Question 1

Discount on Bonds Payable is a balance sheet item for Covington 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)  Contra-liability 
A)  Current liability 
B)  Long-term liability 
C)  Current asset 
D)  Contra-liability D

Question 2

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. B

Question 3

The denomination or principal amount of the bond is usually referred to as the _________________________.

Accepted Answer

face value
par value

Question 4

The Discount on Bonds Payable account is shown on the balance sheet as

Accepted Answer

A)  an asset. 
B)  an expense. 
C)  a long-term liability. 
D)  a contra long-term liability. 
A)  an asset. 
B)  an expense. 
C)  a long-term liability. 
D)  a contra long-term liability.

Question 5

Because of changing market conditions, Friendly Corporation made the decision to redeem $300,000 of its bonds prior to maturity.The bonds had been issued at a discount and the balance in the discount account at the time of redemption was $15,000.The corporation's bond certificates indicated that the bonds could be retired early at 103.Friendly's retirement of the bonds would result in a(n)

Accepted Answer

A)  loss of $24,000. 
B)  gain of $6,000. 
C)  decrease in owners' equity of $9,000. 
D)  increase in assets of $15,000. 
A)  loss of $24,000. 
B)  gain of $6,000. 
C)  decrease in owners' equity of $9,000. 
D)  increase in assets of $15,000.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements regarding amortization is true?

Accepted Answer

A)  Amortization of the premium causes the premium on bonds payable account to increase. 
B)  Amortization of the premium causes the amount of interest expense to increase. 
C)  Cash interest payments on bonds equals interest expense on the income statement when there is amortization of bond premium. 
D)  Amortization of premium continues over the life of the bond until the balance in the account is reduced to zero. 
A)  Amortization of the premium causes the premium on bonds payable account to increase. 
B)  Amortization of the premium causes the amount of interest expense to increase. 
C)  Cash interest payments on bonds equals interest expense on the income statement when there is amortization of bond premium. 
D)  Amortization of premium continues over the life of the bond until the balance in the account is reduced to zero.

Question 8

The debt-to-equity ratio is defined as total long-term liabilities divided by total stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 9

On January 1, 2016, Sharpsburg, 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%.What is the carrying value of the bonds after the first interest payment is made on June 30, 2016?

Accepted Answer

A)  $352,960 
B)  $354,200 
C)  $355,452 
D)  $400,000 
A)  $352,960 
B)  $354,200 
C)  $355,452 
D)  $400,000

Question 10

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 11

O'hara Company uses the straight-line depreciation for financial reporting purposes and an accelerated depreciation method for tax purposes.As a result, O'hara will record:

Accepted Answer

A)  a deferred tax asset. 
B)  a deferred tax liability. 
C)  a permanent difference. 
D)  tax-exempt depreciation. 
A)  a deferred tax asset. 
B)  a deferred tax liability. 
C)  a permanent difference. 
D)  tax-exempt depreciation.

Question 12

Under the effective interest method, the cash paid on each interest payment date will

Accepted Answer

A)  decrease if bonds are issued at a premium. 
B)  increase if bonds are issued at a premium. 
C)  remain constant regardless of the issuance price. 
D)  increase if bonds are issued at a discount. 
A)  decrease if bonds are issued at a premium. 
B)  increase if bonds are issued at a premium. 
C)  remain constant regardless of the issuance price. 
D)  increase if bonds are issued at a discount.

Question 13

On January 2, 2016, Garage 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%.The interest expense on the bonds at June 30, 2016, is

Accepted Answer

A)  $2,764. 
B)  $17,236. 
C)  $20,000. 
D)  $22,764. 
A)  $2,764. 
B)  $17,236. 
C)  $20,000. 
D)  $22,764.

Question 14

On January 2, 2016, 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 2016?

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 15

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

Accepted Answer

A)  Accumulated depreciation on the leased asset 
B)  Lease obligation in the current liability section 
C)  Lease obligation in the long-term liability section 
D)  Rent expense on the income statement 
A)  Accumulated depreciation on the leased asset 
B)  Lease obligation in the current liability section 
C)  Lease obligation in the long-term liability section 
D)  Rent expense on the income statement

Question 16

When the market rate of interest is less than the face rate, then the bond issue will be sold at a discount.

Accepted Answer

A) True 
 B)False

Question 17

Sewickley Company Use the liabilities section of Sewickley Company's balance sheet to answer the questions that follow.
Sewickley Company
Consolidated Balance Sheets
(in millions)

$\begin{array}{l}
&\text { December } 31,\
&2017&2016\
\text { Current liabilities }\
\text { Short-term borrowings } & \$ 354 & \$ 202 \
\text { Accounts payable and other current liabilities } & 4,461 & 4,529 \
\text { Income taxes payable } & 183 & 64 \
\text { Total current liabilities } & \$ 4,998 & \$ 4,795\\
\text { Long-term debt } & \$ 2,651 & \$ 3,009 \
\text { Other long-term liabilities } & 3,876 & 3,960 \
\text { Deferred income taxes (assume all are long-term) } & 1,496 & 1,367\
\end{array}$ ​
​
-Review the consolidated balance sheets of Sewickley 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 2017 and 2016 are long-term liabilities? What implication does this have?

Accepted Answer

(1) The long-term liability which is als

Question 18

When will bonds sell at a discount?

Accepted Answer

A)  The credit standing of the issuing company is not as good as other companies in a similar line of business. 
B)  The face rate of interest is less than the market rate of interest at the time of issue. 
C)  The face rate of interest is more than the market rate of interest at the time of issue. 
D)  The issuing company will be able to retire the bonds at less than face at maturity. 
A)  The credit standing of the issuing company is not as good as other companies in a similar line of business. 
B)  The face rate of interest is less than the market rate of interest at the time of issue. 
C)  The face rate of interest is more than the market rate of interest at the time of issue. 
D)  The issuing company will be able to retire the bonds at less than face at maturity.

Question 19

Which of the following statements regarding bonds payable is true?

Accepted Answer

A)  Generally, bonds are issued in denominations of $100. 
B)  When an issuing company's bonds are traded in the "secondary" market, the company will receive part of the proceeds when the bonds are sold from the first purchaser to the second purchaser. 
C)  A debenture bond is backed by specific assets of the issuing company. 
D)  Most bonds are term bonds, meaning that the entire principal amount will mature on a single date. 
A)  Generally, bonds are issued in denominations of $100. 
B)  When an issuing company's bonds are traded in the "secondary" market, the company will receive part of the proceeds when the bonds are sold from the first purchaser to the second purchaser. 
C)  A debenture bond is backed by specific assets of the issuing company. 
D)  Most bonds are term bonds, meaning that the entire principal amount will mature on a single date.

Question 20

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.

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

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

The denomination or principal amount of the bond is usually referred to as the _________________________.

The Discount on Bonds Payable account is shown on the balance sheet as

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

Which of the following statements regarding amortization is true?

The debt-to-equity ratio is defined as total long-term liabilities divided by total stockholders' equity.

On January 1, 2016, Sharpsburg, 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%.What is the carrying value of the bonds after the first interest payment is made on June 30, 2016?

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.

O'hara Company uses the straight-line depreciation for financial reporting purposes and an accelerated depreciation method for tax purposes.As a result, O'hara will record:

Under the effective interest method, the cash paid on each interest payment date will

On January 2, 2016, Garage 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%.The interest expense on the bonds at June 30, 2016, is

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

When the market rate of interest is less than the face rate, then the bond issue will be sold at a discount.

When will bonds sell at a discount?

Which of the following statements regarding bonds payable is true?

All of the following statements are true except:

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 True Value of Money

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

Exploring Accounting Standards and Differences around the World

Filters

Exam 10: Long-Term Liabilities

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

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

The denomination or principal amount of the bond is usually referred to as the _________________________.

The Discount on Bonds Payable account is shown on the balance sheet as

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

Which of the following statements regarding amortization is true?

The debt-to-equity ratio is defined as total long-term liabilities divided by total stockholders' equity.

On January 1, 2016, Sharpsburg, 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%.What is the carrying value of the bonds after the first interest payment is made on June 30, 2016?

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.

O'hara Company uses the straight-line depreciation for financial reporting purposes and an accelerated depreciation method for tax purposes.As a result, O'hara will record:

Under the effective interest method, the cash paid on each interest payment date will

On January 2, 2016, Garage 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%.The interest expense on the bonds at June 30, 2016, is

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

When the market rate of interest is less than the face rate, then the bond issue will be sold at a discount.

When will bonds sell at a discount?

Which of the following statements regarding bonds payable is true?

All of the following statements are true except:

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 True Value of Money

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

Exploring Accounting Standards and Differences around the World

Filters