Question 1

Another step in calculating the issue price of the bonds is to

Accepted Answer

A)  multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table. 
B)  multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table. 
C)  multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table. 
D)  None of these answers is correct. 
A)  multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table. 
B)  multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table. 
C)  multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table. 
D)  None of these answers is correct.

Question 2

IFRS generally assumes that all restructurings be accounted for as:

Accepted Answer

A)  extinguishments of debt. 
B)  loss on debt. 
C)  amortization expense. 
D)  bad-debt expense. 
A)  extinguishments of debt. 
B)  loss on debt. 
C)  amortization expense. 
D)  bad-debt expense.

Question 3

Under IFRS the required procedure for amortization of a discount or premium is the effective-interest method.

Accepted Answer

A) True 
 B)False

Question 4

On January 1, Martinez Inc. issued $5,000,000, 11% bonds for $5,325,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of:

Accepted Answer

A)  $308,550 
B)  $307,500 
C)  $289,250 
D)  $275,000 
A)  $308,550 
B)  $307,500 
C)  $289,250 
D)  $275,000

Question 5

Under IFRS, bond issue costs are recorded as an asset.

Accepted Answer

A) True 
 B)False

Question 6

Didde Company issues $20,000,000 face value of bonds at 96 on January 1, 2013. The bonds are dated January 1, 2013, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2016, $12,000,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2016?

Accepted Answer

A)  $1,200,000 loss 
B)  $544,000 loss 
C)  $720,000 loss 
D)  $907,000 loss 
A)  $1,200,000 loss 
B)  $544,000 loss 
C)  $720,000 loss 
D)  $907,000 loss

Question 7

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

Accepted Answer

A)  debit to Interest Payable. 
B)  credit to Interest Receivable. 
C)  credit to Interest Expense. 
D)  credit to Unearned Interest. 
A)  debit to Interest Payable. 
B)  credit to Interest Receivable. 
C)  credit to Interest Expense. 
D)  credit to Unearned Interest.

Question 8

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a

Accepted Answer

A)  gain, net of income taxes. 
B)  loss, net of income taxes. 
C)  part of continuing operations. 
D)  deferred credit to be amortized over the life of the new debt. 
A)  gain, net of income taxes. 
B)  loss, net of income taxes. 
C)  part of continuing operations. 
D)  deferred credit to be amortized over the life of the new debt.

Question 9

On January 1, 2015, Doty Co. redeemed its 15-year bonds of $5,000,000 par value for 102. They were originally issued on January 1, 2003 at 98 with a maturity date ofJanuary 1, 2018. The bond issue costs relating to this transaction were $300,000. Doty amortizes discounts, premiums, and bond issue costs using the straight-line method. What amount of loss should Doty recognize on the redemption of these bonds (ignore taxes)?

Accepted Answer

A)  $180,000 
B)  $120,000 
C)  $100,000 
D)  $0 
A)  $180,000 
B)  $120,000 
C)  $100,000 
D)  $0

Question 10

When a business enterprise enters into what is referred to as off-balance-sheet financing, the company

Accepted Answer

A)  is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. 
B)  wishes to confine all information related to the debt to the income statement and the statement of cash flow. 
C)  can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. 
D)  is in violation of generally accepted accounting principles. 
A)  is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. 
B)  wishes to confine all information related to the debt to the income statement and the statement of cash flow. 
C)  can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. 
D)  is in violation of generally accepted accounting principles.

Question 11

A project financing arrangement refers to:

Accepted Answer

A)  an arrangement where a company creates a special-purpose entity to perform a special project. 
B)  an arrangement where a company borrows from its subsidiary to finance a project. 
C)  an arrangement where a company promises future repayment by placing purchased assets in an irrevocable trust. 
D)  an arrangement where a company finances a project from a sinking fund established for bond repayments. 
A)  an arrangement where a company creates a special-purpose entity to perform a special project. 
B)  an arrangement where a company borrows from its subsidiary to finance a project. 
C)  an arrangement where a company promises future repayment by placing purchased assets in an irrevocable trust. 
D)  an arrangement where a company finances a project from a sinking fund established for bond repayments.

Question 12

If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.

Accepted Answer

A) True 
 B)False

Question 13

IFRS requires the use of straight-line method for amortization of a discount or premium.

Accepted Answer

A) True 
 B)False

Question 14

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will

Accepted Answer

A)  exceed what it would have been had the effective-interest method of amortization been used. 
B)  be less than what it would have been had the effective-interest method of amortization been used. 
C)  be the same as what it would have been had the effective-interest method of amortiza-tion been used. 
D)  be less than the stated (nominal) rate of interest. 
A)  exceed what it would have been had the effective-interest method of amortization been used. 
B)  be less than what it would have been had the effective-interest method of amortization been used. 
C)  be the same as what it would have been had the effective-interest method of amortiza-tion been used. 
D)  be less than the stated (nominal) rate of interest.

Question 15

On January 1, 2015, Piper Co. issued ten-year bonds with a face value of $3,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:   
Instructions
(a) Calculate the issue price of the bonds.
(b) Without prejudice to your solution in part 
(a), assume that the issue price was $2,652,000. Prepare the amortization table for 2015, assuming that amortization is recorded on interest payment dates using the effective-interest method.

Accepted Answer

The answer of On January 1, 2015, Piper Co. issued...

Question 16

A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation?

Accepted Answer

A)  The balance of mortgage payable at a given balance sheet date will be reported as a long-term liability. 
B)  The balance of mortgage payable will remain a constant amount over the 10-year period. 
C)  The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period. 
D)  The amount of interest expense will remain constant over the 10-year period. 
A)  The balance of mortgage payable at a given balance sheet date will be reported as a long-term liability. 
B)  The balance of mortgage payable will remain a constant amount over the 10-year period. 
C)  The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period. 
D)  The amount of interest expense will remain constant over the 10-year period.

Question 17

Prepare journal entries to record the following transactions relating to long-term bonds of Kirby, Inc. (Show computations.)(a) On June 1, 2013, Kirby, Inc. issued $5,000,000, 6% bonds for $4,897,000, which includes accrued interest. Interest is payable semiannually on February 1 and August 1 with the bonds maturing on February 1, 2023. The bonds are callable at 102.(b) On August 1, 2013, Kirby paid interest on the bonds and recorded amortization. Kirby uses straight-line amortization.(c) On February 1, 2015, Kirby paid interest and recorded amortization on all of the bonds, and purchased $3,000,000 of the bonds at the call price. Assume that a reversing entry was made on January 1, 2015.

Accepted Answer

The answer of Prepare journal entries to record the following...

Question 18

An example of an item which is not a liability is

Accepted Answer

A)  dividends payable in stock. 
B)  advances from customers on contracts. 
C)  accrued estimated warranty costs. 
D)  the portion of long-term debt due within one year. 
A)  dividends payable in stock. 
B)  advances from customers on contracts. 
C)  accrued estimated warranty costs. 
D)  the portion of long-term debt due within one year.

Question 19

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

Accepted Answer

A)  a loss should be recognized by the debtor. 
B)  a gain should be recognized by the debtor. 
C)  a new effective-interest rate must be computed. 
D)  no interest expense or revenue should be recognized in the future. 
A)  a loss should be recognized by the debtor. 
B)  a gain should be recognized by the debtor. 
C)  a new effective-interest rate must be computed. 
D)  no interest expense or revenue should be recognized in the future.

Question 20

On January 1, 2014, Jacobs Company sold property to Dains Company which originally cost Jacobs $1,330,000. There was no established exchange price for this property. Danis gave Jacobs a $2,100,000 zero-interest-bearing note payable in three equal annual installments of $700,000 with the first payment due December 31, 2014. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $2,100,000 note payable in three equal annual installments of $700,000 at a 10% rate of interest is $1,740,900. What is the amount of interest income that should be recognized by Jacobs in 2014, using the effective-interest method?

Accepted Answer

A)  $0. 
B)  $70,000. 
C)  $174,090. 
D)  $210,000. 
A)  $0. 
B)  $70,000. 
C)  $174,090. 
D)  $210,000.

Another step in calculating the issue price of the bonds is to

IFRS generally assumes that all restructurings be accounted for as:

Under IFRS the required procedure for amortization of a discount or premium is the effective-interest method.

Under IFRS, bond issue costs are recorded as an asset.

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a

When a business enterprise enters into what is referred to as off-balance-sheet financing, the company

A project financing arrangement refers to:

If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.

IFRS requires the use of straight-line method for amortization of a discount or premium.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will

An example of an item which is not a liability is

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

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Exam 14: Long-Term Liabilities

Another step in calculating the issue price of the bonds is to

IFRS generally assumes that all restructurings be accounted for as:

Under IFRS the required procedure for amortization of a discount or premium is the effective-interest method.

Under IFRS, bond issue costs are recorded as an asset.

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a

When a business enterprise enters into what is referred to as off-balance-sheet financing, the company

A project financing arrangement refers to:

If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.

IFRS requires the use of straight-line method for amortization of a discount or premium.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will

An example of an item which is not a liability is

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

Financial Accounting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Balance Sheet and Statement of Cash Flows

Accounting and the Time Value of Money

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Current Liabilities and Contingencies

Stockholders Equity

Dilutive Securities and Earnings Per Share

Investments

Revenue Recognition

Accounting for Income Taxes

Accounting for Pensions and Postretirement Benefits

Accounting for Leases

Accounting Changes and Error Analysis

Statement of Cash Flows

Full Disclosure in Financial Reporting

Appendix

Filters