Question 1

Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet?

Accepted Answer

A)  The amount can be reasonably estimated. 
B)  The outcome is probable. 
C)  The outcome is reasonably possible. 
D)  The outcome is probable and can be reasonably estimated. 
A)  The amount can be reasonably estimated. 
B)  The outcome is probable. 
C)  The outcome is reasonably possible. 
D)  The outcome is probable and can be reasonably estimated.

Question 2

Monthly remittance of sales tax:

Accepted Answer

A)  Reduces liabilities. 
B)  Is a claims exchange transaction. 
C)  Reduces stockholders' equity. 
D)  All of these answer choices are correct. 
A)  Reduces liabilities. 
B)  Is a claims exchange transaction. 
C)  Reduces stockholders' equity. 
D)  All of these answer choices are correct.

Question 3

Bruce Company experienced an accounting event that that increased interest expense, decreased the discount on bonds payable, and decreased cash. Which of the following choices accurately reflects how this event would affect Bruce's financial statements?

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 4

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

Question 5

Pace Company issued at 97 bonds with a face value of $200,000. As a result of the issue:

Accepted Answer

A)  Assets and liabilities would both increase by $200,000. 
B)  Assets and liabilities would both increase by $194,000. 
C)  Assets would increase by $194,000 and liabilities would increase by $200,000. 
D)  Assets would increase by $200,000, and liabilities would increase by $194,000. 
A)  Assets and liabilities would both increase by $200,000. 
B)  Assets and liabilities would both increase by $194,000. 
C)  Assets would increase by $194,000 and liabilities would increase by $200,000. 
D)  Assets would increase by $200,000, and liabilities would increase by $194,000.

Question 6

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 7

If a bond is sold at 101, its stated rate of interest would be:

Accepted Answer

A)  equal to the market rate. 
B)  unrelated to the market rate. 
C)  higher than the market rate. 
D)  lower than the market rate. 
A)  equal to the market rate. 
B)  unrelated to the market rate. 
C)  higher than the market rate. 
D)  lower than the market rate.

Question 8

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 9

Park Enterprises issued bonds with a term of 5 years and a face value of $500,000, receiving cash of $508,000. The bonds pay interest once a year, with an annual rate of 7%. Assuming straight-line amortization, the amount of interest expense for the first year would be $31,600.

Accepted Answer

A) True 
 B)False

Question 10

For a long-term note payable, repaying a portion of principal along with interest payments is called loan amortization.

Accepted Answer

A) True 
 B)False

Question 11

Bonds payable are usually classified on the balance sheet as:

Accepted Answer

A)  current liabilities. 
B)  long-term liabilities. 
C)  investments and funds. 
D)  other assets. 
A)  current liabilities. 
B)  long-term liabilities. 
C)  investments and funds. 
D)  other assets.

Question 12

Regardless of the specific type of long-term debt, which of the following is normally required with debt transactions?

Accepted Answer

A)  to repay the debt 
B)  to pay dividends 
C)  to pay interest 
D)  to repay the interest and repay the debt 
A)  to repay the debt 
B)  to pay dividends 
C)  to pay interest 
D)  to repay the interest and repay the debt

Question 13

Straight-line interest amortization of a premium or discount on bonds payable:

Accepted Answer

A)  assigns variable amounts of interest over the term of the liability. 
B)  uses compound interest principles. 
C)  assigns the same amount of interest to each interest period over the term of the liability. 
D)  is required for U.S. income tax reporting. 
A)  assigns variable amounts of interest over the term of the liability. 
B)  uses compound interest principles. 
C)  assigns the same amount of interest to each interest period over the term of the liability. 
D)  is required for U.S. income tax reporting.

Question 14

Indicate whether each of the following statements about bonds payable is true or false.
_____ a) At the time of issue, the effective interest rate of a particular bond is equal to the market rate of interest for bonds with a similar level of risk.
_____ b) When bonds are sold at 105, the stated interest rate of the bonds is lower than the market rate for investments with a similar level of risk.
_____ c) When bonds are sold at 95, the stated interest rate of the bonds is lower than the market rate for investments with a similar level of risk.
_____ d) When bonds are sold at 100, the stated interest rate of the bonds is lower than the market rate for investments with a similar level of risk.
_____ e) When bonds are sold at 101, the bonds were issued at a premium.

Accepted Answer

a) This is true. Bonds are compared with

Question 15

On January 1, Year 1, Burton Corporation recorded an event that increased its cash account by $196,000, increased its discount on bonds payable account by $4,000, and increased its bonds payable account by $200,000. Which of the following correctly describes that event?

Accepted Answer

A)  Burton issued bonds at 102. 
B)  Burton issued bonds at 98. 
C)  Burton issued bonds at a $4,000 premium. 
D)  Burton signed a note payable for $196,000. 
A)  Burton issued bonds at 102. 
B)  Burton issued bonds at 98. 
C)  Burton issued bonds at a $4,000 premium. 
D)  Burton signed a note payable for $196,000.

Question 16

Vacation pay is considered a contingent liability to the extent that the obligation exists due to work already performed.

Accepted Answer

A) True 
 B)False

Question 17

A classified balance sheet is one that distinguishes between operating and non-operating assets.

Accepted Answer

A) True 
 B)False

Question 18

Benitez Co. had sales of $800,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $13,000 of warranty obligations paid in cash during Year 1. Based on this information:

Accepted Answer

A)  Warranty expenses would decrease net earnings by $24,000 in Year 1. 
B)  Cash would decrease by $13,000 as a result of the accounting events associated with warranties in Year 1. 
C)  The warranties payable account would increase by $11,000 in Year 1. 
D)  All of these answer choices are correct. 
A)  Warranty expenses would decrease net earnings by $24,000 in Year 1. 
B)  Cash would decrease by $13,000 as a result of the accounting events associated with warranties in Year 1. 
C)  The warranties payable account would increase by $11,000 in Year 1. 
D)  All of these answer choices are correct.

Question 19

The Platte Corporation issues a 5-year note payable on January 1, Year 1 for $5,000. The interest rate is 5% and the annual payment of $1,156, due each December 31, includes both interest and principal. Which of the following correctly shows the effects of the December 31, Year 2 payment (rounded to the nearest whole dollar)?

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 20

Issuing bonds payable when the market rate of interest is less than the stated interest rate:

Accepted Answer

A)  results in bonds being issued at a premium. 
B)  results in bonds being issued at less than their face value. 
C)  raises the effective interest rate above the stated rate of interest. 
D)  results in bonds being issued at a premium and the effective interest rate is higher than the stated rate. 
A)  results in bonds being issued at a premium. 
B)  results in bonds being issued at less than their face value. 
C)  raises the effective interest rate above the stated rate of interest. 
D)  results in bonds being issued at a premium and the effective interest rate is higher than the stated rate.

Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet?

Monthly remittance of sales tax:

Bruce Company experienced an accounting event that that increased interest expense, decreased the discount on bonds payable, and decreased cash. Which of the following choices accurately reflects how this event would affect Bruce's financial statements?

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.

Pace Company issued at 97 bonds with a face value of $200,000. As a result of the issue:

Which of the following correctly describes an installment note?

If a bond is sold at 101, its stated rate of interest would be:

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

Park Enterprises issued bonds with a term of 5 years and a face value of $500,000, receiving cash of $508,000. The bonds pay interest once a year, with an annual rate of 7%. Assuming straight-line amortization, the amount of interest expense for the first year would be $31,600.

For a long-term note payable, repaying a portion of principal along with interest payments is called loan amortization.

Bonds payable are usually classified on the balance sheet as:

Regardless of the specific type of long-term debt, which of the following is normally required with debt transactions?

Straight-line interest amortization of a premium or discount on bonds payable:

On January 1, Year 1, Burton Corporation recorded an event that increased its cash account by $196,000, increased its discount on bonds payable account by $4,000, and increased its bonds payable account by $200,000. Which of the following correctly describes that event?

Vacation pay is considered a contingent liability to the extent that the obligation exists due to work already performed.

A classified balance sheet is one that distinguishes between operating and non-operating assets.

Benitez Co. had sales of $800,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $13,000 of warranty obligations paid in cash during Year 1. Based on this information:

Issuing bonds payable when the market rate of interest is less than the stated interest rate:

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

Under what condition is a pending lawsuit recognized as a liability on a company's balance sheet?

Monthly remittance of sales tax:

Bruce Company experienced an accounting event that that increased interest expense, decreased the discount on bonds payable, and decreased cash. Which of the following choices accurately reflects how this event would affect Bruce's financial statements?

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.

Pace Company issued at 97 bonds with a face value of $200,000. As a result of the issue:

Which of the following correctly describes an installment note?

If a bond is sold at 101, its stated rate of interest would be:

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

Park Enterprises issued bonds with a term of 5 years and a face value of $500,000, receiving cash of $508,000. The bonds pay interest once a year, with an annual rate of 7%. Assuming straight-line amortization, the amount of interest expense for the first year would be $31,600.

For a long-term note payable, repaying a portion of principal along with interest payments is called loan amortization.

Bonds payable are usually classified on the balance sheet as:

Regardless of the specific type of long-term debt, which of the following is normally required with debt transactions?

Straight-line interest amortization of a premium or discount on bonds payable:

On January 1, Year 1, Burton Corporation recorded an event that increased its cash account by $196,000, increased its discount on bonds payable account by $4,000, and increased its bonds payable account by $200,000. Which of the following correctly describes that event?

Vacation pay is considered a contingent liability to the extent that the obligation exists due to work already performed.

A classified balance sheet is one that distinguishes between operating and non-operating assets.

Benitez Co. had sales of $800,000 in Year 1. The company expects to incur warranty expenses amounting to 3% of sales. There were $13,000 of warranty obligations paid in cash during Year 1. Based on this information:

Issuing bonds payable when the market rate of interest is less than the stated interest rate:

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