Question 1

The net amount of a bond liability that appears on the balance sheet is equal to the face value of the bond minus any related discount or plus any related premium.

Accepted Answer

A) True 
 B)False

Question 2

The discount on a bond is ________ and ________ the discount each period.

Accepted Answer

A) depreciated;increases 
B) expensed;increases 
C) amortized;decreases 
D) increased;credited to 
A) depreciated;increases 
B) expensed;increases 
C) amortized;decreases 
D) increased;credited to

Question 3

When bonds are issued at a premium,the bond issuer receives more cash on the issue date than it repays at maturity.The difference,a premium,is a reduction in the cost of borrowing,which has to be:

Accepted Answer

A) amortized. 
B) depreciated. 
C) ignored. 
D) capitalized. 
A) amortized. 
B) depreciated. 
C) ignored. 
D) capitalized.

Question 4

Bondholders are willing to pay a premium to acquire a bond because the:

Accepted Answer

A) company has a low credit rating. 
B) bond's stated interest rate is higher than the market interest rate. 
C) bond's stated interest rate is lower than the market interest rate. 
D) bond's stated interest rate is equal to the market interest rate. 
A) company has a low credit rating. 
B) bond's stated interest rate is higher than the market interest rate. 
C) bond's stated interest rate is lower than the market interest rate. 
D) bond's stated interest rate is equal to the market interest rate.

Question 5

Which of the following statements about loan terminology is correct?

Accepted Answer

A) Loan covenants are the collateral provided by a borrower to a lender as security on a loan. 
B) A secured loan means that the borrower has a pre-approved line of credit backing the debt. 
C) Lenders can revise loan terms if a borrower violates a loan covenant. 
D) All companies are able to establish lines of credit which will allow them to borrow money as needed,up to a prearranged limit. 
A) Loan covenants are the collateral provided by a borrower to a lender as security on a loan. 
B) A secured loan means that the borrower has a pre-approved line of credit backing the debt. 
C) Lenders can revise loan terms if a borrower violates a loan covenant. 
D) All companies are able to establish lines of credit which will allow them to borrow money as needed,up to a prearranged limit.

Question 6

Match each term with the appropriate definition.Not all definitions will be used.
-Market interest rate

Accepted Answer

A) When a bond is issued for a price greater than its face value. 
B) Also known as the face value or par value of a bond. 
C) Rate of interest that investors demand from a bond. 
D) A bond with the feature that allows creditors to exchange the bond for company stock. 
E) The amount a company receives when it sells a bond;also known as issue price.
F)The interest rate printed on the bond certificate.
G)The time at which the face value of a bond must be paid to the lender.
H)Is multiplied by the market interest rate to calculate the (effective)interest expense on a bond.
I)A bond feature that changes the interest rate on the bond with market conditions.
J)When a bond is issued for a price less than its face value.
K)A bond with the feature that allows the borrowing company to pay off a bond whenever it wishes.
L)A bond with the feature that lets creditors examine financial data and demand new loan conditions. 
A) When a bond is issued for a price greater than its face value. 
B) Also known as the face value or par value of a bond. 
C) Rate of interest that investors demand from a bond. 
D) A bond with the feature that allows creditors to exchange the bond for company stock. 
E) The amount a company receives when it sells a bond;also known as issue price.
F)The interest rate printed on the bond certificate.
G)The time at which the face value of a bond must be paid to the lender.
H)Is multiplied by the market interest rate to calculate the (effective)interest expense on a bond.
I)A bond feature that changes the interest rate on the bond with market conditions.
J)When a bond is issued for a price less than its face value.
K)A bond with the feature that allows the borrowing company to pay off a bond whenever it wishes.
L)A bond with the feature that lets creditors examine financial data and demand new loan conditions.

Question 7

When the amount of a contingent liability can be reasonably estimated and its likelihood is probable,the company should:

Accepted Answer

A) include a description in the notes to the financial statements. 
B) record the estimated amount of the liability times the probability of its occurrence. 
C) record the estimated amount of the liability on the balance sheet. 
D) exclude the information about the contingent liability from its financial statements and notes. 
A) include a description in the notes to the financial statements. 
B) record the estimated amount of the liability times the probability of its occurrence. 
C) record the estimated amount of the liability on the balance sheet. 
D) exclude the information about the contingent liability from its financial statements and notes.

Question 8

Interest on an obligation is recorded:

Accepted Answer

A) as time passes. 
B) when goods are purchased on account. 
C) at maturity. 
D) when a bank loan is obtained. 
A) as time passes. 
B) when goods are purchased on account. 
C) at maturity. 
D) when a bank loan is obtained.

Question 9

On January 1,2018,Effron Inc.sells $2 million of 8% bonds at face value with interest to be paid at the end of each year.Effron accrues interest at the end of each quarter during the year.
Required:
Part a.Prepare the journal entry to record the bond issuance.
Part b.Prepare the required adjusting journal entry as of March 31,2018.
Part c.Assume the required adjusting journal entries were recorded on June 30 and September 30,2018.Prepare the journal entry to record the payment of interest to bondholders on December 31,2018.

Accepted Answer

Part a
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Question 10

The Discount on Bonds Payable account is classified as a(n):

Accepted Answer

A) asset. 
B) contra-liability. 
C) expense. 
D) contra-asset. 
A) asset. 
B) contra-liability. 
C) expense. 
D) contra-asset.

Question 11

On September 1,2019,Rowen Manufacturing issued a $90,000,6-month,9% note payable to purchase equipment.At December 31,2019,the company records an adjusting entry to accrue interest incurred by not paid.The company pays the note with interest at the maturity date. What is the entry to record the payment of interest at the maturity date of the note?

Accepted Answer

A) Debit Notes Payable for $90,000,debit Interest Expense for $8,100,and credit Cash for $98,100. 
B) Debit Interest Payable for $2,700,debit Interest Expense for $1,350,and credit Cash for $4,050. 
C) Debit Interest Expense for $4,050 and credit Cash for $4,050. 
D) Debit Interest Expense for $3,600,debit Interest Payable for $4,500,and credit Cash for $8,100. 
A) Debit Notes Payable for $90,000,debit Interest Expense for $8,100,and credit Cash for $98,100. 
B) Debit Interest Payable for $2,700,debit Interest Expense for $1,350,and credit Cash for $4,050. 
C) Debit Interest Expense for $4,050 and credit Cash for $4,050. 
D) Debit Interest Expense for $3,600,debit Interest Payable for $4,500,and credit Cash for $8,100.

Question 12

Operating cycles are generally longer than a year.

Accepted Answer

A) True 
 B)False

Question 13

Match each term with the appropriate definition.Not all definitions will be used.
-Long-term liabilities

Accepted Answer

A) Liquid assets divided by current liabilities. 
B) A calculation that determines what some future payments are worth today. 
C) The ability to pay current obligations. 
D) These are liabilities that have to be paid in one year or less. 
E) A bond feature that puts a creditor ahead of other creditors in order of payment.
F)Net income before taxes and interest expense divided by interest expense.
G)Where interest expense is the market interest rate times the bond's carrying value.
H)Current liabilities divided by current assets.
I)These are liabilities that do not have to be paid within the upcoming year.
J)Net income after taxes and interest expense divided by interest expense.
K)Spreads a bond discount or premium evenly over the lifetime of the bond.
L)The amount of all the liabilities currently on the balance sheet at the close of the period. 
A) Liquid assets divided by current liabilities. 
B) A calculation that determines what some future payments are worth today. 
C) The ability to pay current obligations. 
D) These are liabilities that have to be paid in one year or less. 
E) A bond feature that puts a creditor ahead of other creditors in order of payment.
F)Net income before taxes and interest expense divided by interest expense.
G)Where interest expense is the market interest rate times the bond's carrying value.
H)Current liabilities divided by current assets.
I)These are liabilities that do not have to be paid within the upcoming year.
J)Net income after taxes and interest expense divided by interest expense.
K)Spreads a bond discount or premium evenly over the lifetime of the bond.
L)The amount of all the liabilities currently on the balance sheet at the close of the period.

Question 14

The carrying value of bonds payable equals:

Accepted Answer

A) bonds payable minus any premium on bonds payable. 
B) bonds payable minus any discount on bonds payable. 
C) bonds payable plus any discount on bonds payable. 
D) bonds payable plus accrued interest payable. 
A) bonds payable minus any premium on bonds payable. 
B) bonds payable minus any discount on bonds payable. 
C) bonds payable plus any discount on bonds payable. 
D) bonds payable plus accrued interest payable.

Question 15

Which of the following items results in a contingent liability?

Accepted Answer

A) Income tax expense 
B) A lawsuit filed against a company 
C) Interest expense 
D) Advertising expense 
A) Income tax expense 
B) A lawsuit filed against a company 
C) Interest expense 
D) Advertising expense

Question 16

Some bonds allow the issuing company to retire the bond with cash at any time.These bonds are known as:

Accepted Answer

A) convertible bonds. 
B) debenture bonds. 
C) callable bonds. 
D) coupon bonds. 
A) convertible bonds. 
B) debenture bonds. 
C) callable bonds. 
D) coupon bonds.

Question 17

A company receives $95 for merchandise sold to a consumer of which $5 is for sales tax.The $5 of sales tax:

Accepted Answer

A) increases sales revenue. 
B) increases current liabilities. 
C) increases selling expenses. 
D) is not recorded until it is forwarded to the state government. 
A) increases sales revenue. 
B) increases current liabilities. 
C) increases selling expenses. 
D) is not recorded until it is forwarded to the state government.

Question 18

Which of the following circumstances would require a contingent liability to be recorded under generally accepted accounting principles?

Accepted Answer

A) The liability is probable and not estimable. 
B) The liability is remote. 
C) The liability is possible. 
D) The liability is probable and estimable. 
A) The liability is probable and not estimable. 
B) The liability is remote. 
C) The liability is possible. 
D) The liability is probable and estimable.

Question 19

A company had total assets of $400,000 and a debt-to-assets ratio was 0.35.Which of the following statements is not true?

Accepted Answer

A) Total liabilities are $140,000. 
B) The debt-to-assets ratio of 0.35 indicates that the company relies less on equity financing than on debt financing. 
C) If other companies in the same industry are used as benchmarks and report a lower debt-to-assets ratio,this indicates that this company has a more risky financing strategy. 
D) If the ratio this year is lower than it was last year for this company,it indicates that the company is relying less on debt financing this year. 
A) Total liabilities are $140,000. 
B) The debt-to-assets ratio of 0.35 indicates that the company relies less on equity financing than on debt financing. 
C) If other companies in the same industry are used as benchmarks and report a lower debt-to-assets ratio,this indicates that this company has a more risky financing strategy. 
D) If the ratio this year is lower than it was last year for this company,it indicates that the company is relying less on debt financing this year.

Question 20

Match each term with the appropriate definition.Not all definitions will be used.
-Public debt offering

Accepted Answer

A) The total amount of money that a company owes in debt. 
B) This item is reported as a contra asset account. 
C) A bond feature that allows a creditor to seize assets if debt is not properly repaid. 
D) A prearranged agreement that allows a company to borrow at will up to a limit. 
E) The amount that the lender actually pays for a bond.
F)The amount a company must repay creditors when a bond matures.
G)When a company borrows money by issuing bonds in the financial markets.
H)Debt features that,if violated,allow the lender to revise loan terms.
I)The cost of issuing a bond.
J)Total liabilities divided by total assets.
K)Bond features that allow the issuer to repay the loan early.
L)These are liabilities that have been incurred during the period but not yet paid.
M)This type of liability is uncertain;it exists only if some other condition occurs. 
A) The total amount of money that a company owes in debt. 
B) This item is reported as a contra asset account. 
C) A bond feature that allows a creditor to seize assets if debt is not properly repaid. 
D) A prearranged agreement that allows a company to borrow at will up to a limit. 
E) The amount that the lender actually pays for a bond.
F)The amount a company must repay creditors when a bond matures.
G)When a company borrows money by issuing bonds in the financial markets.
H)Debt features that,if violated,allow the lender to revise loan terms.
I)The cost of issuing a bond.
J)Total liabilities divided by total assets.
K)Bond features that allow the issuer to repay the loan early.
L)These are liabilities that have been incurred during the period but not yet paid.
M)This type of liability is uncertain;it exists only if some other condition occurs.

The net amount of a bond liability that appears on the balance sheet is equal to the face value of the bond minus any related discount or plus any related premium.

The discount on a bond is and the discount each period.

When bonds are issued at a premium,the bond issuer receives more cash on the issue date than it repays at maturity.The difference,a premium,is a reduction in the cost of borrowing,which has to be:

Bondholders are willing to pay a premium to acquire a bond because the:

Which of the following statements about loan terminology is correct?

Match each term with the appropriate definition.Not all definitions will be used. -Market interest rate

When the amount of a contingent liability can be reasonably estimated and its likelihood is probable,the company should:

Interest on an obligation is recorded:

The Discount on Bonds Payable account is classified as a(n):

Operating cycles are generally longer than a year.

Match each term with the appropriate definition.Not all definitions will be used. -Long-term liabilities

The carrying value of bonds payable equals:

Which of the following items results in a contingent liability?

Some bonds allow the issuing company to retire the bond with cash at any time.These bonds are known as:

A company receives $95 for merchandise sold to a consumer of which $5 is for sales tax.The $5 of sales tax:

Which of the following circumstances would require a contingent liability to be recorded under generally accepted accounting principles?

A company had total assets of $400,000 and a debt-to-assets ratio was 0.35.Which of the following statements is not true?

Match each term with the appropriate definition.Not all definitions will be used. -Public debt offering

Business Decisions and Financial Accounting

The Balance Sheet

The Income Statement

Adjustments,Financial Statements,and Financial Results

Fraud,Internal Control,and Cash

Merchandising Operations and the Multistep Income Statement

Inventory and Cost of Goods Sold

Receivables,Bad Debt Expense,and Interest Revenue

Long-Lived Tangible and Intangible Assets

Stockholders Equity

Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

Exam 10: Liabilities

The net amount of a bond liability that appears on the balance sheet is equal to the face value of the bond minus any related discount or plus any related premium.

The discount on a bond is ________ and ________ the discount each period.

When bonds are issued at a premium,the bond issuer receives more cash on the issue date than it repays at maturity.The difference,a premium,is a reduction in the cost of borrowing,which has to be:

Bondholders are willing to pay a premium to acquire a bond because the:

Which of the following statements about loan terminology is correct?

Match each term with the appropriate definition.Not all definitions will be used. -Market interest rate

When the amount of a contingent liability can be reasonably estimated and its likelihood is probable,the company should:

Interest on an obligation is recorded:

The Discount on Bonds Payable account is classified as a(n):

Operating cycles are generally longer than a year.

Match each term with the appropriate definition.Not all definitions will be used. -Long-term liabilities

The carrying value of bonds payable equals:

Which of the following items results in a contingent liability?

Some bonds allow the issuing company to retire the bond with cash at any time.These bonds are known as:

A company receives $95 for merchandise sold to a consumer of which $5 is for sales tax.The $5 of sales tax:

Which of the following circumstances would require a contingent liability to be recorded under generally accepted accounting principles?

A company had total assets of $400,000 and a debt-to-assets ratio was 0.35.Which of the following statements is not true?

Match each term with the appropriate definition.Not all definitions will be used. -Public debt offering

Business Decisions and Financial Accounting

The Balance Sheet

The Income Statement

Adjustments,Financial Statements,and Financial Results

Fraud,Internal Control,and Cash

Merchandising Operations and the Multistep Income Statement

Inventory and Cost of Goods Sold

Receivables,Bad Debt Expense,and Interest Revenue

Long-Lived Tangible and Intangible Assets

Stockholders Equity

Statement of Cash Flows

Measuring and Evaluating Financial Performance

Filters

The discount on a bond is and the discount each period.