Question 1

The market price of a bond is the

Accepted Answer

A)  present value of its principal amount at maturity plus the present value of all future interest payments. 
B)  principal amount plus the present value of all future interest payments. 
C)  principal amount plus all future interest payments. 
D)  present value of its principal amount only. 
A)  present value of its principal amount at maturity plus the present value of all future interest payments. 
B)  principal amount plus the present value of all future interest payments. 
C)  principal amount plus all future interest payments. 
D)  present value of its principal amount only.

Question 2

On January 1, 2010, Fabian Enterprises issued 9%, 10-year bonds with a face amount of $900,000 at 96. Interest is payable semiannually on June 30 and December 31. The bonds were issued for an effective interest rate of 10%.
Instructions
Prepare the entries to record the issuance of the bonds and the first semiannual interest payment assuming that the company uses effective-interest amortization.

Accepted Answer

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

Question 3

Delmar Company purchased a building on January 2 by signing a long-term $480,000 mortgage with monthly payments of $4,400. The mortgage carries an interest rate of 10 percent.
The entry to record the first monthly payment will include a

Accepted Answer

A)  debit to the Cash account for $4,400. 
B)  credit to the Cash account for $4,000. 
C)  debit to the Interest Expense account for $4,000. 
D)  credit to the Mortgage Payable account for $4,400. 
A)  debit to the Cash account for $4,400. 
B)  credit to the Cash account for $4,000. 
C)  debit to the Interest Expense account for $4,000. 
D)  credit to the Mortgage Payable account for $4,400.

Question 4

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

Accepted Answer

A)  bond interest is deductible for tax purposes. 
B)  interest must be paid on a periodic basis regardless of earnings. 
C)  income to stockholders may increase as a result of trading on the equity. 
D)  the bondholders do not have voting rights. 
A)  bond interest is deductible for tax purposes. 
B)  interest must be paid on a periodic basis regardless of earnings. 
C)  income to stockholders may increase as a result of trading on the equity. 
D)  the bondholders do not have voting rights.

Question 5

Bonds will always fall into all but which one of the following categories?

Accepted Answer

A)  Callable or convertible 
B)  Term or serial 
C)  Registered or bearer 
D)  Secured or unsecured 
A)  Callable or convertible 
B)  Term or serial 
C)  Registered or bearer 
D)  Secured or unsecured

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

On January 1, Grogan Corporation issues $1,000,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. The carrying value of the bonds at the end of the third interest period is:

Accepted Answer

A)  $972,000 
B)  $976,000 
C)  $944,000 
D)  $928,000 
A)  $972,000 
B)  $976,000 
C)  $944,000 
D)  $928,000

Question 8

A bond with a face value of $200,000 and a quoted price of 102¼ has a selling price of

Accepted Answer

A)  $240,450. 
B)  $204,050. 
C)  $200,450. 
D)  $204,500. 
A)  $240,450. 
B)  $204,050. 
C)  $200,450. 
D)  $204,500.

Question 9

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2010, contained the following accounts.   The total long-term liabilities reported on the balance sheet are

Accepted Answer

A)  $1,865,000. 
B)  $1,850,000. 
C)  $1,965,000. 
D)  $1,950,000. 
A)  $1,865,000. 
B)  $1,850,000. 
C)  $1,965,000. 
D)  $1,950,000.

Question 10

When the effective-interest method of bond premium amortization is used, the

Accepted Answer

A)  amount of premium amortized will get larger with successive amortization. 
B)  carrying value of the bonds will increase with successive amortization. 
C)  interest paid to bondholders will increase after each interest payment date. 
D)  interest rate used to calculate interest expense will be the contractual rate. 
A)  amount of premium amortized will get larger with successive amortization. 
B)  carrying value of the bonds will increase with successive amortization. 
C)  interest paid to bondholders will increase after each interest payment date. 
D)  interest rate used to calculate interest expense will be the contractual rate.

Question 11

Premium on Bonds Payable is a contra account to Bonds Payable.

Accepted Answer

A) True 
 B)False

Question 12

Bond interest paid is

Accepted Answer

A)  higher when bonds sell at a discount. 
B)  lower when bonds sell at a premium. 
C)  the same whether bonds sell at a discount or a premium. 
D)  higher when bonds sell at a discount and lower when bonds sell at a premium. 
A)  higher when bonds sell at a discount. 
B)  lower when bonds sell at a premium. 
C)  the same whether bonds sell at a discount or a premium. 
D)  higher when bonds sell at a discount and lower when bonds sell at a premium.

Question 13

Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization.   Which of the following amounts should be shown in cell (iv)?

Accepted Answer

A)  $8,800 
B)  $7,200 
C)  $9,600 
D)  $6,400 
A)  $8,800 
B)  $7,200 
C)  $9,600 
D)  $6,400

Question 14

Silcon Company issued $500,000 of 6%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. Interest is paid annually.
What amount of discount (to the nearest dollar) should be amortized for the first interest period?

Accepted Answer

A)  $14,089 
B)  $6,815 
C)  $9,096 
D)  $4,548 
A)  $14,089 
B)  $6,815 
C)  $9,096 
D)  $4,548

Question 15

Mert Company borrowed $750,000 on January 1, 2010, by issuing $750,000, 8% mortgage note payable. The terms call for semiannual installment payments of $50,000 on June 30 and 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, 2010.

Accepted Answer

The answer of Mert Company borrowed $750,000 on January 1,...

Question 16

Unsecured bonds that are issued against the general credit of the borrower are called ________________ bonds.

Accepted Answer

The answer of Unsecured bonds that are issued against the...

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

If the present value of lease payments equals or exceeds 90% of the fair market value of the leased property, the

Accepted Answer

A)  conditions are met for the lease to be considered a capital lease. 
B)  lease is uneconomical and should not be entered into. 
C)  lease may be classified as an operating lease. 
D)  recording of a lease liability is optional-that is, the off-balance sheet approach can be elected. 
A)  conditions are met for the lease to be considered a capital lease. 
B)  lease is uneconomical and should not be entered into. 
C)  lease may be classified as an operating lease. 
D)  recording of a lease liability is optional-that is, the off-balance sheet approach can be elected.

Question 20

Vance Company issued $600,000, 10%, 20-year bonds on January 1, 2010, at 104. Interest is payable semiannually on July 1 and January 1. Vance uses the straight-line method of amortization and has a calendar year end.
Instructions
Prepare all journal entries made in 2010 related to the bond issue.

Accepted Answer

The answer of Vance Company issued $600,000, 10%, 20-year bonds...

Exam 15: Long-Term Liabilities

The market price of a bond is the

Delmar Company purchased a building on January 2 by signing a long-term $480,000 mortgage with monthly payments of $4,400. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

Bonds will always fall into all but which one of the following categories?

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

On January 1, Grogan Corporation issues $1,000,000, 5-year, 12% bonds at 96 with interest payable on July 1 and January 1. The carrying value of the bonds at the end of the third interest period is:

A bond with a face value of $200,000 and a quoted price of 102¼ has a selling price of

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2010, contained the following accounts. The total long-term liabilities reported on the balance sheet are

When the effective-interest method of bond premium amortization is used, the

Premium on Bonds Payable is a contra account to Bonds Payable.

Bond interest paid is

Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization. Which of the following amounts should be shown in cell (iv)?

Unsecured bonds that are issued against the general credit of the borrower are called ________________ bonds.

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

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

If the present value of lease payments equals or exceeds 90% of the fair market value of the leased property, the

Vance Company issued $600,000, 10%, 20-year bonds on January 1, 2010, at 104. Interest is payable semiannually on July 1 and January 1. Vance uses the straight-line method of amortization and has a calendar year end. Instructions Prepare all journal entries made in 2010 related to the bond issue.

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

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