Question 1

A callable bond grants the option to the bondholder of electing to turn the bond in for early retirement.

Accepted Answer

A) True 
 B)False

Question 2

The following information was taken from the income statement of The W D Company for the years 2010 through 2012 (in millions):
(1)Calculate the times interest earned ratio for 2010 through 2012.
(2)Comment on the ratios' sufficiency.

Accepted Answer

The answer of The following information was taken from the...

Question 3

Cash flows associated with transactions involving long-term creditors are reported in the Financing Activities section of the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 4

One thousand bonds with a face value of $1,000 each,are sold at 104.The entry to record the issue is

Accepted Answer

A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D

Question 5

Accurate Numbers,Inc.,issued $100,000 of 10 year,12% bonds dated April 1,20A,for $102,360 on April 1,20A.The bonds pay interest on April 1 and October 1.Straight-line amortization is used by the company.What entry is needed at October 1 for the first interest payment?

Accepted Answer

A) Choice A 
B) Choice B 
C) Choice C 
D) Choice D

Question 6

When bonds are sold between interest dates,the amount of accrued interest collected should be credited to interest payable in the accounts of the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 7

If a bond is sold at 98,its stated rate of interest would be which of the following?

Accepted Answer

A) Lower than the market rate. 
B) Higher than the market rate. 
C) Equal to the market rate. 
D) Unrelated to the market rate.

Question 8

On January 1,20A,Ross Company acquired a truck that had a purchase price of $20,000.The seller agreed to allow Ross to pay for the truck over a two-year period at 10% interest with equal payments due at the end of 20A and 20B.What is the amount of each annual payment the company must make (round to the nearest dollar)?

Accepted Answer

A) $11,524 
B) $14,151 
C) $17,751 
D) $22,267

Question 9

Mace Corporation sold (issued)30 of its $1,000 bonds payable,5% annual interest,due in ten years.The bonds were sold at 98.Assume straight-line amortization.What would the interest expense be each full year?

Accepted Answer

A) $1,100 
B) $1,440 
C) $1,500 
D) $1,560

Question 10

On Bennett's 20A year-end statement of financial position,the book value of the liability for notes payable related to this purchase would equal which of the following?

Accepted Answer

A) $317,520 
B) An amount less than $317,520. 
C) An amount more than $317,520. 
D) An amount more or less than $317,520 depending upon Bennett's income for the year.

Question 11

Bonds often are a superior method of financing in comparison with sale and issuance of capital shares because of both the (a)leverage effects and (b)tax deductibility of interest payments.

Accepted Answer

A) True 
 B)False

Question 12

Kristen's grandmother promises to give her $3,000 at the end of three years and $4,000 at the end of four years.How much is the money worth today if Kristen could earn 6% annual interest on the funds?

Accepted Answer

A) $5,545 
B) $5,687 
C) $16,237 
D) $21,879

Question 13

Which of the following is true?

Accepted Answer

A) It is common for companies to both retire debt and issue new bonds in the same year as a way to replace higher interest rate debt with lower rate issuances. 
B) Payment of interest is an investing activity since we would not have interest unless we borrowed money or sold bonds to the public. 
C) Retractable bonds require cash outflow connected to investing when the issuing corporation redeems the bonds. 
D) The corporation will have to pay cash to bond investors when those investors demand to call the bonds.

Question 14

Watson Company purchased a truck that cost $17,000.The company signed a $17,000 notepayable that specified four equal annual payments (at each year-end),each of which includes a payment on the principal and interest on the unpaid balance at 10% per annum.

Accepted Answer

The answer of Watson Company purchased a truck that cost...

Question 15

When convertible bonds are converted by the investor,it creates cash outflow from a financing activity for the corporation.

Accepted Answer

A) True 
 B)False

Question 16

On April 1,20B,Larel Corporation issued $40,000,9%,ten-year bonds payable at 108 that were dated April 1,20B.Interest is payable each March 31 and September 30.
(a)Give the entry to record the issuance of the bonds on April 1,20B
(b)Give the entry to record the first interest payment on September 30,20B.Use straight-line amortization
(c)Give the adjusting entry required on December 31,20B,the end of the annual accounting period.Use straight-line amortization

Accepted Answer

The answer of On April 1,20B,Larel Corporation issued $40,000,9%,ten-year bonds...

Question 17

Austin Corporation sold its $1,000,000,7%,ten-year bonds to the public on January 1,20A.The bonds pay interest annually,beginning on December 31,20A.Austin received $1,153,420 in cash at the issuance of the bonds.The market rate of interest when the bonds were sold was 5%.
(a)Compute the amount of the premium that Austin Corporation should amortize on December 31,20A,assuming the "effective-interest" method is used.$_______________
(b)Compute the amount of the premium that Austin Corporation should amortize on December 31,20A,assuming the "straight-line" method is used.$_______________
(c)Which method above is theoretically the better to use for amortizing a bond premium?

Accepted Answer

The answer of Austin Corporation sold its $1,000,000,7%,ten-year bonds to...

Question 18

The times interest earned ratio is calculated by dividing

Accepted Answer

A) profit by interest expense. 
B) profit before income taxes by interest expense. 
C) profit before interest expense by interest expense. 
D) profit before interest expense and income taxes by interest expense.

Question 19

On December 31,20A,Bennett recorded an adjusting entry to account for interest that had accrued on the note.What is the approximate amount of interest expense that would have accrued at December 31,20A?

Accepted Answer

A) $25,400 
B) $32,000 
C) $76,200 
D) $96,000

Question 20

If the market rate of interest is 10%,a rational person would just as soon receive $1,100 three years from now as what amount today (round to the nearest dollar)?

Accepted Answer

A) $783 
B) $826 
C) $1,000 
D) $1,100

Exam 11: Reporting and Interpreting Stockholders Equity

A callable bond grants the option to the bondholder of electing to turn the bond in for early retirement.

The following information was taken from the income statement of The W D Company for the years 2010 through 2012 (in millions): (1)Calculate the times interest earned ratio for 2010 through 2012. (2)Comment on the ratios' sufficiency.

Cash flows associated with transactions involving long-term creditors are reported in the Financing Activities section of the statement of cash flows.

One thousand bonds with a face value of $1,000 each,are sold at 104.The entry to record the issue is

Accurate Numbers,Inc.,issued $100,000 of 10 year,12% bonds dated April 1,20A,for $102,360 on April 1,20A.The bonds pay interest on April 1 and October 1.Straight-line amortization is used by the company.What entry is needed at October 1 for the first interest payment?

When bonds are sold between interest dates,the amount of accrued interest collected should be credited to interest payable in the accounts of the issuing corporation.

If a bond is sold at 98,its stated rate of interest would be which of the following?

Mace Corporation sold (issued) 30 of its $1,000 bonds payable,5% annual interest,due in ten years.The bonds were sold at 98.Assume straight-line amortization.What would the interest expense be each full year?

On Bennett's 20A year-end statement of financial position,the book value of the liability for notes payable related to this purchase would equal which of the following?

Bonds often are a superior method of financing in comparison with sale and issuance of capital shares because of both the (a)leverage effects and (b)tax deductibility of interest payments.

Kristen's grandmother promises to give her $3,000 at the end of three years and $4,000 at the end of four years.How much is the money worth today if Kristen could earn 6% annual interest on the funds?

Which of the following is true?

Watson Company purchased a truck that cost $17,000.The company signed a $17,000 notepayable that specified four equal annual payments (at each year-end),each of which includes a payment on the principal and interest on the unpaid balance at 10% per annum.

When convertible bonds are converted by the investor,it creates cash outflow from a financing activity for the corporation.

The times interest earned ratio is calculated by dividing

On December 31,20A,Bennett recorded an adjusting entry to account for interest that had accrued on the note.What is the approximate amount of interest expense that would have accrued at December 31,20A?

If the market rate of interest is 10%,a rational person would just as soon receive $1,100 three years from now as what amount today (round to the nearest dollar) ?