Question 1

A disadvantage of bonds is:

Accepted Answer

A)  Bonds require payment of periodic interest. 
B)  Bonds can decrease return on equity. 
C)  Bonds require payment of principal. 
D)  Bonds may not create financial leverage. 
E)  All of these answers are correct. 
A)  Bonds require payment of periodic interest. 
B)  Bonds can decrease return on equity. 
C)  Bonds require payment of principal. 
D)  Bonds may not create financial leverage. 
E)  All of these answers are correct.

Question 2

An advantage of bond financing is:

Accepted Answer

A)  Bonds can create financial leverage. 
B)  Bonds can increase return on equity. 
C)  Interest on bonds is tax-deductible. 
D)  Issuing bonds does not affect shareholder control. 
E)  All of these answers are correct. 
A)  Bonds can create financial leverage. 
B)  Bonds can increase return on equity. 
C)  Interest on bonds is tax-deductible. 
D)  Issuing bonds does not affect shareholder control. 
E)  All of these answers are correct.

Question 3

Kent Corporation has $100,000 in bonds outstanding. The unamortized premium on these bonds is $2,700. If the corporation redeems these bonds at 99, what is the gain loss) on retirement?

Accepted Answer

A)  $1,000. 
B)  $2,700. 
C)  $2,700). 
D)  $1,000). 
E)  $3,700. 
A)  $1,000. 
B)  $2,700. 
C)  $2,700). 
D)  $1,000). 
E)  $3,700.

Question 4

Jerrod Limited reported the following items on their Balance Sheet:

Accepted Answer

A)  1.96 
B)  2.08 
C)  1.78 
D)  1.22 
E)  1.98 
A)  1.96 
B)  2.08 
C)  1.78 
D)  1.22 
E)  1.98

Question 5

Bonds must be issued on an interest payment date.

Accepted Answer

A) True 
 B)False

Question 6

Installment notes payable that require payments of accrued interest to date plus equal amounts of principal:

Accepted Answer

A)  Result in periodic payments that gradually decrease in amount. 
B)  Result in increasing amounts of interest each period. 
C)  Result in periodic payments that gradually increase in amount. 
D)  Result in equal periodic payments. 
E)  Are not legal. 
A)  Result in periodic payments that gradually decrease in amount. 
B)  Result in increasing amounts of interest each period. 
C)  Result in periodic payments that gradually increase in amount. 
D)  Result in equal periodic payments. 
E)  Are not legal.

Question 7

Snow and Skates Ltd is planning a $500,000 expansion. The firm has $1,000,000 in equity. Which of the following options would generate the largest return on equity?

Accepted Answer

A)  Plan B-raise $500,000 from issuing shares. 
B)  Both Plan A-no expansion, and Plan B-raise $500,000 from issuing shares, have the same result. 
C)  Both Plan A-no expansion, and Plan C-issue $500,000 worth of 8% bonds, have the same result. 
D)  Plan A-no expansion. 
E)  Plan C-issue $500,000 worth of 8% bonds. 
A)  Plan B-raise $500,000 from issuing shares. 
B)  Both Plan A-no expansion, and Plan B-raise $500,000 from issuing shares, have the same result. 
C)  Both Plan A-no expansion, and Plan C-issue $500,000 worth of 8% bonds, have the same result. 
D)  Plan A-no expansion. 
E)  Plan C-issue $500,000 worth of 8% bonds.

Question 8

Notes payable usually represent a transaction with a single lender.

Accepted Answer

A) True 
 B)False

Question 9

For a note requiring equal payments, each payment will consist of decreasing amounts of principal and increasing amounts of interest.

Accepted Answer

A) True 
 B)False

Question 10

The carrying value of a bond issued at a discount decreases over time.

Accepted Answer

A) True 
 B)False

Question 11

Discuss the retirement of bonds.

Accepted Answer

Bonds are generally retired on the matur

Question 12

In recording a finance lease, the lessee debits Lease Liability and credits Lease Payable.

Accepted Answer

A) True 
 B)False

Question 13

A corporation may retire bonds by:

Accepted Answer

A)  Exercising a call option or purchasing bonds on the open market. 
B)  Exercising a call option. 
C)  Exercising a conversion option. 
D)  Purchasing bonds on the open market. 
E)  Exercising a call option and a conversion option. 
A)  Exercising a call option or purchasing bonds on the open market. 
B)  Exercising a call option. 
C)  Exercising a conversion option. 
D)  Purchasing bonds on the open market. 
E)  Exercising a call option and a conversion option.

Question 14

You graphed the carrying value and par value over the life of a bond. You noticed that the carrying value is above the par value line and that the two lines meet over time.Identify the statement below that is best described by the graph you drew.

Accepted Answer

A)  The bond was issued at a premium. 
B)  The bond was issued at par. 
C)  Effective interest amortization is used. 
D)  The bond was issued at a discount. 
E)  Discounted interest amortization is used. 
A)  The bond was issued at a premium. 
B)  The bond was issued at par. 
C)  Effective interest amortization is used. 
D)  The bond was issued at a discount. 
E)  Discounted interest amortization is used.

Question 15

A corporation can reserve the right to retire bonds early by issuing callable bonds.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is true?

Accepted Answer

A)  Dividends to shareholders are tax-deductible. 
B)  Interest on bonds is tax-deductible. 
C)  Issuing bonds will dilute shareholdings. 
D)  Bonds never create financial leverage. 
E)  Interest on bonds is not tax-deductible. 
A)  Dividends to shareholders are tax-deductible. 
B)  Interest on bonds is tax-deductible. 
C)  Issuing bonds will dilute shareholdings. 
D)  Bonds never create financial leverage. 
E)  Interest on bonds is not tax-deductible.

Question 17

A discount on bonds payable arises when a corporation issues bonds with an issue price less than par value.

Accepted Answer

A) True 
 B)False

Question 18

A bond issue with a $100,000 par value, an 8% annual contract rate, with interestpayable semiannually and a 10-year life means that the issuer must repay $100,000 at the end of 10 years plus make 20 payments of $4,000.

Accepted Answer

A) True 
 B)False

Question 19

If a bond's interest period does not coincide with the issuing corporation's accountingperiod, an adjusting entry is necessary to recognize bond interest expense accruing since the most recent interest payment.

Accepted Answer

A) True 
 B)False

Question 20

For bonds issued at a premium, the effective interest method yields increasing amounts of bond interest expense and decreasing amount of premium amortization over thebond's life.

Accepted Answer

A) True 
 B)False

A disadvantage of bonds is:

An advantage of bond financing is:

Kent Corporation has $100,000 in bonds outstanding. The unamortized premium on these bonds is $2,700. If the corporation redeems these bonds at 99, what is the gain loss) on retirement?

Jerrod Limited reported the following items on their Balance Sheet:

Bonds must be issued on an interest payment date.

Installment notes payable that require payments of accrued interest to date plus equal amounts of principal:

Snow and Skates Ltd is planning a $500,000 expansion. The firm has $1,000,000 in equity. Which of the following options would generate the largest return on equity?

Notes payable usually represent a transaction with a single lender.

For a note requiring equal payments, each payment will consist of decreasing amounts of principal and increasing amounts of interest.

The carrying value of a bond issued at a discount decreases over time.

Discuss the retirement of bonds.

In recording a finance lease, the lessee debits Lease Liability and credits Lease Payable.

A corporation may retire bonds by:

You graphed the carrying value and par value over the life of a bond. You noticed that the carrying value is above the par value line and that the two lines meet over time.Identify the statement below that is best described by the graph you drew.

A corporation can reserve the right to retire bonds early by issuing callable bonds.

Which of the following statements is true?

A discount on bonds payable arises when a corporation issues bonds with an issue price less than par value.

A bond issue with a $100,000 par value, an 8% annual contract rate, with interestpayable semiannually and a 10-year life means that the issuer must repay $100,000 at the end of 10 years plus make 20 payments of $4,000.

If a bond's interest period does not coincide with the issuing corporation's accountingperiod, an adjusting entry is necessary to recognize bond interest expense accruing since the most recent interest payment.

For bonds issued at a premium, the effective interest method yields increasing amounts of bond interest expense and decreasing amount of premium amortization over thebond's life.

Property, Plant and Equipment and Intangibles

Current Liabilities

Partnerships

Organization and Operation of Corporations

Corporate Reporting: Profit, Earnings Per Share, and Retained Earnings

Accounting for Debt and Share Investments

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

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Exam 14: Bonds and Long-Term Notes Payable

A disadvantage of bonds is:

An advantage of bond financing is:

Kent Corporation has $100,000 in bonds outstanding. The unamortized premium on these bonds is $2,700. If the corporation redeems these bonds at 99, what is the gain loss) on retirement?

Jerrod Limited reported the following items on their Balance Sheet:

Bonds must be issued on an interest payment date.

Installment notes payable that require payments of accrued interest to date plus equal amounts of principal:

Snow and Skates Ltd is planning a $500,000 expansion. The firm has $1,000,000 in equity. Which of the following options would generate the largest return on equity?

Notes payable usually represent a transaction with a single lender.

For a note requiring equal payments, each payment will consist of decreasing amounts of principal and increasing amounts of interest.

The carrying value of a bond issued at a discount decreases over time.

Discuss the retirement of bonds.

In recording a finance lease, the lessee debits Lease Liability and credits Lease Payable.

A corporation may retire bonds by:

You graphed the carrying value and par value over the life of a bond. You noticed that the carrying value is above the par value line and that the two lines meet over time.Identify the statement below that is best described by the graph you drew.

A corporation can reserve the right to retire bonds early by issuing callable bonds.

Which of the following statements is true?

A discount on bonds payable arises when a corporation issues bonds with an issue price less than par value.

A bond issue with a $100,000 par value, an 8% annual contract rate, with interestpayable semiannually and a 10-year life means that the issuer must repay $100,000 at the end of 10 years plus make 20 payments of $4,000.

If a bond's interest period does not coincide with the issuing corporation's accountingperiod, an adjusting entry is necessary to recognize bond interest expense accruing since the most recent interest payment.

For bonds issued at a premium, the effective interest method yields increasing amounts of bond interest expense and decreasing amount of premium amortization over thebond's life.

Property, Plant and Equipment and Intangibles

Current Liabilities

Partnerships

Organization and Operation of Corporations

Corporate Reporting: Profit, Earnings Per Share, and Retained Earnings

Accounting for Debt and Share Investments

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Filters