Question 1

Amortizing a bond discount:

Accepted Answer

A) Allocates a portion of the total discount to interest expense each interest period. 
B) Increases the market value of the Bonds Payable. 
C) Decreases the Bonds Payable account. 
D) Decreases interest expense each period. 
E) Increases cash flows from the bond. 
A) Allocates a portion of the total discount to interest expense each interest period. 
B) Increases the market value of the Bonds Payable. 
C) Decreases the Bonds Payable account. 
D) Decreases interest expense each period. 
E) Increases cash flows from the bond.

Question 2

On January 1,a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195.The first payment is due on December 31.Prepare the journal entries to record the first and second installment payments.

Accepted Answer

The answer of On January 1,a company borrowed $50,000 cash...

Question 3

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

Accepted Answer

A) Debit Bond Interest Expense $14,000;credit Cash $14,000. 
B) Debit Bond Interest Expense $28,000;credit Cash $28,000. 
C) Debit Bond Interest Expense $14,000;debit Discount on Bonds Payable $200;credit Cash $14,200. 
D) Debit Bond Interest Expense $13,800;debit Discount on Bonds Payable $200;credit Cash $14,000. 
E) Debit Bond Interest Expense $14,200;credit Cash $14,000;credit Discount on Bonds Payable $200. 
A) Debit Bond Interest Expense $14,000;credit Cash $14,000. 
B) Debit Bond Interest Expense $28,000;credit Cash $28,000. 
C) Debit Bond Interest Expense $14,000;debit Discount on Bonds Payable $200;credit Cash $14,200. 
D) Debit Bond Interest Expense $13,800;debit Discount on Bonds Payable $200;credit Cash $14,000. 
E) Debit Bond Interest Expense $14,200;credit Cash $14,000;credit Discount on Bonds Payable $200.

Question 4

A company's total liabilities divided by its total stockholders' equity is called the:

Accepted Answer

A) Equity ratio. 
B) Return on total assets ratio. 
C) Pledged assets to secured liabilities ratio. 
D) Debt-to-equity ratio. 
E) Times secured liabilities earned ratio. 
A) Equity ratio. 
B) Return on total assets ratio. 
C) Pledged assets to secured liabilities ratio. 
D) Debt-to-equity ratio. 
E) Times secured liabilities earned ratio.

Question 5

Morgan Company issues 9%,20-year bonds with a par value of $750,000 that pay interest semi-annually.The current market rate is 8%.The amount of interest owed to the bondholders for each semiannual interest payment is:

Accepted Answer

A) $60,000. 
B) $33,750. 
C) $67,500. 
D) $30,000. 
E) $375,000. 
A) $60,000. 
B) $33,750. 
C) $67,500. 
D) $30,000. 
E) $375,000.

Question 6

The effective interest amortization method:

Accepted Answer

A) Allocates bond interest expense over the bond's life using a changing interest rate. 
B) Allocates bond interest expense over the bond's life using a constant interest rate. 
C) Allocates a decreasing amount of interest over the life of a discounted bond. 
D) Allocates bond interest expense using the current market rate for each interest period. 
E) Is not allowed by the FASB. 
A) Allocates bond interest expense over the bond's life using a changing interest rate. 
B) Allocates bond interest expense over the bond's life using a constant interest rate. 
C) Allocates a decreasing amount of interest over the life of a discounted bond. 
D) Allocates bond interest expense using the current market rate for each interest period. 
E) Is not allowed by the FASB.

Question 7

A bond sells at a discount when the:

Accepted Answer

A) Contract rate is above the market rate. 
B) Contract rate is equal to the market rate. 
C) Contract rate is below the market rate. 
D) Bond has a short-term life. 
E) Bond pays interest only once a year. 
A) Contract rate is above the market rate. 
B) Contract rate is equal to the market rate. 
C) Contract rate is below the market rate. 
D) Bond has a short-term life. 
E) Bond pays interest only once a year.

Question 8

The market rate for bonds is generally higher when the time period to maturity is longer due to the risk of adverse events occurring over the time period.

Accepted Answer

A) True 
 B)False

Question 9

On January 1,a company issued 10-year,10% bonds payable with a par value of $500,000,and received $442,647 in cash proceeds.The market rate of interest at the date of issuance was 12%.The bonds pay interest semiannually on July 1 and January 1.The issuer uses the straight-line method for amortization.Prepare the issuer's journal entry to record the first semiannual interest payment on July 1.

Accepted Answer

@#IMG-DLM& Cash payment: $500,000 * 10%

Question 10

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

Accepted Answer

A) True 
 B)False

Question 11

A bond traded at 102½ means that:

Accepted Answer

A) The bond pays 2.5% interest. 
B) The bond traded at 102.5% of its par value. 
C) The market rate of interest is 2.5%. 
D) The bonds were retired at $1,025 each. 
E) The market rate of interest is 2½% above the contract rate. 
A) The bond pays 2.5% interest. 
B) The bond traded at 102.5% of its par value. 
C) The market rate of interest is 2.5%. 
D) The bonds were retired at $1,025 each. 
E) The market rate of interest is 2½% above the contract rate.

Question 12

Payments on installment notes normally include accrued interest plus a portion of the principal amount borrowed.

Accepted Answer

A) True 
 B)False

Question 13

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000.The difference between par value and issue price for this bond is recorded as a:

Accepted Answer

A) Credit to Interest Income. 
B) Credit to Premium on Bonds Payable. 
C) Credit to Discount on Bonds Payable. 
D) Debit to Premium on Bonds Payable. 
E) Debit to Discount on Bonds Payable. 
A) Credit to Interest Income. 
B) Credit to Premium on Bonds Payable. 
C) Credit to Discount on Bonds Payable. 
D) Debit to Premium on Bonds Payable. 
E) Debit to Discount on Bonds Payable.

Question 14

Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

Accepted Answer

A) True 
 B)False

Question 15

A disadvantage of an operating lease is the inability to deduct rental payments in computing taxable income.

Accepted Answer

A) True 
 B)False

Question 16

Johanna Corporation issued $3,000,000 of 8%,20-year bonds payable at par value on January 1.Interest is payable each June 30 and December 31.
(a)Prepare the general journal entry to record the issuance of the bonds on January 1.
(b)Prepare the general journal entry to record the first interest payment on June 30.

Accepted Answer

The answer of Johanna Corporation issued $3,000,000 of 8%,20-year bonds...

Question 17

Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.

Accepted Answer

A) True 
 B)False

Question 18

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ____________________________________.

Accepted Answer

The answer of The legal document identifying the rights and...

Question 19

_______________ bonds have specific assets of the issuing company pledged as collateral.

Accepted Answer

The answer of _______________ bonds have specific assets of the...

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 the effective interest method of amortization is:

Accepted Answer

A) Debit Interest Expense $12,487.08;debit Premium on Bonds Payable $1,012.92;credit Cash $13,500.00. 
B) Debit Interest Payable $13,500;credit Cash $13,500.00. 
C) Debit Bond Interest Expense $12,487.08;debit Discount on Bonds Payable $1,012.92;credit Cash $13,500.00. 
D) Debit Bond Interest Expense $14,717.70;credit Premium 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 Expense $12,487.08;debit Premium on Bonds Payable $1,012.92;credit Cash $13,500.00. 
B) Debit Interest Payable $13,500;credit Cash $13,500.00. 
C) Debit Bond Interest Expense $12,487.08;debit Discount on Bonds Payable $1,012.92;credit Cash $13,500.00. 
D) Debit Bond Interest Expense $14,717.70;credit Premium 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

Amortizing a bond discount:

On January 1,a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195.The first payment is due on December 31.Prepare the journal entries to record the first and second installment payments.

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

A company's total liabilities divided by its total stockholders' equity is called the:

Morgan Company issues 9%,20-year bonds with a par value of $750,000 that pay interest semi-annually.The current market rate is 8%.The amount of interest owed to the bondholders for each semiannual interest payment is:

The effective interest amortization method:

A bond sells at a discount when the:

The market rate for bonds is generally higher when the time period to maturity is longer due to the risk of adverse events occurring over the time period.

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

A bond traded at 102½ means that:

Payments on installment notes normally include accrued interest plus a portion of the principal amount borrowed.

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000.The difference between par value and issue price for this bond is recorded as a:

Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

A disadvantage of an operating lease is the inability to deduct rental payments in computing taxable income.

Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ____________________________________.

_______________ bonds have specific assets of the issuing company pledged as collateral.

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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