Question 1

Bonds are a popular source of financing because

Accepted Answer

A)  bond interest expense is deductible for tax purposes, while dividends paid on stock are not. 
B)  financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock. 
C)  a company having cash flow problems can postpone payment of interest to bondholders. 
D)  the bondholders can always convert their bonds into stock if they choose. 
A)  bond interest expense is deductible for tax purposes, while dividends paid on stock are not. 
B)  financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock. 
C)  a company having cash flow problems can postpone payment of interest to bondholders. 
D)  the bondholders can always convert their bonds into stock if they choose.

Question 2

Match the following bond and long-term liability related terms to the appropriate definition.
-Bonds that do not all have the same due date. A portion of the bonds comes due each time period.

Accepted Answer

A) Long-term liability 
B) Face value 
C) Debenture bonds 
D) Serial bonds 
E) Callable bonds
F)Face rate of interest
G)Market rate of interest
H)Bond issue price
I)Premium
J)Discount
K)Effective interest method of amortization
L)Carrying value
M)Gain or loss on redemption 
A) Long-term liability 
B) Face value 
C) Debenture bonds 
D) Serial bonds 
E) Callable bonds
F)Face rate of interest
G)Market rate of interest
H)Bond issue price
I)Premium
J)Discount
K)Effective interest method of amortization
L)Carrying value
M)Gain or loss on redemption

Question 3

Premium on Bonds Payable is a balance sheet item for Ohio Products Company. How would it most likely be classified on the balance sheet?

Accepted Answer

A)  An increase to a long-term liability 
B)  Revenue 
C)  Long-term asset 
D)  Contra liability 
A)  An increase to a long-term liability 
B)  Revenue 
C)  Long-term asset 
D)  Contra liability

Question 4

If the lease term is 75% or more of the property's economic life, the lease agreement should be accounted for as
an operating lease.

Accepted Answer

A) True 
 B)False

Question 5

On January 2, 2015, Wynn Corporation sold $750,000 of bonds for $745,000. The bonds will mature in 10 years and pay interest annually on December 31. Wynn properly recorded the payment of interest and amortization of the discount using the effective interest method. Which of the following statements is true about the carrying value of the bonds and/or the unamortized discount at the end of 2015?

Accepted Answer

A)  The carrying value will be less than $745,000. 
B)  The carrying value will be $745,000. 
C)  The carrying value will be greater than $745,000. 
D)  The unamortized premium will be less than $5,000. 
A)  The carrying value will be less than $745,000. 
B)  The carrying value will be $745,000. 
C)  The carrying value will be greater than $745,000. 
D)  The unamortized premium will be less than $5,000.

Question 6

The result of using the effective interest method of amortization of discount on bonds is that the

Accepted Answer

A)  interest expense for each amortization period is constant. 
B)  effective interest rate for each amortization period is constant. 
C)  amount of interest expense decreases each period. 
D)  cash interest payment is greater than the interest expense. 
A)  interest expense for each amortization period is constant. 
B)  effective interest rate for each amortization period is constant. 
C)  amount of interest expense decreases each period. 
D)  cash interest payment is greater than the interest expense.

Question 7

The Deferred Tax account should reflect permanent differences but not items that are temporary differences between book accounting and tax reporting.

Accepted Answer

A) True 
 B)False

Question 8

Review the information for Grenada Corporation.
REQUIRED:
1 What are the two types of leases that a company can have? Describe each briefly.
2 Does the note disclosure show evidence of the two types of leases?

Accepted Answer

1 The two types of leases that a company

Question 9

On March 1, 2015, Farmer Co. issued at a price of 100 $20 million of 8%, 25-year bonds payable. Interest is payable semiannually each March 1 and September 1.
REQUIRED:
Identify the accounting equation effects at December 31, 2015, regarding this bond issue.
Dec. 31 20,000,000 × 8% × 4/12 = $533,333
Bond interest expense and Bond interest Payable

Accepted Answer

The answer of On March 1, 2015, Farmer Co. issued...

Question 10

Match the following bond and long-term liability related terms to the appropriate definition.
-The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.

Accepted Answer

A) Long-term liability 
B) Face value 
C) Debenture bonds 
D) Serial bonds 
E) Callable bonds
F)Face rate of interest
G)Market rate of interest
H)Bond issue price
I)Premium
J)Discount
K)Effective interest method of amortization
L)Carrying value
M)Gain or loss on redemption 
A) Long-term liability 
B) Face value 
C) Debenture bonds 
D) Serial bonds 
E) Callable bonds
F)Face rate of interest
G)Market rate of interest
H)Bond issue price
I)Premium
J)Discount
K)Effective interest method of amortization
L)Carrying value
M)Gain or loss on redemption

Question 11

Which of the following statements is false with respect to bonds?

Accepted Answer

A)  Firms issue bonds in very large single issues. 
B)  Bonds must be held until maturity by the initial investor. 
C)  The denomination of the bond is usually referred to as the face value. 
D)  Bonds that are not backed by specific collateral of the issuing company are known as debenture bonds. 
A)  Firms issue bonds in very large single issues. 
B)  Bonds must be held until maturity by the initial investor. 
C)  The denomination of the bond is usually referred to as the face value. 
D)  Bonds that are not backed by specific collateral of the issuing company are known as debenture bonds.

Question 12

In calculating deferred income taxes, occur when an item is included in the tax calculation and is never included for financial accounting purposes, or vice versa.

Accepted Answer

permanent

Question 13

Debenture bonds are backed by specific collateral of the issuing company.

Accepted Answer

A) True 
 B)False

Question 14

If bonds are issued at 101.25, this means that

Accepted Answer

A)  a $1,000 bond sold for $101.25. 
B)  the bonds sold at a discount. 
C)  a $1,000 bond sold for $1,012.50. 
D)  the bond rate of interest is 10.13% of the market rate of interest. 
A)  a $1,000 bond sold for $101.25. 
B)  the bonds sold at a discount. 
C)  a $1,000 bond sold for $1,012.50. 
D)  the bond rate of interest is 10.13% of the market rate of interest.

Question 15

Burger Barn Company issued $150,000 face value bonds at a premium of $6,000. The bonds contain a call provision of 102. Burger Barn decides to redeem the bonds due to a significant decline in interest rates. On that date, Burger Barn had amortized only $1,500 of the premium.
REQUIRED:
1. Calculate the gain or loss on early redemption of the bonds.
2. Identify the accounting equation effects reflecting the bond redemption.
3. Where should the gain or loss should be presented on the financial statements?
4. Why is the call price is normally higher than 100?

Accepted Answer

1.
 @#IMG-DLM& 2.
Bond redemption:
 @#IMG-DLM& 
3. The gain

Question 16

Review the information for Padagonian Company.
REQUIRED:
1 In your opinion, are deferred income taxes an appreciable portion of both long-term liabilities and total liabilities? Why?
2 What difference between accounting income and taxable income produces the Deferred Income Taxes account?
3 Will Padagonian eventually pay the deferred tax liability? When?

Accepted Answer

1 Deferred income taxes do not appear to

Question 17

Interest expense is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity?

Accepted Answer

A)  Decrease 
B)  Increase 
C)  Remain constant 
D)  Not enough information given to decide. 
A)  Decrease 
B)  Increase 
C)  Remain constant 
D)  Not enough information given to decide.

Question 18

All of the following statements are true except:

Accepted Answer

A)  The criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under U.S. GAAP than IFRS. 
B)  The criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under IFRS than U.S. GAAP. 
C)  The lease criteria under IFRS are to be used as guidelines rather than rules. 
D)  IFRS requires more accounting judgment than U.S. GAAP in the determination of whether a lease is classified as an operating lease or a capital lease. 
A)  The criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under U.S. GAAP than IFRS. 
B)  The criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under IFRS than U.S. GAAP. 
C)  The lease criteria under IFRS are to be used as guidelines rather than rules. 
D)  IFRS requires more accounting judgment than U.S. GAAP in the determination of whether a lease is classified as an operating lease or a capital lease.

Question 19

With the effective interest method of amortization, the amortization of bond discount results in an

Accepted Answer

A)  increase in stockholders' equity. 
B)  decrease of stockholders' equity. 
C)  increase in interest expense. 
D)  decrease in interest expense. 
A)  increase in stockholders' equity. 
B)  decrease of stockholders' equity. 
C)  increase in interest expense. 
D)  decrease in interest expense.

Question 20

The current balance sheet of Sanders Inc. reports total assets of $20 million, total liabilities of $2 million, and owners' equity of $18 million. Sanders Inc. is considering several financing possibilities in order to expand operations. If Sanders Inc.'s owner invests an additional $2 million to finance the expansion, the debt to equity ratio will

Accepted Answer

A)  stay the same. 
B)  decrease. 
C)  increase. 
D)  cannot be determined from this information. 
A)  stay the same. 
B)  decrease. 
C)  increase. 
D)  cannot be determined from this information.

Bonds are a popular source of financing because

Match the following bond and long-term liability related terms to the appropriate definition. -Bonds that do not all have the same due date. A portion of the bonds comes due each time period.

Premium on Bonds Payable is a balance sheet item for Ohio Products Company. How would it most likely be classified on the balance sheet?

If the lease term is 75% or more of the property's economic life, the lease agreement should be accounted for as an operating lease.

The result of using the effective interest method of amortization of discount on bonds is that the

The Deferred Tax account should reflect permanent differences but not items that are temporary differences between book accounting and tax reporting.

Review the information for Grenada Corporation. REQUIRED: 1 What are the two types of leases that a company can have? Describe each briefly. 2 Does the note disclosure show evidence of the two types of leases?

Match the following bond and long-term liability related terms to the appropriate definition. -The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.

Which of the following statements is false with respect to bonds?

In calculating deferred income taxes, occur when an item is included in the tax calculation and is never included for financial accounting purposes, or vice versa.

Debenture bonds are backed by specific collateral of the issuing company.

If bonds are issued at 101.25, this means that

Interest expense is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity?

All of the following statements are true except:

With the effective interest method of amortization, the amortization of bond discount results in an

Accounting As a Form of Communication

Financial Statements and the Annual Report

Processing Accounting Information

Income Measurement and Accrual Accounting

Inventories and Cost of Goods Sold

Cash and Internal Control

Receivables and Investments

Operating Assets: Property, Plant, and Equipment, and Intangibles

Current Liabilities, Contingencies, and the Time Value of Money

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

International-Financial-Reporting-Standards

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Exam 10: Long-Term Liabilities

Bonds are a popular source of financing because

Match the following bond and long-term liability related terms to the appropriate definition. -Bonds that do not all have the same due date. A portion of the bonds comes due each time period.

Premium on Bonds Payable is a balance sheet item for Ohio Products Company. How would it most likely be classified on the balance sheet?

If the lease term is 75% or more of the property's economic life, the lease agreement should be accounted for as an operating lease.

The result of using the effective interest method of amortization of discount on bonds is that the

The Deferred Tax account should reflect permanent differences but not items that are temporary differences between book accounting and tax reporting.

Review the information for Grenada Corporation. REQUIRED: 1 What are the two types of leases that a company can have? Describe each briefly. 2 Does the note disclosure show evidence of the two types of leases?

Match the following bond and long-term liability related terms to the appropriate definition. -The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.

Which of the following statements is false with respect to bonds?

In calculating deferred income taxes, occur when an item is included in the tax calculation and is never included for financial accounting purposes, or vice versa.

Debenture bonds are backed by specific collateral of the issuing company.

If bonds are issued at 101.25, this means that

Interest expense is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity?

All of the following statements are true except:

With the effective interest method of amortization, the amortization of bond discount results in an

Accounting As a Form of Communication

Financial Statements and the Annual Report

Processing Accounting Information

Income Measurement and Accrual Accounting

Inventories and Cost of Goods Sold

Cash and Internal Control

Receivables and Investments

Operating Assets: Property, Plant, and Equipment, and Intangibles

Current Liabilities, Contingencies, and the Time Value of Money

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

International-Financial-Reporting-Standards

Filters