Question 1

The carrying value of bonds will equal the market price

Accepted Answer

A)  at the close of every trading day. 
B)  at the end of the fiscal period. 
C)  on the date of issuance. 
D)  every six months on the date interest is paid. 
A)  at the close of every trading day. 
B)  at the end of the fiscal period. 
C)  on the date of issuance. 
D)  every six months on the date interest is paid.

Question 2

If bonds are issued at a premium the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date.

Accepted Answer

A) True 
 B)False

Question 3

A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called

Accepted Answer

A)  a bond indenture. 
B)  a bond debenture. 
C)  trading on the equity. 
D)  a term bond. 
A)  a bond indenture. 
B)  a bond debenture. 
C)  trading on the equity. 
D)  a term bond.

Question 4

In a recent year Chandler Corporation had net income of $150000 interest expense of $40000 and tax expense of $20000. What was Chandler Corporation's times interest earned for the year?

Accepted Answer

A)  5.25 
B)  4.75 
C)  3.75 
D)  4.25 
A)  5.25 
B)  4.75 
C)  3.75 
D)  4.25

Question 5

When bonds are converted into common stock and the conversion is recorded the ________________ of the bonds is transferred to paid-in capital accounts.

Accepted Answer

The answer of When bonds are converted into common stock...

Question 6

Under IFRS the proceeds from the issuance of convertible debt are reported as

Accepted Answer

A)  debt only. 
B)  equity only. 
C)  debt or equity depending on the circumstances. 
D)  both debt and equity. 
A)  debt only. 
B)  equity only. 
C)  debt or equity depending on the circumstances. 
D)  both debt and equity.

Question 7

If bonds were issued at a premium then the contractual interest rate was _____________ than the market interest rate.

Accepted Answer

The answer of If bonds were issued at a premium...

Question 8

Which of the following is not an advantage of issuing bonds instead of common stock?

Accepted Answer

A)  Stockholder control is not affected. 
B)  Earnings per share on common stock may be lower. 
C)  Income to common shareholders may increase. 
D)  Tax savings result. 
A)  Stockholder control is not affected. 
B)  Earnings per share on common stock may be lower. 
C)  Income to common shareholders may increase. 
D)  Tax savings result.

Question 9

A company desires to replace its current plant equipment with new equipment that costs $10000000. One possibility would be for the company to issue $10000000 of bonds and use the proceeds to purchase the equipment. Another possibility is to acquire the use of the equipment by signing a long-term capital lease with a leasing company. Describe and compare the financial statement effects of these two alternatives.

Accepted Answer

The bond alternative will result in the

Question 10

Stuckey Company borrowed $800000 on December 31 2016 by issuing an $800000 8% mortgage note payable. The terms call for annual installment payments of $119224 on December 31.
Instructions
(a) Prepare the journal entries to record the mortgage loan and the first two installment payments.
(b) Indicate the amount of mortgage note payable to be reported as a current liability and as a long-term liability at December 31 2018.

Accepted Answer

The answer of Stuckey Company borrowed $800000 on December 31...

Question 11

Under IFRS liabilities are generally presented in

Accepted Answer

A)  alphabetical order. 
B)  order of liquidity. 
C)  maturity date order. 
D)  order of magnitude. 
A)  alphabetical order. 
B)  order of liquidity. 
C)  maturity date order. 
D)  order of magnitude.

Question 12

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 13

The market rate of interest for a bond issue which sells for more than its face value is

Accepted Answer

A)  independent of the interest rate stated on the bond. 
B)  higher than the interest rate stated on the bond. 
C)  equal to the interest rate stated on the bond. 
D)  less than the interest rate stated on the bond. 
A)  independent of the interest rate stated on the bond. 
B)  higher than the interest rate stated on the bond. 
C)  equal to the interest rate stated on the bond. 
D)  less than the interest rate stated on the bond.

Question 14

Each of the following accounts is reported as long-term liabilities except

Accepted Answer

A)  Interest Payable. 
B)  Bonds Payable. 
C)  Discount on Bonds Payable. 
D)  Premium on Bonds Payable. 
A)  Interest Payable. 
B)  Bonds Payable. 
C)  Discount on Bonds Payable. 
D)  Premium on Bonds Payable.

Question 15

The statement that "Bond prices vary inversely with changes in the market interest rate" means that if the

Accepted Answer

A)  market interest rate increases the contractual interest rate will decrease. 
B)  contractual interest rate increases then bond prices will go down. 
C)  market interest rate decreases then bond prices will go up. 
D)  contractual interest rate increases the market interest rate will decrease. 
A)  market interest rate increases the contractual interest rate will decrease. 
B)  contractual interest rate increases then bond prices will go down. 
C)  market interest rate decreases then bond prices will go up. 
D)  contractual interest rate increases the market interest rate will decrease.

Question 16

Neither corporate bond interest nor dividends are deductible for tax purposes.

Accepted Answer

A) True 
 B)False

Question 17

On January 1 2016 Moon Enterprises sold 8% 20-year bonds with a face amount of $1000000 for $950000. Interest is payable annually on January 1.
Instructions
Calculate the carrying value of the bond at December 31 2016 and 2017.

Accepted Answer

Annual amortization

Question 18

In the balance sheet mortgage notes payable are reported as

Accepted Answer

A)  a current liability only. 
B)  a long-term liability only. 
C)  both a current and a long-term liability. 
D)  a current liability except for the reduction in principal amount. 
A)  a current liability only. 
B)  a long-term liability only. 
C)  both a current and a long-term liability. 
D)  a current liability except for the reduction in principal amount.

Question 19

On January 1 Wellness Corporation issues $3000000 5-year 12% bonds at 95 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a

Accepted Answer

A)  debit to Interest Expense $180000. 
B)  debit to Interest Expense $360000. 
C)  credit to Discount on Bonds Payable $30000. 
D)  credit to Discount on Bonds Payable $15000. 
A)  debit to Interest Expense $180000. 
B)  debit to Interest Expense $360000. 
C)  credit to Discount on Bonds Payable $30000. 
D)  credit to Discount on Bonds Payable $15000.

Question 20

Harris Company borrowed $800000 from Liber Bank on January 1 2016 in order to expand its mining capabilities. The five-year note required annual payments of $208349 and carried an annual interest rate of 8.5%. What is the balance in the notes payable account at December 31 2017?

Accepted Answer

A)  $800000 
B)  $507372 
C)  $659651 
D)  $664000 
A)  $800000 
B)  $507372 
C)  $659651 
D)  $664000

Exam 15: Long-Term Liabilities

The carrying value of bonds will equal the market price

If bonds are issued at a premium the carrying value of the bonds will be greater than the face value of the bonds for all periods prior to the bond maturity date.

A legal document which summarizes the rights and privileges of bondholders as well as the obligations and commitments of the issuing company is called

In a recent year Chandler Corporation had net income of $150000 interest expense of $40000 and tax expense of $20000. What was Chandler Corporation's times interest earned for the year?

When bonds are converted into common stock and the conversion is recorded the ________________ of the bonds is transferred to paid-in capital accounts.

Under IFRS the proceeds from the issuance of convertible debt are reported as

If bonds were issued at a premium then the contractual interest rate was _____________ than the market interest rate.

Which of the following is not an advantage of issuing bonds instead of common stock?

Under IFRS liabilities are generally presented in

The sale of bonds above face value

The market rate of interest for a bond issue which sells for more than its face value is

Each of the following accounts is reported as long-term liabilities except

The statement that "Bond prices vary inversely with changes in the market interest rate" means that if the

Neither corporate bond interest nor dividends are deductible for tax purposes.

On January 1 2016 Moon Enterprises sold 8% 20-year bonds with a face amount of $1000000 for $950000. Interest is payable annually on January 1. Instructions Calculate the carrying value of the bond at December 31 2016 and 2017.

In the balance sheet mortgage notes payable are reported as

On January 1 Wellness Corporation issues $3000000 5-year 12% bonds at 95 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a

Harris Company borrowed $800000 from Liber Bank on January 1 2016 in order to expand its mining capabilities. The five-year note required annual payments of $208349 and carried an annual interest rate of 8.5%. What is the balance in the notes payable account at December 31 2017?

Accounting in Action

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Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Investments

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Incremental Analysis and Capital Budgeting

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