Question 1

Bonds are a form of interest-bearing notes payable.

Accepted Answer

A) True 
 B)False

Question 2

Downs Company issued $800,000 of 8%, 5-year bonds at 106, which pay interest annually. Assuming straight-line amortization, what is the total interest cost of the bonds?

Accepted Answer

A) $368,000 
B) $272,000 
C) $224,000 
D) $320,000 
A) $368,000 
B) $272,000 
C) $224,000 
D) $320,000

Question 3

A $1,000,000 bond was retired at 98 when the carrying value of the bond was $985,000. The entry to record the retirement would include a

Accepted Answer

A) gain on bond redemption of $15,000. 
B) loss on bond redemption of $5,000. 
C) loss on bond redemption of $15,000. 
D) gain on bond redemption of $5,000. 
A) gain on bond redemption of $15,000. 
B) loss on bond redemption of $5,000. 
C) loss on bond redemption of $15,000. 
D) gain on bond redemption of $5,000.

Question 4

Current liabilities are due

Accepted Answer

A) but not receivable for more than one year. 
B) but not payable for more than one year. 
C) and receivable within one year. 
D) and payable within one year. 
A) but not receivable for more than one year. 
B) but not payable for more than one year. 
C) and receivable within one year. 
D) and payable within one year.

Question 5

Unearned revenues are received before goods are delivered or services are rendered.

Accepted Answer

A) True 
 B)False

Question 6

Current maturities of long-term debt refers to the amount of interest on a note payable that must be paid in the current year.

Accepted Answer

A) True 
 B)False

Question 7

The higher the sales tax rate, the more profit a retailer can earn.

Accepted Answer

A) True 
 B)False

Question 8

The amount of sales tax collected by a retail store when making sales is

Accepted Answer

A) a miscellaneous revenue for the store. 
B) a current liability. 
C) not recorded because it is a tax paid by the customer. 
D) recorded as an operating expense. 
A) a miscellaneous revenue for the store. 
B) a current liability. 
C) not recorded because it is a tax paid by the customer. 
D) recorded as an operating expense.

Question 9

Interest expense on a note payable is only recorded at maturity.

Accepted Answer

A) True 
 B)False

Question 10

If bonds are issued at a premium, the stated interest rate is

Accepted Answer

A) higher than the market rate of interest. 
B) lower than the market rate of interest. 
C) too low to attract investors. 
D) adjusted to a higher rate of interest. 
A) higher than the market rate of interest. 
B) lower than the market rate of interest. 
C) too low to attract investors. 
D) adjusted to a higher rate of interest.

Question 11

The classification of a liability as current or noncurrent is important because it may affect the evaluation of a company's liquidity.

Accepted Answer

A) True 
 B)False

Question 12

Bonds that are issued against the general credit of the borrower are called

Accepted Answer

A) callable bonds. 
B) debenture bonds. 
C) secured bonds. 
D) term bonds. 
A) callable bonds. 
B) debenture bonds. 
C) secured bonds. 
D) term bonds.

Question 13

When authorizing bonds to be issued, the board of directors does not specify the

Accepted Answer

A) total number of bonds authorized to be sold. 
B) contractual interest rate. 
C) selling price. 
D) total face value of the bonds. 
A) total number of bonds authorized to be sold. 
B) contractual interest rate. 
C) selling price. 
D) total face value of the bonds.

Question 14

A $20,000, 8%, 9-month note payable requires an interest payment of $1,200 at maturity.

Accepted Answer

A) True 
 B)False

Question 15

Restoration Company issued bonds that had the following data associated with them:
Interest to be paid is $40,000.
Interest expense to be recorded is $45,000.
Which of the following characteristics is true?

Accepted Answer

A) The bonds are sold at a premium. 
B) When recording the interest expense, the amortization will decrease the bond carrying value. 
C) The difference between the interest expense and the interest to be paid is the bond's par value. 
D) When recording the interest expense, the amortization will increase the bond carrying value. 
A) The bonds are sold at a premium. 
B) When recording the interest expense, the amortization will decrease the bond carrying value. 
C) The difference between the interest expense and the interest to be paid is the bond's par value. 
D) When recording the interest expense, the amortization will increase the bond carrying value.

Question 16

A cash register tape shows cash sales of $3,000 and sales taxes of $200. The journal entry to record this information is

Accepted Answer

The answer of A cash register tape shows cash sales...

Question 17

Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

Accepted Answer

A) True 
 B)False

Question 18

The sale of bonds above face value

Accepted Answer

A) is a rare occurrence. 
B) will cause the total cost of borrowing to be less than the bond interest paid. 
C) will cause the total cost of borrowing to be more than the bond interest paid. 
D) will have no net effect on interest expense by the time the bonds mature. 
A) is a rare occurrence. 
B) will cause the total cost of borrowing to be less than the bond interest paid. 
C) will cause the total cost of borrowing to be more than the bond interest paid. 
D) will have no net effect on interest expense by the time the bonds mature.

Question 19

Bonds are not always categorized as

Accepted Answer

A) callable or convertible. 
B) term or serial. 
C) secured or unsecured. 
D) secured or debenture. 
A) callable or convertible. 
B) term or serial. 
C) secured or unsecured. 
D) secured or debenture.

Question 20

Winrow Company received proceeds of $754,000 on 10-year, 8% bonds issued on January 1, 2016. The bonds had a face value of $800,000, pay interest annually on December 31st, and have a call price of 101. Winrow uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 2018?

Accepted Answer

A) $800,000 
B) $763,200 
C) $790,800 
D) $758,600 
A) $800,000 
B) $763,200 
C) $790,800 
D) $758,600

Exam 9: Reporting and Analyzing Liabilities

Bonds are a form of interest-bearing notes payable.

Downs Company issued $800,000 of 8%, 5-year bonds at 106, which pay interest annually. Assuming straight-line amortization, what is the total interest cost of the bonds?

A $1,000,000 bond was retired at 98 when the carrying value of the bond was $985,000. The entry to record the retirement would include a

Current liabilities are due

Unearned revenues are received before goods are delivered or services are rendered.

Current maturities of long-term debt refers to the amount of interest on a note payable that must be paid in the current year.

The higher the sales tax rate, the more profit a retailer can earn.

The amount of sales tax collected by a retail store when making sales is

Interest expense on a note payable is only recorded at maturity.

If bonds are issued at a premium, the stated interest rate is

The classification of a liability as current or noncurrent is important because it may affect the evaluation of a company's liquidity.

Bonds that are issued against the general credit of the borrower are called

When authorizing bonds to be issued, the board of directors does not specify the

A $20,000, 8%, 9-month note payable requires an interest payment of $1,200 at maturity.

Restoration Company issued bonds that had the following data associated with them: Interest to be paid is $40,000. Interest expense to be recorded is $45,000. Which of the following characteristics is true?

A cash register tape shows cash sales of $3,000 and sales taxes of $200. The journal entry to record this information is

Current liabilities are expected to be paid within one year or the operating cycle, whichever is longer.

The sale of bonds above face value

Bonds are not always categorized as

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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