Question 1

Stockholders of a company may be reluctant to finance expansion through issuing more equity because

Accepted Answer

A)  leveraging with debt is always a better idea. 
B)  their earnings per share may decrease. 
C)  the price of the stock will automatically decrease. 
D)  dividends must be paid on a periodic basis. 
A)  leveraging with debt is always a better idea. 
B)  their earnings per share may decrease. 
C)  the price of the stock will automatically decrease. 
D)  dividends must be paid on a periodic basis.

Question 2

If bonds have been issued at a discount over the life of the bonds the

Accepted Answer

A)  carrying value of the bonds will decrease. 
B)  carrying value of the bonds will increase. 
C)  interest expense will increase if the discount is being amortized on a straight-line basis. 
D)  unamortized discount will increase. 
A)  carrying value of the bonds will decrease. 
B)  carrying value of the bonds will increase. 
C)  interest expense will increase if the discount is being amortized on a straight-line basis. 
D)  unamortized discount will increase.

Question 3

The lessee must record a lease as an asset if the lease

Accepted Answer

A)  transfers ownership of the property to the lessor. 
B)  contains a purchase option. 
C)  term is 75% or more of the useful life of the leased property. 
D)  payments equal or exceed 90% of the fair value of the leased property. 
A)  transfers ownership of the property to the lessor. 
B)  contains a purchase option. 
C)  term is 75% or more of the useful life of the leased property. 
D)  payments equal or exceed 90% of the fair value of the leased property.

Question 4

Cotton Company issued $500000 of 7% 10-year bonds on one of its interest dates for $431850 to yield an effective annual rate of 9%. The effective-interest method of amortization is to be used. How much bond interest expense (to the nearest dollar) should be reported on the income statement for the end of the first year?

Accepted Answer

A)  $30229 
B)  $38867 
C)  $45000 
D)  $35000 
A)  $30229 
B)  $38867 
C)  $45000 
D)  $35000

Question 5

Bond interest paid by a corporation is an expense whereas dividends paid are not an expense of the corporation.

Accepted Answer

A) True 
 B)False

Question 6

The board of directors may authorize more bonds than are issued.

Accepted Answer

A) True 
 B)False

Question 7

A corporation recognizes a gain or loss

Accepted Answer

A)  only when bonds are converted into common stock. 
B)  only when bonds are redeemed before maturity. 
C)  when bonds are redeemed at or before maturity. 
D)  when bonds are converted into common stock and when they are redeemed before maturity. 
A)  only when bonds are converted into common stock. 
B)  only when bonds are redeemed before maturity. 
C)  when bonds are redeemed at or before maturity. 
D)  when bonds are converted into common stock and when they are redeemed before maturity.

Question 8

The entry to record an installment payment on a long-term note payable is a. Mortgage Payable
 $\quad $ $\quad $Cash
b. Interest Expense
 $\quad $ $\quad $Cash
c. Mortgage Payable 
 $\quad $Interest Expense
 $\quad $ $\quad $Cash
d. Bonds Payable
 $\quad $ $\quad $Cash

Accepted Answer

The answer of The entry to record an installment payment...

Question 9

A long-term note that pledges title to specific property as security for a loan is known as a mortgage payable.

Accepted Answer

A) True 
 B)False

Question 10

A capital lease requires the lessee to record the lease as a purchase of an asset.

Accepted Answer

A) True 
 B)False

Question 11

The effective-interest method of amortization results in varying amounts of amortization and interest expense per period but a constant interest rate.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is not a condition which would require the recording of a lease contract as a capital lease?

Accepted Answer

A)  The lease transfers ownership of the property to the lessee. 
B)  The lease contains a bargain purchase option. 
C)  The lease term is less than 75% of the economic life of the leased property. 
D)  The present value of the lease payments equals or exceeds 90% of the fair value of the leased property. 
A)  The lease transfers ownership of the property to the lessee. 
B)  The lease contains a bargain purchase option. 
C)  The lease term is less than 75% of the economic life of the leased property. 
D)  The present value of the lease payments equals or exceeds 90% of the fair value of the leased property.

Question 13

On January 1 2017 $2000000 10-year 10% bonds were issued for $1943000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable the amortization amount per year is

Accepted Answer

A)  $19430. 
B)  $4750. 
C)  $2850. 
D)  $5700. 
A)  $19430. 
B)  $4750. 
C)  $2850. 
D)  $5700.

Question 14

Premium on Bonds Payable

Accepted Answer

A)  has a debit balance. 
B)  is a contra account. 
C)  is considered to be a reduction in the cost of borrowing. 
D)  is deducted from bonds payable on the balance sheet. 
A)  has a debit balance. 
B)  is a contra account. 
C)  is considered to be a reduction in the cost of borrowing. 
D)  is deducted from bonds payable on the balance sheet.

Question 15

If bonds are originally sold at a discount using the straight-line amortization method:

Accepted Answer

A)  Interest expense in the earlier years of the bond's life will be less than the interest to be paid. 
B)  Interest expense in the earlier years of the bond's life will be the same as interest to be paid. 
C)  Unamortized discount is subtracted from the face value of the bond to determine its carrying value. 
D)  Unamortized discount is added to the face value of the bond to determine its carrying value. 
A)  Interest expense in the earlier years of the bond's life will be less than the interest to be paid. 
B)  Interest expense in the earlier years of the bond's life will be the same as interest to be paid. 
C)  Unamortized discount is subtracted from the face value of the bond to determine its carrying value. 
D)  Unamortized discount is added to the face value of the bond to determine its carrying value.

Question 16

Sergei Company issued $400000 of bonds on January 1 2017.
Instructions
(a) Prepare the journal entry to record the redemption of the bonds at maturity assuming the bonds were issued at 100.
(b) Prepare the journal entry to record the redemption of the bonds before maturity at 97. Assume the balance in Premium on Bonds Payable is $4000.
(c) Prepare the journal entry to record the conversion of the bonds into 15000 shares of $10 par value common stock. Assume the bonds were issued at par.

Accepted Answer

The answer of Sergei Company issued $400000 of bonds on...

Question 17

The interest rate investors demand for loaning funds is the

Accepted Answer

A)  market interest rate. 
B)  stated rate. 
C)  contractual interest rate. 
D)  bond interest rate. 
A)  market interest rate. 
B)  stated rate. 
C)  contractual interest rate. 
D)  bond interest rate.

Question 18

The lessee has substantially all of the benefits and risks of ownership in a(n)

Accepted Answer

A)  apartment lease. 
B)  capital lease. 
C)  operating lease. 
D)  operating lease and a capital lease. 
A)  apartment lease. 
B)  capital lease. 
C)  operating lease. 
D)  operating lease and a capital lease.

Question 19

Bonds that mature at a single specified future date are called term bonds.

Accepted Answer

A) True 
 B)False

Question 20

Martinez Corporation issues 2000 10-year 8% $1000 bonds dated January 1 2017 at 98. The journal entry to record the issuance will show a

Accepted Answer

A)  debit to Cash of $2000000. 
B)  credit to Discount on Bonds Payable for $40000. 
C)  credit to Bonds Payable for $2040000. 
D)  debit to Cash for $1960000. 
A)  debit to Cash of $2000000. 
B)  credit to Discount on Bonds Payable for $40000. 
C)  credit to Bonds Payable for $2040000. 
D)  debit to Cash for $1960000.

Exam 15: Long-Term Liabilities

Stockholders of a company may be reluctant to finance expansion through issuing more equity because

If bonds have been issued at a discount over the life of the bonds the

The lessee must record a lease as an asset if the lease

Bond interest paid by a corporation is an expense whereas dividends paid are not an expense of the corporation.

The board of directors may authorize more bonds than are issued.

A corporation recognizes a gain or loss

The entry to record an installment payment on a long-term note payable is a. Mortgage Payable \quad \quad Cash b. Interest Expense \quad \quad Cash c. Mortgage Payable \quad Interest Expense \quad \quad Cash d. Bonds Payable \quad \quad Cash

A long-term note that pledges title to specific property as security for a loan is known as a mortgage payable.

A capital lease requires the lessee to record the lease as a purchase of an asset.

The effective-interest method of amortization results in varying amounts of amortization and interest expense per period but a constant interest rate.

Which of the following is not a condition which would require the recording of a lease contract as a capital lease?

On January 1 2017 $2000000 10-year 10% bonds were issued for $1943000. Interest is paid annually on January 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable the amortization amount per year is

Premium on Bonds Payable

If bonds are originally sold at a discount using the straight-line amortization method:

The interest rate investors demand for loaning funds is the

The lessee has substantially all of the benefits and risks of ownership in a(n)

Bonds that mature at a single specified future date are called term bonds.

Martinez Corporation issues 2000 10-year 8% $1000 bonds dated January 1 2017 at 98. The journal entry to record the issuance will show a

Accounting in Action

The Recording Process

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

Time Value of Money

Filters

The entry to record an installment payment on a long-term note payable is a. Mortgage Payable $\quad$ $\quad$ Cash b. Interest Expense $\quad$ $\quad$ Cash c. Mortgage Payable $\quad$ Interest Expense $\quad$ $\quad$ Cash d. Bonds Payable $\quad$ $\quad$ Cash