Question 1

If a corporation issued $9,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

Accepted Answer

A) $4,500,000 
B) $135,000 
C) $450,000 
D) $315,000 
A) $4,500,000 
B) $135,000 
C) $450,000 
D) $315,000

Question 2

Bonds that may be exchanged for common stock at the option of the bondholders are called

Accepted Answer

A) options. 
B) stock bonds. 
C) convertible bonds. 
D) callable bonds. 
A) options. 
B) stock bonds. 
C) convertible bonds. 
D) callable bonds.

Question 3

When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by

Accepted Answer

A) adding the amount of premium amortized for that period to the amount of cash paid for interest during the period. 
B) subtracting the amount of premium amortized for that period from the amount of cash paid for interest during the period. 
C) multiplying the face value of the bonds by the stated interest rate. 
D) multiplying the face value of the bonds by the market interest rate. 
A) adding the amount of premium amortized for that period to the amount of cash paid for interest during the period. 
B) subtracting the amount of premium amortized for that period from the amount of cash paid for interest during the period. 
C) multiplying the face value of the bonds by the stated interest rate. 
D) multiplying the face value of the bonds by the market interest rate.

Question 4

Julie Lambert has a large consulting practice. New clients are required to pay one-half of the consulting fees up front. The balance is paid at the conclusion of the consultation. How does Lambert account for the cash received at the end of the engagement?

Accepted Answer

A) Cash Unearned Service Revenue 
B) Cash Unearned Service Revenue
Service Revenue 
C) Prepaid Service Revenue Service Revenue 
D) No entry is required when the engagement is concluded. 
A) Cash Unearned Service Revenue 
B) Cash Unearned Service Revenue
Service Revenue 
C) Prepaid Service Revenue Service Revenue 
D) No entry is required when the engagement is concluded.

Question 5

Most companies pay current liabilities

Accepted Answer

A) out of current assets. 
B) by issuing interest-bearing notes payable. 
C) by issuing stock. 
D) by creating long-term liabilities. 
A) out of current assets. 
B) by issuing interest-bearing notes payable. 
C) by issuing stock. 
D) by creating long-term liabilities.

Question 6

The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n)

Accepted Answer

A) interest rate that is close to the market interest rate. 
B) uniform rate of interest. 
C) more variable interest rate. 
D) interest rate that increases or decreases slightly over time. 
A) interest rate that is close to the market interest rate. 
B) uniform rate of interest. 
C) more variable interest rate. 
D) interest rate that increases or decreases slightly over time.

Question 7

A measure of a company's solvency is the

Accepted Answer

A) acid-test ratio. 
B) current ratio. 
C) times interest earned. 
D) asset turnover ratio. 
A) acid-test ratio. 
B) current ratio. 
C) times interest earned. 
D) asset turnover ratio.

Question 8

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

Accepted Answer

A) bond interest is deductible for tax purposes. 
B) interest must be paid on a periodic basis regardless of earnings. 
C) income to stockholders may increase as a result of trading on the equity. 
D) the bondholders do not have voting rights. 
A) bond interest is deductible for tax purposes. 
B) interest must be paid on a periodic basis regardless of earnings. 
C) income to stockholders may increase as a result of trading on the equity. 
D) the bondholders do not have voting rights.

Question 9

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Accepted Answer

A) a bond certificate. 
B) a bond debenture. 
C) trading on the equity. 
D) a convertible bond. 
A) a bond certificate. 
B) a bond debenture. 
C) trading on the equity. 
D) a convertible bond.

Question 10

The interest charged on a $90,000 note payable, at the rate of 6%, on a 90-day note would be

Accepted Answer

A) $5,400. 
B) $2,700. 
C) $1,350. 
D) $900. 
A) $5,400. 
B) $2,700. 
C) $1,350. 
D) $900.

Question 11

Selected data from 2017 financial statements of Xi Corporation include the following (amount in millions): $\begin{array}{lr}
\text { Current assets } & ¥ 759 \
\text { Total assets } & 1,200 \
\text { Current liabilities } & 400 \
\text { Total liabilities } & 750 \
\text { Cash } & 80 \
\text { Interest expense } & 50 \
\text { income taxes } & 100 \
\text { Net income } & 160
\end{array}$ The debt to assets ratio is

Accepted Answer

A) 62.5%. 
B) 52.7%. 
C) 1.60%. 
D) 6.2 times. 
A) 62.5%. 
B) 52.7%. 
C) 1.60%. 
D) 6.2 times.

Question 12

The following partial amortization schedule is available for Courtney Company who sold $750,000, five-year, 10% bonds on January 1, 2017 for $780,000 and uses annual straight-line amortization. $\text { BOND AMORTIZATION SCHEDULE }$
$\begin{array}{|l|c|c|c|c|c|}
\hline \text { Interest Periods } & \begin{array}{c}
\text { Interest } \
\text { to be paid }
\end{array} & \begin{array}{c}
\text { Interest } \
\text { expense }
\end{array} & \begin{array}{c}
\text { Premium } \
\text { Amortization }
\end{array} & \begin{array}{c}
\text { Unamortized } \
\text { Premium }
\end{array} & \begin{array}{c}
\text { Bond Carrying } \
\text { Value }
\end{array} \
\hline \text { January 1,2017 } & & & & \$ 30,000 & \$ 780,000 \
\hline \text { January } 1,2018 & \text { (i) } & \text { (ii) } & \text { (iii) } & \text { (iv) } & (\mathrm{v}) \
\hline
\end{array}$ Which of the following amounts should be shown in cell (iv)?

Accepted Answer

A) $33,000 
B) $27,000 
C) $36,000 
D) $24,000 
A) $33,000 
B) $27,000 
C) $36,000 
D) $24,000

Question 13

Which of the following is not a current liability on December 31, 2017?

Accepted Answer

A) A Note Payable due December 31, 2018 
B) An Accounts Payable due January 31, 2018 
C) A lawsuit judgment to be decided on January 10, 2018 
D) Accrued salaries payable from 2017 
A) A Note Payable due December 31, 2018 
B) An Accounts Payable due January 31, 2018 
C) A lawsuit judgment to be decided on January 10, 2018 
D) Accrued salaries payable from 2017

Question 14

The present value of a bond is also known as its

Accepted Answer

A) face value. 
B) market price. 
C) future value. 
D) deferred value. 
A) face value. 
B) market price. 
C) future value. 
D) deferred value.

Question 15

Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is

Accepted Answer

The answer of Moss County Bank agrees to lend the...

Question 16

The interest expense recorded on an interest payment date is increased

Accepted Answer

A) by the amortization of premium on bonds payable. 
B) by the amortization of discount on bonds payable. 
C) only if the bonds were sold at face value. 
D) only if the market rate of interest is less than the stated rate of interest on that date. 
A) by the amortization of premium on bonds payable. 
B) by the amortization of discount on bonds payable. 
C) only if the bonds were sold at face value. 
D) only if the market rate of interest is less than the stated rate of interest on that date.

Question 17

During the month, a company sells goods for a total of $106,000, which includes sales taxes of $6,000; therefore, the company should recognize $100,000 in Sales Revenue and $6,000 in Sales Tax Expense.

Accepted Answer

A) True 
 B)False

Question 18

Payroll taxes include the employer's share of Social Security taxes as well as state and federal unemployment taxes.

Accepted Answer

A) True 
 B)False

Question 19

Thayer Company purchased a building on January 2 by signing a long-term $3,360,000 mortgage with monthly payments of $30,800. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

Accepted Answer

A) debit to the Cash account for $30,800. 
B) credit to the Cash account for $28,000. 
C) debit to the Interest Expense account for $28,000. 
D) credit to the Mortgage Payable account for $30,800. 
A) debit to the Cash account for $30,800. 
B) credit to the Cash account for $28,000. 
C) debit to the Interest Expense account for $28,000. 
D) credit to the Mortgage Payable account for $30,800.

Question 20

On January 1, 2017, Michelin Company, a calendar-year company, issued €9,000,000 of mortgage notes payable, of which €3,000,000 is due on January 1 for each of the next three years. The proper statement of financial position presentation on December 31, 2017, is

Accepted Answer

A) Current liabilities, €9,000,000. 
B) Long-term Debt, €9,000,000. 
C) Current liabilities, €4,500,000; Long-term Debt, €4,500,000. 
D) Current liabilities, €3,000,000; Long-term Debt, €6,000,000. 
A) Current liabilities, €9,000,000. 
B) Long-term Debt, €9,000,000. 
C) Current liabilities, €4,500,000; Long-term Debt, €4,500,000. 
D) Current liabilities, €3,000,000; Long-term Debt, €6,000,000.

Exam 9: Reporting and Analyzing Liabilities

If a corporation issued $9,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

Bonds that may be exchanged for common stock at the option of the bondholders are called

When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by

Julie Lambert has a large consulting practice. New clients are required to pay one-half of the consulting fees up front. The balance is paid at the conclusion of the consultation. How does Lambert account for the cash received at the end of the engagement?

Most companies pay current liabilities

The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n)

A measure of a company's solvency is the

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

The interest charged on a $90,000 note payable, at the rate of 6%, on a 90-day note would be

Selected data from 2017 financial statements of Xi Corporation include the following (amount in millions): Current assets ¥759 Total assets 1,200 Current liabilities 400 Total liabilities 750 Cash 80 Interest expense 50 income taxes 100 Net income 160 The debt to assets ratio is

Which of the following is not a current liability on December 31, 2017?

The present value of a bond is also known as its

Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is

The interest expense recorded on an interest payment date is increased

During the month, a company sells goods for a total of $106,000, which includes sales taxes of $6,000; therefore, the company should recognize $100,000 in Sales Revenue and $6,000 in Sales Tax Expense.

Payroll taxes include the employer's share of Social Security taxes as well as state and federal unemployment taxes.

Thayer Company purchased a building on January 2 by signing a long-term $3,360,000 mortgage with monthly payments of $30,800. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

On January 1, 2017, Michelin Company, a calendar-year company, issued €9,000,000 of mortgage notes payable, of which €3,000,000 is due on January 1 for each of the next three years. The proper statement of financial position presentation on December 31, 2017, is

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Activity-Based Costing

Cost-Volume-Profit

Cost-Volume-Profit Analysis: Additional Issues

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Planning for Capital Investments

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