Question 1

Miller Enterprises had the following long-term debt:
 
The total of the serial bonds amounted to

Accepted Answer

A)  $900,000. 
B)  $1,500,000. 
C)  $2,000,000. 
D)  $2,400,000. 
A)  $900,000. 
B)  $1,500,000. 
C)  $2,000,000. 
D)  $2,400,000.

Question 2

On December 31, 2011, Roberts Corporation's current liabilities total $60,000 and long-term liabilities total $160,000. Working capital at December 31, 2011, is equal to $90,000. If Roberts Corporation's debt-to-equity ratio is .40 to 1, total long-term assets must equal

Accepted Answer

A)  $620,000. 
B)  $770,000. 
C)  $550,000. 
D)  $680,000. 
A)  $620,000. 
B)  $770,000. 
C)  $550,000. 
D)  $680,000.

Question 3

Kiyabu County issued a $500,000, 10 percent, 10-year bond on January 1, 2011, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Kiyabu uses the effective-interest method to amortize all premiums and discounts.
How much interest expense should Kiyabu record on December 31, 2011?

Accepted Answer

A)  $25,000.00 
B)  $23,810.15 
C)  $22,628.80 
D)  $19,920.10 
A)  $25,000.00 
B)  $23,810.15 
C)  $22,628.80 
D)  $19,920.10

Question 4

Kiyabu County issued a $500,000, 10 percent, 10-year bond on January 1, 2011, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Kiyabu uses the effective-interest method to amortize all premiums and discounts.
How much premium or discount should be amortized on June 30, 2011?

Accepted Answer

A)  $2,790 
B)  $2,280 
C)  $2,000 
D)  $1,970 
A)  $2,790 
B)  $2,280 
C)  $2,000 
D)  $1,970

Question 5

On July 1, 2011, Riviera Manufacturing Co. issued a five-year note payable with a face amount of $250,000 and an interest rate of 10 percent. The terms of the note require Riviera to make five annual payments of $50,000 plus accrued interest, with the first payment due June 30, 2012. With respect to the note, the current liabilities section of Riviera's December 31, 2011, balance sheet should include

Accepted Answer

A)  $12,500. 
B)  $50,000. 
C)  $62,500. 
D)  $75,000. 
A)  $12,500. 
B)  $50,000. 
C)  $62,500. 
D)  $75,000.

Question 6

The Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, "Accounting for Derivatives and Hedging Activities," as part of its project on financial instruments and its effort to deal with off-balance-sheet financing.
Explain what is meant by the term "off-balance-sheet financing" and give two reasons why "off-balance-sheet financing" is attractive to the management of an enterprise.

Accepted Answer

Off-balance-sheet financing is an attemp

Question 7

Callable bonds

Accepted Answer

A)  can be redeemed by the issuer at some time at a pre-specified price. 
B)  can be converted to stock. 
C)  mature in a series of payments. 
D)  None of these is correct. 
A)  can be redeemed by the issuer at some time at a pre-specified price. 
B)  can be converted to stock. 
C)  mature in a series of payments. 
D)  None of these is correct.

Question 8

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest

Accepted Answer

A)  plus the present value of all future interest payments at the market (effective) rate of interest. 
B)  plus the present value of all future interest payments at the rate of interest stated on the bond. 
C)  minus the present value of all future interest payments at the market (effective) rate of interest. 
D)  minus the present value of all future interest payments at the rate of interest stated on the bond. 
A)  plus the present value of all future interest payments at the market (effective) rate of interest. 
B)  plus the present value of all future interest payments at the rate of interest stated on the bond. 
C)  minus the present value of all future interest payments at the market (effective) rate of interest. 
D)  minus the present value of all future interest payments at the rate of interest stated on the bond.

Question 9

Included in Kaiser Corporation's liability account balances at December 31, 2011, were the following:
 
Kaiser's December 31, 2011, financial statements were issued on March 31, 2012. On January 15, 2012, the entire $400,000 balance of the 16 percent note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2012, Kaiser consummated a noncancelable agreement with the lender to refinance the 14 percent, $250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. Both parties are financially capable of honoring the agreement, and there have been no violations of the agreement's provisions. On the December 31, 2011, balance sheet, the amount of the notes payable that Kaiser should classify as noncurrent obligations is

Accepted Answer

A)  $100,000. 
B)  $250,000. 
C)  $350,000. 
D)  $650,000. 
A)  $100,000. 
B)  $250,000. 
C)  $350,000. 
D)  $650,000.

Question 10

Assuming the straight-line method of amortization is used, the average yearly interest expense on a $250,000, 11 percent, 20-year bond issued at 94 would be

Accepted Answer

A)  $26,750. 
B)  $27,500. 
C)  $28,250. 
D)  $29,500. 
A)  $26,750. 
B)  $27,500. 
C)  $28,250. 
D)  $29,500.

Question 11

RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2011, with interest payable on January 1 and July 1 of each year. If the bonds were issued to yield 12 percent, the entry to account for the discount amortization and accrual of interest on December 31, 2011, would include a

Accepted Answer

A)  debit to Discount on Bonds Payable. 
B)  credit to Cash. 
C)  credit to Interest Payable. 
D)  debit to Bonds Payable. 
A)  debit to Discount on Bonds Payable. 
B)  credit to Cash. 
C)  credit to Interest Payable. 
D)  debit to Bonds Payable.

Question 12

When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

Accepted Answer

A)  actual amount of interest paid. 
B)  book value of the bonds multiplied by the stated interest rate. 
C)  book value of the bonds multiplied by the effective interest rate. 
D)  maturity value of the bonds multiplied by the effective interest rate. 
A)  actual amount of interest paid. 
B)  book value of the bonds multiplied by the stated interest rate. 
C)  book value of the bonds multiplied by the effective interest rate. 
D)  maturity value of the bonds multiplied by the effective interest rate.

Question 13

When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption, if material, is

Accepted Answer

A)  amortized over the period remaining to maturity and reported as an extraordinary item in the income statement. 
B)  amortized over the period remaining to maturity and reported as part of income from continuing operations in the income statement. 
C)  reported in the income statement as an extraordinary item in the period of redemption. 
D)  reported in the income statement as part of income from continuing operations in the period of redemption. 
A)  amortized over the period remaining to maturity and reported as an extraordinary item in the income statement. 
B)  amortized over the period remaining to maturity and reported as part of income from continuing operations in the income statement. 
C)  reported in the income statement as an extraordinary item in the period of redemption. 
D)  reported in the income statement as part of income from continuing operations in the period of redemption.

Question 14

The effective interest rate on bonds is higher than the stated rate when bonds sell

Accepted Answer

A)  at face value. 
B)  above face value. 
C)  below face value. 
D)  at maturity value. 
A)  at face value. 
B)  above face value. 
C)  below face value. 
D)  at maturity value.

Question 15

The annual interest expense on a $50,000, 15-year, 10 percent bond issued for $45,650 plus accrued interest 6 months after authorization, assuming straight-line amortization, would be

Accepted Answer

A)  $4,975. 
B)  $5,000. 
C)  $5,025. 
D)  $5,472. 
A)  $4,975. 
B)  $5,000. 
C)  $5,025. 
D)  $5,472.

Question 16

The globalization of business has caused many changes in how enterprises are managed. One such change is illustrated by U.S. enterprises obtaining loans denominated in foreign currencies.
Identify reasons why such borrowings may occur.

Accepted Answer

U.S. companies may obtain loan

Question 17

The total interest expense on a $200,000, 10 percent, 10-year bond issued at 95 would be

Accepted Answer

A)  $190,000. 
B)  $195,000. 
C)  $200,000. 
D)  $210,000. 
A)  $190,000. 
B)  $195,000. 
C)  $200,000. 
D)  $210,000.

Question 18

RCM Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2011, with interest payable on January 1 and July 1 of each year.
If the bonds were issued at 97 on April 1, 2011, plus accrued interest, the amount of cash received by RCM Corporation would be

Accepted Answer

A)  $200,000. 
B)  $194,000. 
C)  $199,000. 
D)  none of these. 
A)  $200,000. 
B)  $194,000. 
C)  $199,000. 
D)  none of these.

Question 19

If a $1,000, 9 percent, 10-year bond was issued at 103 plus accrued interest one month after the authorization date, how much cash did the issuer receive?

Accepted Answer

A)  $1,037.50 
B)  $1,030.00 
C)  $1,007.50 
D)  $992.50 
A)  $1,037.50 
B)  $1,030.00 
C)  $1,007.50 
D)  $992.50

Question 20

Which of the following does not meet the FASB's definition of a liability?

Accepted Answer

A)  The signing of a three-year employment contract at a fixed annual salary 
B)  An obligation to provide goods or services in the future 
C)  A note payable with no specified maturity date 
D)  An obligation that is estimated in amount 
A)  The signing of a three-year employment contract at a fixed annual salary 
B)  An obligation to provide goods or services in the future 
C)  A note payable with no specified maturity date 
D)  An obligation that is estimated in amount

Miller Enterprises had the following long-term debt: The total of the serial bonds amounted to

On December 31, 2011, Roberts Corporation's current liabilities total $60,000 and long-term liabilities total $160,000. Working capital at December 31, 2011, is equal to $90,000. If Roberts Corporation's debt-to-equity ratio is .40 to 1, total long-term assets must equal

Callable bonds

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest

Assuming the straight-line method of amortization is used, the average yearly interest expense on a $250,000, 11 percent, 20-year bond issued at 94 would be

When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption, if material, is

The effective interest rate on bonds is higher than the stated rate when bonds sell

The annual interest expense on a $50,000, 15-year, 10 percent bond issued for $45,650 plus accrued interest 6 months after authorization, assuming straight-line amortization, would be

The globalization of business has caused many changes in how enterprises are managed. One such change is illustrated by U.S. enterprises obtaining loans denominated in foreign currencies. Identify reasons why such borrowings may occur.

The total interest expense on a $200,000, 10 percent, 10-year bond issued at 95 would be

If a $1,000, 9 percent, 10-year bond was issued at 103 plus accrued interest one month after the authorization date, how much cash did the issuer receive?

Which of the following does not meet the FASB's definition of a liability?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, Pensions, Other Comp Issues

Earnings Per Share

Derivatives, Contingencies, Business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters

Exam 12: Debt Financing

Miller Enterprises had the following long-term debt: The total of the serial bonds amounted to

On December 31, 2011, Roberts Corporation's current liabilities total $60,000 and long-term liabilities total $160,000. Working capital at December 31, 2011, is equal to $90,000. If Roberts Corporation's debt-to-equity ratio is .40 to 1, total long-term assets must equal

Callable bonds

The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest

Assuming the straight-line method of amortization is used, the average yearly interest expense on a $250,000, 11 percent, 20-year bond issued at 94 would be

When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption, if material, is

The effective interest rate on bonds is higher than the stated rate when bonds sell

The annual interest expense on a $50,000, 15-year, 10 percent bond issued for $45,650 plus accrued interest 6 months after authorization, assuming straight-line amortization, would be

The globalization of business has caused many changes in how enterprises are managed. One such change is illustrated by U.S. enterprises obtaining loans denominated in foreign currencies. Identify reasons why such borrowings may occur.

The total interest expense on a $200,000, 10 percent, 10-year bond issued at 95 would be

If a $1,000, 9 percent, 10-year bond was issued at 103 plus accrued interest one month after the authorization date, how much cash did the issuer receive?

Which of the following does not meet the FASB's definition of a liability?

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll, Pensions, Other Comp Issues

Earnings Per Share

Derivatives, Contingencies, Business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters