Question 1

A disadvantage of bond financing is:

Accepted Answer

A) Bonds do not affect owners' control. 
B) Interest on bonds is tax deductible. 
C) Bonds can increase return on equity. 
D) It allows firms to trade on the equity. 
E) Bonds pay periodic interest and the repayment of par value at maturity. 
A) Bonds do not affect owners' control. 
B) Interest on bonds is tax deductible. 
C) Bonds can increase return on equity. 
D) It allows firms to trade on the equity. 
E) Bonds pay periodic interest and the repayment of par value at maturity.

Question 2

Secured bonds:

Accepted Answer

A) Are called debentures. 
B) Have specific assets of the issuing company pledged as collateral. 
C) Are backed by the issuer's bank. 
D) Are subordinated to those of other unsecured liabilities. 
E) Are the same as sinking fund bonds. 
A) Are called debentures. 
B) Have specific assets of the issuing company pledged as collateral. 
C) Are backed by the issuer's bank. 
D) Are subordinated to those of other unsecured liabilities. 
E) Are the same as sinking fund bonds.

Question 3

The carrying (book)value of a bond payable is the par value of the bonds plus any discount or minus any premium.

Accepted Answer

A) True 
 B)False

Question 4

If an issuer sells bonds at a date other than an interest payment date:

Accepted Answer

A) This means the bonds sell at a premium. 
B) This means the bonds sell at a discount. 
C) The issuing company will report a loss on the sale of the bonds. 
D) The issuing company will report a gain on the sale of the bonds. 
E) The buyers normally pay the issuer the purchase price plus any interest accrued since the prior interest payment date. 
A) This means the bonds sell at a premium. 
B) This means the bonds sell at a discount. 
C) The issuing company will report a loss on the sale of the bonds. 
D) The issuing company will report a gain on the sale of the bonds. 
E) The buyers normally pay the issuer the purchase price plus any interest accrued since the prior interest payment date.

Question 5

A company's ability to issue unsecured debt depends on its credit standing.

Accepted Answer

A) True 
 B)False

Question 6

______________ bonds are bonds that are scheduled for maturity on one specified date.

Accepted Answer

The answer of ______________ bonds are bonds that are scheduled...

Question 7

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

Accepted Answer

A) True 
 B)False

Question 8

On August 1,a company issues 6%,10 year,$600,000 par value bonds that pay interest semiannually each February 1 and August 1.The bonds sold at $632,000.The company uses the straight-line method of amortizing bond premiums.The company's year-end is December 31.Prepare the general journal entry to record the interest accrued at December 31.

Accepted Answer

@#IMG-DLM& Interest payable = $600,000 *

Question 9

On January 1,$300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock.The entry to record the conversion of the bonds includes all of the following entries except:

Accepted Answer

A) Debit to Bonds Payable $310,000. 
B) Debit to Premium on Bonds Payable $10,000. 
C) Credit to Common Stock $250,000. 
D) Credit to Paid-In Capital in Excess of Par Value,Common Stock $60,000. 
E) Debit to Bonds Payable $300,000. 
A) Debit to Bonds Payable $310,000. 
B) Debit to Premium on Bonds Payable $10,000. 
C) Credit to Common Stock $250,000. 
D) Credit to Paid-In Capital in Excess of Par Value,Common Stock $60,000. 
E) Debit to Bonds Payable $300,000.

Question 10

On January 1,Haymark Corporation leased a truck,agreeing to pay $15,252 every December 31 for the six-year life of the lease.The present value of the lease payments,at 6% interest,is $75,000.The lease is considered a capital lease.
(a)Prepare the general journal entry to record the acquisition of the truck with the capital lease.
(b)Prepare the general journal entry to record the first lease payment on December 31.
(c)Record straight-line depreciation on the truck on December 31,assuming a 6-year life and no salvage value.

Accepted Answer

The answer of On January 1,Haymark Corporation leased a truck,agreeing...

Question 11

Bonds that give the issuer an option of retiring them before they mature are:

Accepted Answer

A) Debentures. 
B) Serial bonds. 
C) Sinking fund bonds. 
D) Registered bonds. 
E) Callable bonds. 
A) Debentures. 
B) Serial bonds. 
C) Sinking fund bonds. 
D) Registered bonds. 
E) Callable bonds.

Question 12

A company may retire bonds by all but which of the following means?

Accepted Answer

A) Exercising a call option. 
B) The holders converting them to stock. 
C) Purchasing the bonds on the open market. 
D) Paying them off at maturity. 
E) Paying all future interest and cancelling the debt. 
A) Exercising a call option. 
B) The holders converting them to stock. 
C) Purchasing the bonds on the open market. 
D) Paying them off at maturity. 
E) Paying all future interest and cancelling the debt.

Question 13

The party that has the right to exercise a call option on callable bonds is:

Accepted Answer

A) The bondholder. 
B) The bond issuer. 
C) The bond indenture. 
D) The bond trustee. 
E) The bond underwriter. 
A) The bondholder. 
B) The bond issuer. 
C) The bond indenture. 
D) The bond trustee. 
E) The bond underwriter.

Question 14

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

Accepted Answer

The answer of ___________________ bonds have an option exercisable by...

Question 15

A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into.The loan is at 8% interest compounded annually.The present value factor for 3 years at 8% is 0.7938.The present value of the loan (rounded)is:

Accepted Answer

A) $15,877. 
B) $12,400. 
C) $5,592. 
D) $9,200. 
E) $47,630. 
A) $15,877. 
B) $12,400. 
C) $5,592. 
D) $9,200. 
E) $47,630.

Question 16

On January 1,a company issues bonds dated January 1 with a par value of $400,000.The bonds mature in 5 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $383,793.The journal entry to record the issuance of the bond is:

Accepted Answer

A) Debit Cash $400,000;debit Discount on Bonds Payable $16,207;credit Bonds Payable $416,207. 
B) Debit Cash $383,793;debit Discount on Bonds Payable $16,207;credit Bonds Payable $400,000. 
C) Debit Bonds Payable $400,000;debit Bond Interest Expense $16,207;credit Cash $416,207. 
D) Debit Cash $383,793;debit Premium on Bonds Payable $16,207;credit Bonds Payable $400,000. 
E) Debit Cash $383,793;credit Bonds Payable $383,793. 
A) Debit Cash $400,000;debit Discount on Bonds Payable $16,207;credit Bonds Payable $416,207. 
B) Debit Cash $383,793;debit Discount on Bonds Payable $16,207;credit Bonds Payable $400,000. 
C) Debit Bonds Payable $400,000;debit Bond Interest Expense $16,207;credit Cash $416,207. 
D) Debit Cash $383,793;debit Premium on Bonds Payable $16,207;credit Bonds Payable $400,000. 
E) Debit Cash $383,793;credit Bonds Payable $383,793.

Question 17

Saffron Industries most recent balance sheet reports total assets of $42,000,000,total liabilities of $16,000,000 and stockholders' equity of $26,000,000.Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds.What effect,if any,would prepaying the bonds have on the company's debt-to-equity ratio?

Accepted Answer

A) Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50. 
B) Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57. 
C) Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50. 
D) Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57. 
E) Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchangeD. 
A) Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50. 
B) Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57. 
C) Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50. 
D) Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57. 
E) Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchangeD.

Question 18

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

Accepted Answer

A) Registered bonds. 
B) Bearer bonds. 
C) Callable bonds. 
D) Sinking fund bonds. 
E) Serial bonds. 
A) Registered bonds. 
B) Bearer bonds. 
C) Callable bonds. 
D) Sinking fund bonds. 
E) Serial bonds.

Question 19

A company issues 9% bonds with a par value of $100,000 at par on April 1.The bonds pay interest semi-annually on January 1 and July 1.The cash paid on July 1 to the bond holder(s)is:

Accepted Answer

A) $1,500. 
B) $3,000. 
C) $4,500. 
D) $6,000. 
E) $7,500. 
A) $1,500. 
B) $3,000. 
C) $4,500. 
D) $6,000. 
E) $7,500.

Question 20

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

Accepted Answer

A) Debentures. 
B) Discounted notes. 
C) Installment notes. 
D) Indentures. 
E) Investment notes. 
A) Debentures. 
B) Discounted notes. 
C) Installment notes. 
D) Indentures. 
E) Investment notes.

Exam 14: Long-Term Liabilities

A disadvantage of bond financing is:

Secured bonds:

The carrying (book)value of a bond payable is the par value of the bonds plus any discount or minus any premium.

If an issuer sells bonds at a date other than an interest payment date:

A company's ability to issue unsecured debt depends on its credit standing.

______________ bonds are bonds that are scheduled for maturity on one specified date.

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

On January 1,$300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock.The entry to record the conversion of the bonds includes all of the following entries except:

Bonds that give the issuer an option of retiring them before they mature are:

A company may retire bonds by all but which of the following means?

The party that has the right to exercise a call option on callable bonds is:

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

A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into.The loan is at 8% interest compounded annually.The present value factor for 3 years at 8% is 0.7938.The present value of the loan (rounded)is:

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

A company issues 9% bonds with a par value of $100,000 at par on April 1.The bonds pay interest semi-annually on January 1 and July 1.The cash paid on July 1 to the bond holder(s)is:

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

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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