The balance in the Discount on debentures payable account is a debit of $2150.How much is the debentures' carrying amount?

The current portion of notes payable would normally be shown on the balance sheet in non-current liabilities.

The balance in the Debentures payable account is a credit of $50 000.The balance in the Discount on debentures payable account is a debit of $1 500.The debenture carrying amount is $51 500.

On 1 March 2017,Vinnie Services issued a 6% long-term note payable for $20,000.It is payable over a 5-year term in $4000 annual principal payments on 1 March of each year plus interest,beginning 1 March 2018.How will this information be shown on the balance sheet dated 31 December 2017?