Question 1

Bonds that are not registered are

Accepted Answer

A)  bearer bonds. 
B)  debentures. 
C)  registered bonds. 
D)  transportable bonds. 
A)  bearer bonds. 
B)  debentures. 
C)  registered bonds. 
D)  transportable bonds.

Question 2

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 3

On January 1, Cleopatra Corporation issued $3,000,000, 14%, 5-year bonds with interest payable on December 31. The bonds sold for $3,216,288. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Bond Interest Expense is for

Accepted Answer

A)  $360,000. 
B)  $376,473. 
C)  $385,955. 
D)  $420,000. 
A)  $360,000. 
B)  $376,473. 
C)  $385,955. 
D)  $420,000.

Question 4

On January 1, 2010, Beltway Enterprises issued 9%, 5-year bonds with a face amount of $700,000 at par. Interest is payable semiannually on June 30 and December 31.
Instructions
Prepare the entries to record the issuance of the bonds and the first semiannual interest payment.

Accepted Answer

The answer of On January 1, 2010, Beltway Enterprises issued...

Question 5

Stover Corporation reports the following amounts in their 2010 financial statements:   
Instructions
(a) Compute the December 31, 2010, balance in stockholders' equity.
(b) Compute the debt to total assets ratio at December 31, 2010.
(c) Compute times interest earned for 2010.

Accepted Answer

The answer of Stover Corporation reports the following amounts in...

Question 6

Presented below are three independent situations:
(a) Howell Corporation purchased $350,000 of its bonds on June 30, 2010, at 102 and immediately retired them. The carrying value of the bonds on the retirement date was $339,500. The bonds pay semiannual interest and the interest payment due on June 30, 2010, has been made and recorded.
(b) Justice, Inc. purchased $400,000 of its bonds at 97 on June 30, 2010, and immediately retired them. The carrying value of the bonds on the retirement date was $393,000. The bonds pay semiannual interest and the interest payment due on June 30, 2010, has been made and recorded.
(c) Riser Company has $80,000, 10%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay semiannual interest on June 30 and December 31 of each year. The bonds are convertible into 40 shares of Riser $5 par value common stock for each $1,000 par value bond. On December 31, 2010, after the bond interest has been paid, $20,000 par value of bonds were converted. The market value of Riser's common stock was $38 per share on December 31, 2010.
Instructions
For each of the independent situations, prepare the journal entry to record the retirement or conversion of the bonds.

Accepted Answer

The answer of Presented below are three independent situations:
(a) Howell...

Question 7

A lease where the intent is temporary use of the property by the lessee with continued ownership of the property by the lessor is called

Accepted Answer

A)  off-balance sheet financing. 
B)  an operating lease. 
C)  a capital lease. 
D)  a purchase of property. 
A)  off-balance sheet financing. 
B)  an operating lease. 
C)  a capital lease. 
D)  a purchase of property.

Question 8

$2 million, 8%, 10-year bonds are issued at face value. Interest will be paid semi-annually. When calculating the market price of the bond, the present value of

Accepted Answer

A)  $160,000 received for 10 periods must be calculated. 
B)  $2 million received in 10 periods must be calculated. 
C)  $2 million received in 20 periods must be calculated. 
D)  $80,000 received for 10 periods must be calculated. 
A)  $160,000 received for 10 periods must be calculated. 
B)  $2 million received in 10 periods must be calculated. 
C)  $2 million received in 20 periods must be calculated. 
D)  $80,000 received for 10 periods must be calculated.

Question 9

The total cost of borrowing is increased only if the

Accepted Answer

A)  bonds were issued at a premium. 
B)  bonds were issued at a discount. 
C)  bonds were sold at face value. 
D)  market interest rate is less than the contractual interest rate on that date. 
A)  bonds were issued at a premium. 
B)  bonds were issued at a discount. 
C)  bonds were sold at face value. 
D)  market interest rate is less than the contractual interest rate on that date.

Question 10

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 market 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 market value of the leased property.

Question 11

The board of directors of Gibson Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $4,000,000, 6%, 20-year bonds at face value. Plan #2 would require the issuance of 100,000 shares of $5 par value common stock which is selling for $40 per share on the open market. Gibson Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $500,000 if the new factory equipment is purchased.
Instructions
Prepare a schedule which shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering.

Accepted Answer

The answer of The board of directors of Gibson Corporation...

Question 12

A $1,000 face value bond with a quoted price of 97 is selling for

Accepted Answer

A)  $1,000. 
B)  $970. 
C)  $907. 
D)  $97. 
A)  $1,000. 
B)  $970. 
C)  $907. 
D)  $97.

Question 13

If sixty $1,000 convertible bonds with a carrying value of $69,000 are converted into 9,000 shares of $5 par value common stock, the journal entry to record the conversion is

Accepted Answer

The answer of If sixty $1,000 convertible bonds with a...

Question 14

S-A E 217
Bonds may be redeemed (retired) before maturity by the issuing corporation. Explain why a company would decide to retire bonds before maturity and the necessary steps to record the redemption.

Accepted Answer

A company may decide to retire bonds bef

Question 15

When there is a ________________ difference between the straight-line and effective-interest methods of amortization, the ________________ method is required under GAAP.

Accepted Answer

material,

Question 16

Hoffman Corporation retires its bonds at 106 on January 1, following the payment of semi-annual interest. The face value of the bonds is $600,000. The carrying value of the bonds at the redemption date is $629,700. The entry to record the redemption will include a

Accepted Answer

A)  credit of $29,700 to Loss on Bond Redemption. 
B)  debit of $36,000 to Premium on Bonds Payable. 
C)  credit of $4,200 to Gain on Bond Redemption. 
D)  debit of $29,700 to Premium on Bonds Payable. 
A)  credit of $29,700 to Loss on Bond Redemption. 
B)  debit of $36,000 to Premium on Bonds Payable. 
C)  credit of $4,200 to Gain on Bond Redemption. 
D)  debit of $29,700 to Premium on Bonds Payable.

Question 17

Gains and losses are not recognized when convertible bonds are converted into common stock.

Accepted Answer

A) True 
 B)False

Question 18

The holder of a convertible bond can convert an interest payment received into a cash dividend paid on common stock if the dividend is greater than the interest payment.

Accepted Answer

A) True 
 B)False

Question 19

Investors who receive checks in their names for interest paid on bonds must hold

Accepted Answer

A)  registered bonds. 
B)  coupon bonds. 
C)  bearer bonds. 
D)  direct bonds. 
A)  registered bonds. 
B)  coupon bonds. 
C)  bearer bonds. 
D)  direct bonds.

Question 20

Discount on bonds is an additional cost of borrowing and should be recorded as interest expense over the life of the bonds.

Accepted Answer

A) True 
 B)False

Exam 15: Long-Term Liabilities

Bonds that are not registered are

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

On January 1, 2010, Beltway Enterprises issued 9%, 5-year bonds with a face amount of $700,000 at par. Interest is payable semiannually on June 30 and December 31. Instructions Prepare the entries to record the issuance of the bonds and the first semiannual interest payment.

Stover Corporation reports the following amounts in their 2010 financial statements: Instructions (a) Compute the December 31, 2010, balance in stockholders' equity. (b) Compute the debt to total assets ratio at December 31, 2010. (c) Compute times interest earned for 2010.

A lease where the intent is temporary use of the property by the lessee with continued ownership of the property by the lessor is called

$2 million, 8%, 10-year bonds are issued at face value. Interest will be paid semi-annually. When calculating the market price of the bond, the present value of

The total cost of borrowing is increased only if the

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

A $1,000 face value bond with a quoted price of 97 is selling for

If sixty $1,000 convertible bonds with a carrying value of $69,000 are converted into 9,000 shares of $5 par value common stock, the journal entry to record the conversion is

S-A E 217 Bonds may be redeemed (retired) before maturity by the issuing corporation. Explain why a company would decide to retire bonds before maturity and the necessary steps to record the redemption.

When there is a ________________ difference between the straight-line and effective-interest methods of amortization, the ________________ method is required under GAAP.

Hoffman Corporation retires its bonds at 106 on January 1, following the payment of semi-annual interest. The face value of the bonds is $600,000. The carrying value of the bonds at the redemption date is $629,700. The entry to record the redemption will include a

Gains and losses are not recognized when convertible bonds are converted into common stock.

The holder of a convertible bond can convert an interest payment received into a cash dividend paid on common stock if the dividend is greater than the interest payment.

Investors who receive checks in their names for interest paid on bonds must hold

Discount on bonds is an additional cost of borrowing and should be recorded as interest expense over the life of the bonds.

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 Analysis: the Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Filters

When there is a difference between the straight-line and effective-interest methods of amortization, the method is required under GAAP.