Question 1

A decreasing long-term liability account is presented on the statement of cash flows as

Accepted Answer

A)  a decrease in cash in the Financing Activities category. 
B)  a decrease in cash in the Investing Activities category. 
C)  an increase in cash in the Operating Activities category. 
D)  an increase in cash in the Financing Activities category. 
A)  a decrease in cash in the Financing Activities category. 
B)  a decrease in cash in the Investing Activities category. 
C)  an increase in cash in the Operating Activities category. 
D)  an increase in cash in the Financing Activities category.

Question 2

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

Accepted Answer

A)  increase in stockholders' equity. 
B)  no change in stockholders' equity. 
C)  increase in interest expense. 
D)  decrease in interest expense. 
A)  increase in stockholders' equity. 
B)  no change in stockholders' equity. 
C)  increase in interest expense. 
D)  decrease in interest expense.

Question 3

Line Corporation's balance sheet showed the following amounts for their liability and stockholders' equity accounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000; and Deferred Income Taxes, $300.
Total stockholders' equity was $6,000. The debt-to-equity ratio is

Accepted Answer

A)  0.63 
B)  0.83 
C)  1.42 
D)  1.47 
A)  0.63 
B)  0.83 
C)  1.42 
D)  1.47

Question 4

Match the following bond and long-term liability related terms to the appropriate definition.
-The excess of the face value of bonds over the issue price. It occurs when the market rate on the bonds exceeds the face rate.

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 5

On January 2, 2015, Concrete Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2015?

Accepted Answer

A)  $574,540 
B)  $571,776 
C)  $568,920 
D)  $500,000 
A)  $574,540 
B)  $571,776 
C)  $568,920 
D)  $500,000

Question 6

Review the consolidated balance sheets of Backkus Metal Company.
REQUIRED:
1 Which long-term liability would also be listed in the short-term liability section? Why?
2 What percent of the total liabilities for 2015 and 2014 are long-term liabilities? What implication does this have?

Accepted Answer

1 The long-term liability which is also

Question 7

Which of the following statements about bond accounting under the effective interest method is correct?

Accepted Answer

A)  The cash interest paid is calculated as the bond face value × the effective rate. 
B)  The interest expense is calculated as the carrying value × the effective rate. 
C)  The difference between the cash interest paid and the interest expense is added to the carrying value of the bonds if bonds were sold at a premium. 
D)  The difference between the interest expense and the interest paid is deducted from the carrying value of the bonds if bonds were sold at a discount. 
A)  The cash interest paid is calculated as the bond face value × the effective rate. 
B)  The interest expense is calculated as the carrying value × the effective rate. 
C)  The difference between the cash interest paid and the interest expense is added to the carrying value of the bonds if bonds were sold at a premium. 
D)  The difference between the interest expense and the interest paid is deducted from the carrying value of the bonds if bonds were sold at a discount.

Question 8

is the process of transferring an amount from the bond discount or premium to interest expense each time period to adjust interest expense.

Accepted Answer

The answer of is the process of transferring an amount...

Question 9

When a company has a credit balance in its Deferred Tax account, this amount would appear as an

Accepted Answer

A)  contra asset on the balance sheet. 
B)  stockholders' equity account on the balance sheet. 
C)  expense account on the income statement 
D)  liability account on the balance sheet. 
A)  contra asset on the balance sheet. 
B)  stockholders' equity account on the balance sheet. 
C)  expense account on the income statement 
D)  liability account on the balance sheet.

Question 10

Which of the following statements is true with regard to early retirement of bonds?

Accepted Answer

A)  If the carrying value of the bonds is higher than the redemption price, the issuing firm must record a loss. 
B)  Firms always find it advantageous to retire bonds issued at lower rates with bonds issued at higher rates. 
C)  It is always advantageous to carry out early retirement for bonds issued at a premium but not for bonds issued at a discount. 
D)  Any gain or loss resulting from early retirement of bonds would appear on the income statement of the issuing company. 
A)  If the carrying value of the bonds is higher than the redemption price, the issuing firm must record a loss. 
B)  Firms always find it advantageous to retire bonds issued at lower rates with bonds issued at higher rates. 
C)  It is always advantageous to carry out early retirement for bonds issued at a premium but not for bonds issued at a discount. 
D)  Any gain or loss resulting from early retirement of bonds would appear on the income statement of the issuing company.

Question 11

On January 1, 2015, Corner Store, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. The cash payment on June 30, 2015 is

Accepted Answer

A)  $20,000. 
B)  $21,200. 
C)  $24,000. 
D)  $17,710. 
A)  $20,000. 
B)  $21,200. 
C)  $24,000. 
D)  $17,710.

Question 12

A company issued 5-year bonds with a par value of $35,000,000 and a 7% annual face on January 2, 2015. The issue price of the bond issue was $35,216,127 which reflected a 6.85% effective interest rate.
REQUIRED:
a Determine the effect on the accounting equation upon recording the issuance of the bonds.
b Determine the effect on the accounting equation upon recording the recognition of interest expense at December 31, 2015. Any premium or discount should be amortized using the effective interest rate method.
c Determine the effect on the accounting equation upon recording the interest paid to the bondholders on January 2, 2016.
d Determine the effect on the accounting equation upon recognizing the interest expense at December 31, 2016. Any premium or discount should be amortized using the effective interest rate method.

Accepted Answer

a.
 @#IMG-DLM& b.
 @#IMG-DLM& $35,216,127 × .0685

Question 13

Rent owed to the landlord is a balance sheet item for Generic Products Company. How would it most likely be classified on the balance sheet?

Accepted Answer

A)  Current liability 
B)  Long-term liability 
C)  Current asset 
D)  Owners' equity 
A)  Current liability 
B)  Long-term liability 
C)  Current asset 
D)  Owners' equity

Question 14

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is correct?

Accepted Answer

A)  Bonds are issued at a price that reflects the stated rate of interest on the day the bond is purchased. 
B)  If the face rate of interest on a bond is not equal to the market rate of interest, then the company desiring to issue the bonds must reprint its bond certificates. 
C)  The actual issue price of a bond represents the present value of all future cash flows related to the bond. 
D)  The market rate of interest has no bearing on the selling price of the bonds. 
A)  Bonds are issued at a price that reflects the stated rate of interest on the day the bond is purchased. 
B)  If the face rate of interest on a bond is not equal to the market rate of interest, then the company desiring to issue the bonds must reprint its bond certificates. 
C)  The actual issue price of a bond represents the present value of all future cash flows related to the bond. 
D)  The market rate of interest has no bearing on the selling price of the bonds.

Question 16

The rate of interest is the rate that bondholders could obtain by investing in other bonds that are similar to the issuing firm's bonds.

Accepted Answer

The answer of The rate of interest is the rate...

Question 17

Amortized discount is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, 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

The current balance sheet of Handyman Inc. reports total assets of $20 million, total liabilities of $2 million, and owners' equity of $18 million. Handyman Inc. is considering several financing possibilities in order to expand operations. What is the additional amount that Handyman Inc. can borrow and not exceed a debt to equity ratio of 0.3?

Accepted Answer

A)  $5.4 million 
B)  $3.4 million 
C)  $5.5 million 
D)  $4.0 million 
A)  $5.4 million 
B)  $3.4 million 
C)  $5.5 million 
D)  $4.0 million

Question 19

When bonds are issued by a company, the accounting entry shows an

Accepted Answer

A)  increase in liabilities and a decrease in stockholders' equity. 
B)  increase in liabilities and an increase in stockholders' equity. 
C)  increase in assets and an increase in liabilities. 
D)  increase in assets and an increase in stockholders' equity. 
A)  increase in liabilities and a decrease in stockholders' equity. 
B)  increase in liabilities and an increase in stockholders' equity. 
C)  increase in assets and an increase in liabilities. 
D)  increase in assets and an increase in stockholders' equity.

Question 20

A decrease in deferred taxes liability would appear on the statement of cash flows, prepared using the indirect method as an

Accepted Answer

A)  addition to net income in the operating activities category. 
B)  deduction to net income in the operating activities category. 
C)  inflow of cash in the financing activities category. 
D)  outflow of cash in the financing activities category. 
A)  addition to net income in the operating activities category. 
B)  deduction to net income in the operating activities category. 
C)  inflow of cash in the financing activities category. 
D)  outflow of cash in the financing activities category.

A decreasing long-term liability account is presented on the statement of cash flows as

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

Line Corporation's balance sheet showed the following amounts for their liability and stockholders' equity accounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000; and Deferred Income Taxes, $300. Total stockholders' equity was $6,000. The debt-to-equity ratio is

Match the following bond and long-term liability related terms to the appropriate definition. -The excess of the face value of bonds over the issue price. It occurs when the market rate on the bonds exceeds the face rate.

On January 2, 2015, Concrete Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2015?

Review the consolidated balance sheets of Backkus Metal Company. REQUIRED: 1 Which long-term liability would also be listed in the short-term liability section? Why? 2 What percent of the total liabilities for 2015 and 2014 are long-term liabilities? What implication does this have?

Which of the following statements about bond accounting under the effective interest method is correct?

is the process of transferring an amount from the bond discount or premium to interest expense each time period to adjust interest expense.

When a company has a credit balance in its Deferred Tax account, this amount would appear as an

Which of the following statements is true with regard to early retirement of bonds?

On January 1, 2015, Corner Store, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. The cash payment on June 30, 2015 is

Rent owed to the landlord is a balance sheet item for Generic Products Company. How would it most likely be classified on the balance sheet?

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

Which of the following statements is correct?

The rate of interest is the rate that bondholders could obtain by investing in other bonds that are similar to the issuing firm's bonds.

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

When bonds are issued by a company, the accounting entry shows an

A decrease in deferred taxes liability would appear on the statement of cash flows, prepared using the indirect method as 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

A decreasing long-term liability account is presented on the statement of cash flows as

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

Line Corporation's balance sheet showed the following amounts for their liability and stockholders' equity accounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000; and Deferred Income Taxes, $300. Total stockholders' equity was $6,000. The debt-to-equity ratio is

Match the following bond and long-term liability related terms to the appropriate definition. -The excess of the face value of bonds over the issue price. It occurs when the market rate on the bonds exceeds the face rate.

On January 2, 2015, Concrete Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. What is the carrying value of the bonds after the first interest payment is made on June 30, 2015?

Review the consolidated balance sheets of Backkus Metal Company. REQUIRED: 1 Which long-term liability would also be listed in the short-term liability section? Why? 2 What percent of the total liabilities for 2015 and 2014 are long-term liabilities? What implication does this have?

Which of the following statements about bond accounting under the effective interest method is correct?

is the process of transferring an amount from the bond discount or premium to interest expense each time period to adjust interest expense.

When a company has a credit balance in its Deferred Tax account, this amount would appear as an

Which of the following statements is true with regard to early retirement of bonds?

On January 1, 2015, Corner Store, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. The cash payment on June 30, 2015 is

Rent owed to the landlord is a balance sheet item for Generic Products Company. How would it most likely be classified on the balance sheet?

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

Which of the following statements is correct?

The rate of interest is the rate that bondholders could obtain by investing in other bonds that are similar to the issuing firm's bonds.

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

When bonds are issued by a company, the accounting entry shows an

A decrease in deferred taxes liability would appear on the statement of cash flows, prepared using the indirect method as 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