Question 1

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

Accepted Answer

A) True 
 B)False

Question 2

On January 1,Year 1,Stratton Company borrowed $100,000 on a 10-year,7% installment note payable.The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years.The required general journal entry to record the first payment on the note on December 31,Year 1 is:

Accepted Answer

A) Debit Interest Expense $7,000;debit Notes Payable $7,238;credit Cash $14,238. 
B) Debit Notes Payable $7,000;debit Interest Expense $7,238;credit Cash $14,238. 
C) Debit Notes Payable $10,000;debit Interest Expense $7,000;credit Cash $17,000. 
D) Debit Notes Payable $14,238;credit Cash $14,238. 
E) Debit Notes Payable $10,000;debit Interest Expense $4,238;credit Cash $14,238. 
A) Debit Interest Expense $7,000;debit Notes Payable $7,238;credit Cash $14,238. 
B) Debit Notes Payable $7,000;debit Interest Expense $7,238;credit Cash $14,238. 
C) Debit Notes Payable $10,000;debit Interest Expense $7,000;credit Cash $17,000. 
D) Debit Notes Payable $14,238;credit Cash $14,238. 
E) Debit Notes Payable $10,000;debit Interest Expense $4,238;credit Cash $14,238.

Question 3

The carrying (book)value of a bond at the time when it is issued is always equal to its par value.

Accepted Answer

A) True 
 B)False

Question 4

On July 1,Shady Creek Resort borrowed $250,000 cash by signing a 10-year,8% installment note requiring equal payments each June 30 of $37,258.What amount of principle will be included in the first annual payment?

Accepted Answer

A) $20,000 
B) $37,258 
C) $25,000 
D) $232,742 
E) $17,258 
A) $20,000 
B) $37,258 
C) $25,000 
D) $232,742 
E) $17,258

Question 5

An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

Accepted Answer

A) True 
 B)False

Question 6

A 10-year bond issue with a $100,000 par value,8% annual contract rate,with interest payable semiannually means that the issuer must repay $100,000 at the end of 10 years and make 20 semiannual interest payments of $4,000 each.

Accepted Answer

A) True 
 B)False

Question 7

Charger Company's most recent balance sheet reports total assets of $27,000,000,total liabilities of $15,000,000 and total equity of $12,000,000.The debt to equity ratio for the period is (rounded to two decimals):

Accepted Answer

A) 0.56 
B) 1.80 
C) 0.44 
D) 0.80 
E) 1.25 
A) 0.56 
B) 1.80 
C) 0.44 
D) 0.80 
E) 1.25

Question 8

Marwick Corporation issues 8%,5 year bonds with a par value of $1,000,000 and semiannual interest payments.On the issue date,the annual market rate for these bonds is 6%.What is the bond's issue (selling)price,assuming the Present Value of $1 factor for 3% and 10 semi-annual periods is .7441 and the Present Value of an Annuity factor for the same rate and period is 8.5302?

Accepted Answer

A) $1,000,000 
B) $789,244 
C) $1,341,208 
D) $1,085,308 
E) $658,792 
A) $1,000,000 
B) $789,244 
C) $1,341,208 
D) $1,085,308 
E) $658,792

Question 9

Wasp Corporation has a loan agreement that provides it with cash today,and the company must pay $25,000 one year from today,$15,000 two years from today,and $5,000 three years from today.Wasp agrees to pay 10% interest.The following are factors from a present value table:   What is the amount of cash that Wasp receives today?

Accepted Answer

The answer of Wasp Corporation has a loan agreement that...

Question 10

A company holds $150,000 par value of bonds with a carrying value of $147,950.The company calls the bonds at $151,000.Prepare the journal entry to record the retirement of the bonds.

Accepted Answer

The answer of A company holds $150,000 par value of...

Question 11

An advantage of bond financing is that issuing bonds does not affect owner control.

Accepted Answer

A) True 
 B)False

Question 12

A discount on bonds payable:

Accepted Answer

A) Occurs when a company issues bonds with a contract rate less than the market rate. 
B) Occurs when a company issues bonds with a contract rate more than the market rate. 
C) Increases the Bond Payable account. 
D) Decreases the total bond interest expense. 
E) Is not allowed in many states to protect creditors. 
A) Occurs when a company issues bonds with a contract rate less than the market rate. 
B) Occurs when a company issues bonds with a contract rate more than the market rate. 
C) Increases the Bond Payable account. 
D) Decreases the total bond interest expense. 
E) Is not allowed in many states to protect creditors.

Question 13

The ______________ ratio is used to assess the risk of a company's financing structure.

Accepted Answer

The answer of The ______________ ratio is used to assess...

Question 14

A basic present value concept is that cash paid or received in the future has less value now than the same amount of cash today.

Accepted Answer

A) True 
 B)False

Question 15

A bondholder that owns a $1,000,10%,10-year bond has:

Accepted Answer

A) Ownership rights in the issuing company. 
B) The right to receive $10 per year until maturity. 
C) The right to receive $1,000 at maturity. 
D) The right to receive $10,000 at maturity. 
E) The right to receive dividends of $1,000 per year. 
A) Ownership rights in the issuing company. 
B) The right to receive $10 per year until maturity. 
C) The right to receive $1,000 at maturity. 
D) The right to receive $10,000 at maturity. 
E) The right to receive dividends of $1,000 per year.

Question 16

A company borrowed cash from the bank by signing a 5-year,8% installment note.The present value of an annuity factor at 8% for 5 years is 3.9927.Each annual payment equals $75,000.The present value of the note is:

Accepted Answer

A) $56,352.84. 
B) $93,921,41. 
C) $375,000. 
D) $299,452.50. 
E) $187,842.81. 
A) $56,352.84. 
B) $93,921,41. 
C) $375,000. 
D) $299,452.50. 
E) $187,842.81.

Question 17

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Accepted Answer

A) True 
 B)False

Question 18

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

Accepted Answer

A) True 
 B)False

Question 19

____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

Accepted Answer

The answer of ____________________ bonds reduce a bondholder's risk by...

Question 20

A company previously issued $2,000,000,10% bonds,receiving a $120,000 premium.On the current year's interest date,after the bond interest was paid and after 40% of the total premium had been amortized,the company purchased the entire bond issue on the open market at 98 and retired it.Prepare the journal entry to record the retirement of these bonds.

Accepted Answer

@#IMG-DLM& @#IMG-DLM& * $120,000 * 60% =

Exam 14: Long-Term Liabilities

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

The carrying (book)value of a bond at the time when it is issued is always equal to its par value.

On July 1,Shady Creek Resort borrowed $250,000 cash by signing a 10-year,8% installment note requiring equal payments each June 30 of $37,258.What amount of principle will be included in the first annual payment?

An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

A 10-year bond issue with a $100,000 par value,8% annual contract rate,with interest payable semiannually means that the issuer must repay $100,000 at the end of 10 years and make 20 semiannual interest payments of $4,000 each.

Charger Company's most recent balance sheet reports total assets of $27,000,000,total liabilities of $15,000,000 and total equity of $12,000,000.The debt to equity ratio for the period is (rounded to two decimals):

A company holds $150,000 par value of bonds with a carrying value of $147,950.The company calls the bonds at $151,000.Prepare the journal entry to record the retirement of the bonds.

An advantage of bond financing is that issuing bonds does not affect owner control.

A discount on bonds payable:

The ______________ ratio is used to assess the risk of a company's financing structure.

A basic present value concept is that cash paid or received in the future has less value now than the same amount of cash today.

A bondholder that owns a $1,000,10%,10-year bond has:

A company borrowed cash from the bank by signing a 5-year,8% installment note.The present value of an annuity factor at 8% for 5 years is 3.9927.Each annual payment equals $75,000.The present value of the note is:

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

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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