Question 1

When convertible bonds are converted to equity, the company records a gain on conversion when the bond carrying value is greater than the par value of the equity.

Accepted Answer

A) True 
 B)False

Question 2

The fair value option for reporting some liabilities is normally chosen ________.

Accepted Answer

A)  at the time of borrowing and is irrevocable 
B)  on the first balance sheet and is revocable 
C)  at the end of each year and is revocable 
D)  at the time of borrowing and is revocable 
A)  at the time of borrowing and is irrevocable 
B)  on the first balance sheet and is revocable 
C)  at the end of each year and is revocable 
D)  at the time of borrowing and is revocable

Question 3

Wilson Corp. issued $7,000,000 of 6% bonds on April 30 at par value. The bonds were dated January 1. The company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the company in accrued interest? (Round your final answer to the nearest dollar.)

Accepted Answer

A)  $420,000 
B)  $175,000 
C)  $210,000 
D)  $140,000 
A)  $420,000 
B)  $175,000 
C)  $210,000 
D)  $140,000

Question 4

Interest payments are classified as cash flows from financing activities on the statement of cash flows.

Accepted Answer

A) True 
 B)False

Question 5

While the payment on an installment loan is the same each period, the amount applied to principal decreases each period.

Accepted Answer

A) True 
 B)False

Question 6

On January 2, 2017, Edmond, Inc. issued 8,000 bonds at $1,040 each. Each bond contains 20 detachable stock warrants, each of which gives the owner the right to purchase one share of Edmond's $1 par value common stock at $35. The current selling price of common stock is $25 per share. Edmond's bonds without stock warrants are currently selling for $1,025 and it has additional warrants on the market selling for $15.
Required:
1. Prepare the journal entry to record the sale of the bonds using the proportional method.
2. Prepare the journal entry to record the exercise of all warrants on March 19, 2019, when the market price of the stock was $50.

Accepted Answer

1.
 (Bonds value 77.

Question 7

Notes payable are formal credit arrangements that require the payment of a specified face amount of principal at a fixed maturity date.

Accepted Answer

A) True 
 B)False

Question 8

Barauch Corporation issued $10,000,000 of 10-year bonds on January 1, 2010. The bonds have a bond sinking fund with a balance of $900,000. At December 31,2018, the bonds should be classified as ________.

Accepted Answer

A)  Short-term $9,100,000; Long-term $900,000 
B)  Short-term $10,000,000 
C)  Long-term $10,000,000 
D)  Short-term $900,000; Long-term $9,100,000 
A)  Short-term $9,100,000; Long-term $900,000 
B)  Short-term $10,000,000 
C)  Long-term $10,000,000 
D)  Short-term $900,000; Long-term $9,100,000

Question 9

Companies might be motivated to extinguish an existing debt when the stated rate of interest is higher than the current market rate.

Accepted Answer

A) True 
 B)False

Question 10

The fair value option for liabilities reports unrealized gains and losses that are not related to changes in instrument-specific credit risk ________.

Accepted Answer

A)  as other comprehensive income 
B)  directly to retained earnings 
C)  in net income 
D)  as long-term capital gains 
A)  as other comprehensive income 
B)  directly to retained earnings 
C)  in net income 
D)  as long-term capital gains

Question 11

Determine the type of bonds that match the following bond descriptions:
 $$\begin{array} { | l | l | } 
\hline { \text { Bond Descriptions } } & \text { Type of Bonds } \
\hline \text { Bonds that holders can exchange for stock. } & \
\hline \text { Bonds without specific security. } & \
\hline \text { Bonds with options to purchase stock. } & \
\hline \text { Bonds with collateral. } & \
\hline \text { Bonds with multiple maturity dates. } & \
\hline \text { Bonds that the debtor can recall. } & \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { | l | l | } 
\hline{ \

Question 12

U.S. GAAP always allocates proceeds from issuing convertible bonds between a debt component and an equity component.

Accepted Answer

A) True 
 B)False

Question 13

When working with bonds issued between interest dates, the accountant must ________.

Accepted Answer

A)  reevaluate the actual interest rate for the entire amortization table 
B)  assume that the bonds were issued on the intended issue date 
C)  adjust the first period of the amortization table 
D)  omit the first interest period from the amortization table 
A)  reevaluate the actual interest rate for the entire amortization table 
B)  assume that the bonds were issued on the intended issue date 
C)  adjust the first period of the amortization table 
D)  omit the first interest period from the amortization table

Question 14

If a company elects the fair value option for some liabilities, it must use the fair value option for all liabilities.

Accepted Answer

A) True 
 B)False

Question 15

Mainord Corporation issues $100,000 of 10-year, 6% convertible bonds. Each $1,000 bond is convertible into 30 common shares. On the date of the issue, the shares had a market value of $50 per share. What is the intrinsic value of the conversion feature? (Round any intermediary calculations to the nearest cent, and round your final answer to the nearest dollar.)

Accepted Answer

A)  $5,000 
B)  $150,000 
C)  $50,010 
D)  $3,000 
A)  $5,000 
B)  $150,000 
C)  $50,010 
D)  $3,000

Question 16

Darouich Industries decided to retire an $3,000,000 bond issue before its due date. The bonds were callable by the company at 102. At the same time, the bonds were selling at 101 on the open market. The company was able to buy $1,500,000 of the bonds at 101 and called the remaining bonds. At that time, there was $375,000 in the Discount on Bonds Payable account. Compute the gain or loss on the retirement of the bonds repurchased in the market at 101.

Accepted Answer

A)  $202,500 gain 
B)  $202,500 loss 
C)  $217,500 gain 
D)  $217,500 loss 
A)  $202,500 gain 
B)  $202,500 loss 
C)  $217,500 gain 
D)  $217,500 loss

Question 17

Miller, Inc. sold $2,000,000 of bonds at par on January 1, 2018. The 3-year, 5% bonds pay interest each year on December 31. Miller incurred $50,000 in bond issue costs and records transactions using IFRS.
Required:
1. Compute the effective interest rate of the bond issue.
2. Prepare the journal entry to record the bond issuance.

Accepted Answer

1. N = 3
PV = 1,950,000
FV = $2,000,000

Question 18

The account Discount on Bonds Payable is a contra-liability account.

Accepted Answer

A) True 
 B)False

Question 19

On January 2, Lincoln Motors, Inc. issued 1,000, $1,000 bonds to finance a new showroom. The bonds are 5-year, 6% bonds that pay interest on December 31 each year. When issued, investors required 7% interest and the bonds are due December 31, Year 5.
Required:
1. Compute the selling price of the bonds.
2. Prepare the entry to record the sale of the bonds.
3. Prepare the amortization table for the bonds.
4. Prepare the journal entries for the first annual interest payment and the final repayment of the bonds.

Accepted Answer

1. Selling price is $958,998. Using Exce

Question 20

There is a gain on early retirement of bonds if the retirement price is greater than the net carrying value.

Accepted Answer

A) True 
 B)False

When convertible bonds are converted to equity, the company records a gain on conversion when the bond carrying value is greater than the par value of the equity.

The fair value option for reporting some liabilities is normally chosen ________.

Wilson Corp. issued $7,000,000 of 6% bonds on April 30 at par value. The bonds were dated January 1. The company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the company in accrued interest? (Round your final answer to the nearest dollar.)

Interest payments are classified as cash flows from financing activities on the statement of cash flows.

While the payment on an installment loan is the same each period, the amount applied to principal decreases each period.

Notes payable are formal credit arrangements that require the payment of a specified face amount of principal at a fixed maturity date.

Barauch Corporation issued $10,000,000 of 10-year bonds on January 1, 2010. The bonds have a bond sinking fund with a balance of $900,000. At December 31,2018, the bonds should be classified as ________.

Companies might be motivated to extinguish an existing debt when the stated rate of interest is higher than the current market rate.

The fair value option for liabilities reports unrealized gains and losses that are not related to changes in instrument-specific credit risk ________.

U.S. GAAP always allocates proceeds from issuing convertible bonds between a debt component and an equity component.

When working with bonds issued between interest dates, the accountant must ________.

If a company elects the fair value option for some liabilities, it must use the fair value option for all liabilities.

The account Discount on Bonds Payable is a contra-liability account.

There is a gain on early retirement of bonds if the retirement price is greater than the net carrying value.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters

Exam 14: Financing Liabilities

When convertible bonds are converted to equity, the company records a gain on conversion when the bond carrying value is greater than the par value of the equity.

The fair value option for reporting some liabilities is normally chosen ________.

Wilson Corp. issued $7,000,000 of 6% bonds on April 30 at par value. The bonds were dated January 1. The company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the company in accrued interest? (Round your final answer to the nearest dollar.)

Interest payments are classified as cash flows from financing activities on the statement of cash flows.

While the payment on an installment loan is the same each period, the amount applied to principal decreases each period.

Notes payable are formal credit arrangements that require the payment of a specified face amount of principal at a fixed maturity date.

Barauch Corporation issued $10,000,000 of 10-year bonds on January 1, 2010. The bonds have a bond sinking fund with a balance of $900,000. At December 31,2018, the bonds should be classified as ________.

Companies might be motivated to extinguish an existing debt when the stated rate of interest is higher than the current market rate.

The fair value option for liabilities reports unrealized gains and losses that are not related to changes in instrument-specific credit risk ________.

U.S. GAAP always allocates proceeds from issuing convertible bonds between a debt component and an equity component.

When working with bonds issued between interest dates, the accountant must ________.

If a company elects the fair value option for some liabilities, it must use the fair value option for all liabilities.

The account Discount on Bonds Payable is a contra-liability account.

There is a gain on early retirement of bonds if the retirement price is greater than the net carrying value.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters