Question 1

A discount reduces the interest expense of a bond over its life.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following accurately describes a debenture?

Accepted Answer

A) A bond with specific assets pledged as collateral. 
B) A type of bond issued in the names and addresses of the bondholders. 
C) A type of bond which requires the bond issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds. 
D) A type of bond which is not collateralized but backed only by the issuer's general credit standing. 
E) A type of bond that can be exchanged for a fixed number of shares of the issuing corporation's common stock. 
A) A bond with specific assets pledged as collateral. 
B) A type of bond issued in the names and addresses of the bondholders. 
C) A type of bond which requires the bond issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds. 
D) A type of bond which is not collateralized but backed only by the issuer's general credit standing. 
E) A type of bond that can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Question 3

_________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

Accepted Answer

The answer of _________________________ leases are short-term or cancelable leases...

Question 4

Bond interest paid by a corporation is an expense,whereas dividends paid are not an expense of the corporation.

Accepted Answer

A) True 
 B)False

Question 5

A company issued 10-year,9% bonds,with a par value of $500,000 when the market rate was 9.5%.The issuer received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the bond issuance.

Accepted Answer

The answer of A company issued 10-year,9% bonds,with a par...

Question 6

The carrying value of bonds at maturity always equals:

Accepted Answer

A) the amount of cash originally received in exchange for the bonds. 
B) the par value of the bond. 
C) the amount of discount or premium. 
D) the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. 
E) $0. 
A) the amount of cash originally received in exchange for the bonds. 
B) the par value of the bond. 
C) the amount of discount or premium. 
D) the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. 
E) $0.

Question 7

On August 1,a $30,000,6%,3-year installment note payable is issued by a company.The note requires equal payments of principal plus accrued interest be paid each year on July 31.The present value of an annuity factor for 3 years at 6% is 2.6730.The payment each July 31 will be:

Accepted Answer

A) $10,000.00. 
B) $11,223.34. 
C) $10,800.00. 
D) $10,400.00. 
E) $1,223.34. 
A) $10,000.00. 
B) $11,223.34. 
C) $10,800.00. 
D) $10,400.00. 
E) $1,223.34.

Question 8

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Accepted Answer

A) True 
 B)False

Question 9

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Accepted Answer

A) True 
 B)False

Question 10

Strider Corporation issued 14%,5-year bonds with a par value of $5,000,000 on January 1,Year 1.Interest is to be paid semiannually on each June 30 and December 31.The bonds are issued at $5,368,035 cash when the market rate for this bond is 12%.
(a)Prepare the general journal entry to record the issuance of the bonds on January 1,year 1.
(b)Show how the bonds would be reported on Strider's balance sheet at January 1,Year 1.
(c)Assume that Strider uses the effective interest method of amortization of any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,Year 1.
(d)Assume instead that Strider uses the straight-line method of amortization of any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,Year 1.

Accepted Answer

The answer of Strider Corporation issued 14%,5-year bonds with a...

Question 11

Mandarin Company has 9%,20-year bonds outstanding with a par value of $500,000 and a carrying value of $475,000.The company calls the bonds at $482,000.Calculate the gain or loss on the retirement of these bonds.

Accepted Answer

The answer of Mandarin Company has 9%,20-year bonds outstanding with...

Question 12

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring equal annual payments each December 31 of $32,136.What journal entry would the issuer record for the first payment?

Accepted Answer

A) Debit Interest Expense $7,136;debit Notes Payable $25,000;credit Cash $32,136. 
B) Debit Notes Payable $32,136;debit Interest Payable $11,250;credit Cash $43,386. 
C) Debit Interest Expense $11,250;debit Notes Payable $20,886;credit Cash $32,136. 
D) Debit Notes Payable $32,136;credit Cash $32,136. 
E) Debit Notes Payable $11,250;credit Cash $11,250. 
A) Debit Interest Expense $7,136;debit Notes Payable $25,000;credit Cash $32,136. 
B) Debit Notes Payable $32,136;debit Interest Payable $11,250;credit Cash $43,386. 
C) Debit Interest Expense $11,250;debit Notes Payable $20,886;credit Cash $32,136. 
D) Debit Notes Payable $32,136;credit Cash $32,136. 
E) Debit Notes Payable $11,250;credit Cash $11,250.

Question 13

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Accepted Answer

A) True 
 B)False

Question 14

All of the following statements regarding leases are true except:

Accepted Answer

A) For a capital lease the lessee records the leased item as its own asset. 
B) For a capital lease the lessee depreciates the asset acquired under the lease,but for an operating lease the lessee does not. 
C) Capital leases create a long-term liability on the balance sheet,but operating leases do not. 
D) Capital leases do not transfer ownership of the asset under the lease,but operating leases often do. 
E) For an operating lease the lessee reports the lease payments as rental expense. 
A) For a capital lease the lessee records the leased item as its own asset. 
B) For a capital lease the lessee depreciates the asset acquired under the lease,but for an operating lease the lessee does not. 
C) Capital leases create a long-term liability on the balance sheet,but operating leases do not. 
D) Capital leases do not transfer ownership of the asset under the lease,but operating leases often do. 
E) For an operating lease the lessee reports the lease payments as rental expense.

Question 15

Return on equity increases when the expected rate of return from the acquired assets is __________________ than the rate of interest on the bonds used to finance the asset acquisition.

Accepted Answer

The answer of Return on equity increases when the expected...

Question 16

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Accepted Answer

A) True 
 B)False

Question 17

A company issues 6%,5 year bonds with a par value of $800,000 and semiannual interest payments.On the issue date,the annual market rate of interest is 8%.Compute the issue (selling)price of the bonds..The following information is taken from present value tables:

Accepted Answer

The answer of A company issues 6%,5 year bonds with...

Question 18

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Accepted Answer

A) True 
 B)False

Question 19

If a bond's interest period does not coincide with the issuing company's accounting period,an adjusting entry is necessary to recognize bond interest expense accruing since the most recent interest payment.

Accepted Answer

A) True 
 B)False

Question 20

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A) Debit Interest Payable $13,500;credit Cash $13,500.00. 
B) Debit Bond Interest Expense $12,282.30;debit Discount on Bonds Payable $1,217.70;credit Cash $13,500.00. 
C) Debit Bond Interest Expense $14,717.70;credit Premium on Bonds Payable $1,217.70;credit Cash $13,500.00. 
D) Debit Bond Interest Expense $14,717.70;credit Discount on Bonds Payable $1,217.70;credit Cash $13,500.00. 
E) Debit Bond Interest Expense $12,282.30;debit Premium on Bonds Payable $1,217.70;credit Cash $13,500.00. 
A) Debit Interest Payable $13,500;credit Cash $13,500.00. 
B) Debit Bond Interest Expense $12,282.30;debit Discount on Bonds Payable $1,217.70;credit Cash $13,500.00. 
C) Debit Bond Interest Expense $14,717.70;credit Premium on Bonds Payable $1,217.70;credit Cash $13,500.00. 
D) Debit Bond Interest Expense $14,717.70;credit Discount on Bonds Payable $1,217.70;credit Cash $13,500.00. 
E) Debit Bond Interest Expense $12,282.30;debit Premium on Bonds Payable $1,217.70;credit Cash $13,500.00.

Exam 14: Long-Term Liabilities

A discount reduces the interest expense of a bond over its life.

Which of the following accurately describes a debenture?

_________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

Bond interest paid by a corporation is an expense,whereas dividends paid are not an expense of the corporation.

A company issued 10-year,9% bonds,with a par value of $500,000 when the market rate was 9.5%.The issuer received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the bond issuance.

The carrying value of bonds at maturity always equals:

On August 1,a $30,000,6%,3-year installment note payable is issued by a company.The note requires equal payments of principal plus accrued interest be paid each year on July 31.The present value of an annuity factor for 3 years at 6% is 2.6730.The payment each July 31 will be:

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Mandarin Company has 9%,20-year bonds outstanding with a par value of $500,000 and a carrying value of $475,000.The company calls the bonds at $482,000.Calculate the gain or loss on the retirement of these bonds.

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring equal annual payments each December 31 of $32,136.What journal entry would the issuer record for the first payment?

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

All of the following statements regarding leases are true except:

Return on equity increases when the expected rate of return from the acquired assets is __________________ than the rate of interest on the bonds used to finance the asset acquisition.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

A company issues 6%,5 year bonds with a par value of $800,000 and semiannual interest payments.On the issue date,the annual market rate of interest is 8%.Compute the issue (selling)price of the bonds..The following information is taken from present value tables:

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

If a bond's interest period does not coincide with the issuing company's accounting period,an adjusting entry is necessary to recognize bond interest expense accruing since the most recent interest payment.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Appendix B: Time Value of Money

Appendix C: Activity-Based Costing

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