Question 1

If a company uses the effective interest method of amortizing a bond discount, does the interest expense increase, decrease, or stay the same over time? Explain.

Accepted Answer

Amortization of a bond discount using th

Question 2

On January 1, Year 1, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at 102. Interest payments are due each December 31. Pierce uses the straight-line method of amortization.Which of the following shows the effect of the interest payment and amortization on December 31, Year 1?

Accepted Answer

A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D

Question 3

Zirkle Company borrowed $100,000 from Plains Bank on July 31, Year 1. The note carried a 6% interest rate with a one-year term to maturity.
Required:Show the effects of borrowing the money and the December 31, Year 1 adjustment on the accounting equation.What is the amount of interest expense for Year 1?Prepare a statement of cash flows for the Zirkle Company for Year 1.

Accepted Answer

<ol style=" list-

Question 4

Kier Company issued $200,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 4-year term to maturity. They had a 6½% stated rate of interest that was payable in cash on December 31st. Based on this information alone, the amount of interest expense shown on the December 31, Year 1 income statement and the cash flow from operating activities shown on the December 31, Year 1 statement of cash flows would be: $\begin{array}{cc}
  \text { Interest Expense } &  \text { Cash Outflow } \
\end{array}$

A.$\begin{array}{cc}
&\$13,000&&&&&  \text { Zero } \
\end{array}$

B .$\begin{array}{cc}
&\text { Zero } &&&&&  \$13,000  \
\end{array}$

C.$\begin{array}{cc}
&  \$13,000 &&&&    \$13,000 \
\end{array}$
 
D.$\begin{array}{cc}
&\text { Zero }  &&&&&\text { Zero }   \
\end{array}$

Accepted Answer

A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D

Question 5

Wayne Company issued bonds with a face value of $840,000, a 10% stated rate of interest, and a 10-year term. The bonds were issued on January 1, Year 1, and Wayne uses the straight-line method of amortization. Interest is paid annually on December 31.Assuming Wayne issued the bonds for 106, the carrying value of the bonds on the December 31, Year 1 balance sheet would be:

Accepted Answer

A)  $845,040. 
B)  $885,360. 
C)  $895,440. 
D)  $890,400. 
A)  $845,040. 
B)  $885,360. 
C)  $895,440. 
D)  $890,400.

Question 6

Loans that require payment of interest at regular intervals and payment of principal at maturity are installment notes.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following correctly describes an installment note?

Accepted Answer

A)  An installment note requires equal interest payments with the entire principal balance paid at maturity. 
B)  An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note. 
C)  An installment note requires equal payments of interest and principal in which the amount of interest increases over the life of the note. 
D)  The installment note requires decreasing payments of interest and principal in which the amount of interest remains constant over the life of the note. 
A)  An installment note requires equal interest payments with the entire principal balance paid at maturity. 
B)  An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note. 
C)  An installment note requires equal payments of interest and principal in which the amount of interest increases over the life of the note. 
D)  The installment note requires decreasing payments of interest and principal in which the amount of interest remains constant over the life of the note.

Question 8

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAOn January 1, Year 1, Flagler Corporation borrowed $20,000 on a line-of-credit from City Bank. Show the effects of this transaction on Flagler's financial statements.

Accepted Answer

@#IMG-DLM&
Borrowing on a line of credit incre

Question 9

If $200,000 of 12% bonds are issued at 101 1/2, what amount of cash will be received by the corporation?

Accepted Answer

$200,000 ×

Question 10

Victor Company issued bonds with a $250,000 face value and a 6% stated rate of interest on January 1, Year 1. The bonds carried a 5-year term and sold for 95. Victor uses the straight-line method of amortization. Interest is payable on December 31 of each year.The amount of cash flow from operating activities on the December 31, Year 3 statement of cash flows would be:

Accepted Answer

A)  $17,500. 
B)  $15,000. 
C)  $14,250. 
D)  $12,500. 
A)  $17,500. 
B)  $15,000. 
C)  $14,250. 
D)  $12,500.

Question 11

Weller Company issued bonds with a face value of $280,000, a 9.50% stated rate of interest, and a 10-year term. The bonds were issued on January 1, Year 1, and Weller uses the effective interest method of amortization. The market rate of interest on the date of issue was 7.50%. Interest is paid annually on December 31.Assuming Weller issued the bonds for $318,438, the carrying value of the bonds on the December 31, Year 3 balance sheet would be closest to:

Accepted Answer

A)  $296,803. 
B)  $292,463. 
C)  $309,660. 
D)  $306,600. 
A)  $296,803. 
B)  $292,463. 
C)  $309,660. 
D)  $306,600.

Question 12

A line of credit typically has an interest rate that is fixed (constant) for the length of the agreement.

Accepted Answer

A) True 
 B)False

Question 13

On January 1, Year 1, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at 102. Interest payments are due each December 31. Pierce uses the straight-line method of amortization. Which of the following answers shows the effect of the bond issuance on January 1, Year 1?

Accepted Answer

A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D

Question 14

Weller Company issued bonds with a face value of $400,000, a 10% stated rate of interest, and a 10-year term. The bonds were issued on January 1, Year 1, and Weller uses the effective interest method of amortization. The market rate of interest on the date of issue was 8%. Interest is paid annually on December 31.Assuming Weller issued the bonds for $453,681, the carrying value of the bonds on the December 31, Year 3 balance sheet would be closest to:

Accepted Answer

A)  $431,942. 
B)  $436,984. 
C)  $441,651. 
D)  $445,974. 
A)  $431,942. 
B)  $436,984. 
C)  $441,651. 
D)  $445,974.

Question 15

Eureka Company issued $100,000 in bonds payable on January 1, Year 1. The bonds were issued at face value and carried 5-year term to maturity. They had a 7% stated rate of interest that was payable in cash on January 1st of each year beginning January 1, Year 2. Based on this information, the amount of total liabilities appearing on the December 31, Year 1 balance sheet would be:

Accepted Answer

A)  $100,000. 
B)  $7,000. 
C)  $99,300. 
D)  $107,000. 
A)  $100,000. 
B)  $7,000. 
C)  $99,300. 
D)  $107,000.

Question 16

Indicate how each event affects the horizontal financial statements model. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter amounts.Increase = I Decrease = D Not Affected = NAGilliam Company repaid a note payable on September 30, Year 1. The 8-month note had been issued on February 1, Year 1. The $20,800 cash payment included a $20,000 repayment of principal and an $800 payment for interest.

Accepted Answer

@#IMG-DLM&
Because the note's issuance and rep

Question 17

Flora's Flower Market sells eight potted petunias to a customer for $50.00, plus 5% sales tax. Flora's will recognize $52.50 in sales revenue.

Accepted Answer

A) True 
 B)False

Question 18

Davis Corporation borrowed $50,000 on January 1, Year 1. The loan is for a ten-year period and has an annual interest rate of 9%. At the end of each year, Davis will make a payment of $7,791, which includes both principal and interest. The amount of the payment for Year 1 that is interest expense is $4,500.

Accepted Answer

A) True 
 B)False

Question 19

Weller Company issued bonds with a face value of $400,000, a 10% stated rate of interest, and a 10-year term. The bonds were issued on January 1, Year 1, and Weller uses the effective interest method of amortization. The market rate of interest on the date of issue was 8%. Interest is paid annually on December 31.Assuming Weller issued the bond for $453,681, the amount of interest expense appearing on the Year 3 income statement would be closest to:

Accepted Answer

A)  $35,678. 
B)  $44,322. 
C)  $35,998. 
D)  $35,332. 
A)  $35,678. 
B)  $44,322. 
C)  $35,998. 
D)  $35,332.

Question 20

Companies that issue bonds are required to pay the face value of the bonds at maturity and to make fluctuating periodic interest payments based on the market rate of interest.

Accepted Answer

A) True 
 B)False

If a company uses the effective interest method of amortizing a bond discount, does the interest expense increase, decrease, or stay the same over time? Explain.

On January 1, Year 1, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at 102. Interest payments are due each December 31. Pierce uses the straight-line method of amortization.Which of the following shows the effect of the interest payment and amortization on December 31, Year 1?

Loans that require payment of interest at regular intervals and payment of principal at maturity are installment notes.

Which of the following correctly describes an installment note?

If $200,000 of 12% bonds are issued at 101 1/2, what amount of cash will be received by the corporation?

A line of credit typically has an interest rate that is fixed (constant) for the length of the agreement.

On January 1, Year 1, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at 102. Interest payments are due each December 31. Pierce uses the straight-line method of amortization. Which of the following answers shows the effect of the bond issuance on January 1, Year 1?

Flora's Flower Market sells eight potted petunias to a customer for $50.00, plus 5% sales tax. Flora's will recognize $52.50 in sales revenue.

Companies that issue bonds are required to pay the face value of the bonds at maturity and to make fluctuating periodic interest payments based on the market rate of interest.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters

Exam 7: Accounting for Liabilities

If a company uses the effective interest method of amortizing a bond discount, does the interest expense increase, decrease, or stay the same over time? Explain.

On January 1, Year 1, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at 102. Interest payments are due each December 31. Pierce uses the straight-line method of amortization.Which of the following shows the effect of the interest payment and amortization on December 31, Year 1?

Loans that require payment of interest at regular intervals and payment of principal at maturity are installment notes.

Which of the following correctly describes an installment note?

If $200,000 of 12% bonds are issued at 101 1/2, what amount of cash will be received by the corporation?

A line of credit typically has an interest rate that is fixed (constant) for the length of the agreement.

On January 1, Year 1, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at 102. Interest payments are due each December 31. Pierce uses the straight-line method of amortization. Which of the following answers shows the effect of the bond issuance on January 1, Year 1?

Flora's Flower Market sells eight potted petunias to a customer for $50.00, plus 5% sales tax. Flora's will recognize $52.50 in sales revenue.

Companies that issue bonds are required to pay the face value of the bonds at maturity and to make fluctuating periodic interest payments based on the market rate of interest.

An Introduction to Accounting

Accounting for Accruals and Deferrals

Accounting for Merchandising Businesses

Internal Controls, Accounting for Cash, and Ethics

Accounting for Receivables and Inventory Cost Flow

Accounting for Long-Term Operational Assets

Proprietorships, Partnerships, and Corporations

Financial Statement Analysis

An Introduction to Management Accounting

Cost Behavior, Operating Leverage, and Profitability Analysis

Cost Accumulation, Tracing, and Allocation

Relevant Information for Special Decisions

Planning for Profit and Cost Control

Performance Evaluation

Planning for Capital Investments

Filters