Question 1

When bonds are retired prior to maturity with proceeds from a new bond issue,gain or loss from the early extinguishment of debt,if material,should be

Accepted Answer

A) amortized over the remaining original life of the retired bond issue. 
B) recognized in income from continuing operations in the period of extinguishment. 
C) recognized as an extraordinary item in the period of extinguishment. 
D) amortized over the life of the new bond issue. 
A) amortized over the remaining original life of the retired bond issue. 
B) recognized in income from continuing operations in the period of extinguishment. 
C) recognized as an extraordinary item in the period of extinguishment. 
D) amortized over the life of the new bond issue. B

Question 2

Which of the following does NOT meet the FASB's definition of a liability?

Accepted Answer

A) The signing of a three-year employment contract at a fixed annual salary 
B) An obligation to provide goods or services in the future 
C) A note payable with no specified maturity date 
D) An obligation that is estimated in amount 
A) The signing of a three-year employment contract at a fixed annual salary 
B) An obligation to provide goods or services in the future 
C) A note payable with no specified maturity date 
D) An obligation that is estimated in amount A

Question 3

Craig Corporation issued a $100,000,10-year,10 percent bond on January 1,2013,for $112,000.Craig uses the straight-line method of amortization.On April 1,2016,Craig reacquired the bonds for retirement when they were selling at 102 on the open market.How much gain or loss should Craig recognize on the retirement of the bonds?

Accepted Answer

A) $2,000 loss 
B) $3,900 gain 
C) $6,100 gain 
D) $8,200 loss 
A) $2,000 loss 
B) $3,900 gain 
C) $6,100 gain 
D) $8,200 loss C

Question 4

The effective interest rate on bonds is higher than the stated rate when bonds sell

Accepted Answer

A) at face value. 
B) above face value. 
C) below face value. 
D) at maturity value. 
A) at face value. 
B) above face value. 
C) below face value. 
D) at maturity value.

Question 5

Which of the following represents a liability?

Accepted Answer

A) The obligation to pay for goods that a company expects to order from suppliers next year. 
B) The obligation to provide goods that customers have ordered and paid for during the current year. 
C) The obligation to pay interest on a five-year note payable that was issued the last day of the current year. 
D) The obligation to distribute shares of a company's own common stock next year as a result of a stock dividend declared near the end of the current year. 
A) The obligation to pay for goods that a company expects to order from suppliers next year. 
B) The obligation to provide goods that customers have ordered and paid for during the current year. 
C) The obligation to pay interest on a five-year note payable that was issued the last day of the current year. 
D) The obligation to distribute shares of a company's own common stock next year as a result of a stock dividend declared near the end of the current year.

Question 6

Bonds usually sell at a premium

Accepted Answer

A) when the market rate of interest is greater than the stated rate of interest on the bonds. 
B) when the stated rate of interest on the bonds is greater than the market rate of interest. 
C) when the price of the bonds is greater than their maturity value. 
D) in none of these cases. 
A) when the market rate of interest is greater than the stated rate of interest on the bonds. 
B) when the stated rate of interest on the bonds is greater than the market rate of interest. 
C) when the price of the bonds is greater than their maturity value. 
D) in none of these cases.

Question 7

Eli Corporation issued $200,000 of 10-year bonds on January 1.The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent.If the market rate of interest at the time the bonds are sold is 8 percent,what will be the issuance price of the bonds?

Accepted Answer

A) $175,078 
B) $211,283 
C) $215,902 
D) $227,183 
A) $175,078 
B) $211,283 
C) $215,902 
D) $227,183

Question 8

On July 1,2014,Chelsea Company purchased as a long-term investment Soho Company's ten-year,9 percent bonds,with a face value of $100,000 for $95,200.Interest is payable semiannually on January 1 and July 1.The bonds mature on July 1,2018.Chelsea uses the straight-line method of amortization.What is the amount of interest revenue that Chelsea should report in its income statement for the year ended December 31,2014?

Accepted Answer

A) $3,900 
B) $4,500 
C) $5,100 
D) $5,700 
A) $3,900 
B) $4,500 
C) $5,100 
D) $5,700

Question 9

Danville Corporation bought a new machine and agreed to pay for it in equal annual installments of $6,000 at the end of each of the next five years.Assume the prevailing interest rate for this type of transaction is 12%.Assume the present value of an ordinary annuity of $1 at 12% for five periods is 3.60.The future amount of an ordinary annuity of $1 at 12% for five periods is 6.35.The present value of $1 at 12% is 0.567.How much should Danville record as the note payable on the balance sheet if financial statements were prepared today?

Accepted Answer

A) $17,010 
B) $21,600 
C) $30,000 
D) $38,100 
A) $17,010 
B) $21,600 
C) $30,000 
D) $38,100

Question 10

A short-term note payable with no stated rate of interest should be

Accepted Answer

A) recorded at maturity value. 
B) recorded at the face amount. 
C) discounted to its present value. 
D) reported separately from other short-term notes payable. 
A) recorded at maturity value. 
B) recorded at the face amount. 
C) discounted to its present value. 
D) reported separately from other short-term notes payable.

Question 11

A portion of the long-term liability footnote to the 2014 annual report of Tremor Corporation follows:
   
The debentures were issued on January 1 of a previous year and pay interest each December 31.The debentures retired were scheduled to mature December 31,2024.The retirement of the debentures occurred December 31,2014.Tremor paid the market value of the bonds which represented a yield rate of 8%.
Required:
1.Prepare the December 31,2014,interest payment entry
2.Prepare the December 31,2014,entry for bond retirement
3.What may have contributed to the recognition of a loss on the early retirement?

Accepted Answer

@#IMG-DLM& Requirement 3:
Interest rates have decl

Question 12

Rowan Corporation,a calendar-year firm,is authorized to issue $200,000 of 10 percent,20-year bonds dated January 1,2014,with interest payable on January 1 and July 1 of each year.If the bonds were issued to yield 12 percent,the entry to account for the discount amortization and accrual of interest on December 31,2014,would include a

Accepted Answer

A) debit to Discount on Bonds Payable. 
B) credit to Cash. 
C) credit to Interest Payable. 
D) debit to Bonds Payable. 
A) debit to Discount on Bonds Payable. 
B) credit to Cash. 
C) credit to Interest Payable. 
D) debit to Bonds Payable.

Question 13

For a bond issue that sells for more than its face value,the market rate of interest is

Accepted Answer

A) less than the rate stated on the bond. 
B) equal to the rate stated on the bond. 
C) dependent on the rate stated on the bond. 
D) higher than the rate stated on the bond. 
A) less than the rate stated on the bond. 
B) equal to the rate stated on the bond. 
C) dependent on the rate stated on the bond. 
D) higher than the rate stated on the bond.

Question 14

Assuming the straight-line method of amortization is used,the average yearly interest expense on a $250,000,11 percent,20-year bond issued at 94 would be

Accepted Answer

A) $26,750. 
B) $27,500. 
C) $28,250. 
D) $29,500. 
A) $26,750. 
B) $27,500. 
C) $28,250. 
D) $29,500.

Question 15

On December 31,2014,Value Corporation's current liabilities total $50,000 and long-term liabilities total $150,000.Working capital at December 31,2014,is equal to $80,000.If Value Corporation's debt-to-equity ratio is .32 to 1,total long-term assets must equal

Accepted Answer

A) $625,000. 
B) $745,000. 
C) $825,000. 
D) $695,000. 
A) $625,000. 
B) $745,000. 
C) $825,000. 
D) $695,000.

Question 16

At December 31,2014,Ambrose Sales & Service has a $100,000,120-day note payable outstanding.The company has followed the policy of replacing the note rather than repaying it over the last three years.The company's treasurer says that this policy is expected to continue indefinitely,and the arrangement is acceptable to the bank to which the note was issued.The proper classification of the note on the December 31,2014,balance sheet is

Accepted Answer

A) dependent on the intention of management. 
B) dependent on the actual ability to refinance. 
C) current liability, unless specific refinancing criteria are met. 
D) noncurrent liability. 
A) dependent on the intention of management. 
B) dependent on the actual ability to refinance. 
C) current liability, unless specific refinancing criteria are met. 
D) noncurrent liability.

Question 17

How much interest expense should Gunnison record on December 31,2014?

Accepted Answer

A) $25,000.00 
B) $23,810.15 
C) $19,920.10 
D) $22,628.80 
A) $25,000.00 
B) $23,810.15 
C) $19,920.10 
D) $22,628.80

Question 18

For the issuer of ten-year bonds,the amount of amortization using the effective-interest method would increase each year if the bonds were sold at a

Accepted Answer

The answer of For the issuer of ten-year bonds,the amount...

Question 19

Accrued interest on bonds that are sold between interest dates

Accepted Answer

A) is ignored by both the seller and the buyer. 
B) increases the amount a buyer must pay to acquire the bonds. 
C) is recorded as a loss on the sale of the bonds. 
D) decreases the amount a buyer must pay to acquire the bonds. 
A) is ignored by both the seller and the buyer. 
B) increases the amount a buyer must pay to acquire the bonds. 
C) is recorded as a loss on the sale of the bonds. 
D) decreases the amount a buyer must pay to acquire the bonds.

Question 20

Romer Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2014, with interest payable on January 1 and July 1 of
-If the bonds were issued at 97 on April 1,2014,the amount of the discount amortized on July 1 (using the straight-line method)would be approximately

Accepted Answer

A) $25. 
B) $76. 
C) $67. 
D) $152. 
A) $25. 
B) $76. 
C) $67. 
D) $152.

When bonds are retired prior to maturity with proceeds from a new bond issue,gain or loss from the early extinguishment of debt,if material,should be

Which of the following does NOT meet the FASB's definition of a liability?

The effective interest rate on bonds is higher than the stated rate when bonds sell

Which of the following represents a liability?

Bonds usually sell at a premium

Eli Corporation issued $200,000 of 10-year bonds on January 1.The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent.If the market rate of interest at the time the bonds are sold is 8 percent,what will be the issuance price of the bonds?

A short-term note payable with no stated rate of interest should be

For a bond issue that sells for more than its face value,the market rate of interest is

Assuming the straight-line method of amortization is used,the average yearly interest expense on a $250,000,11 percent,20-year bond issued at 94 would be

On December 31,2014,Value Corporation's current liabilities total $50,000 and long-term liabilities total $150,000.Working capital at December 31,2014,is equal to $80,000.If Value Corporation's debt-to-equity ratio is .32 to 1,total long-term assets must equal

How much interest expense should Gunnison record on December 31,2014?

For the issuer of ten-year bonds,the amount of amortization using the effective-interest method would increase each year if the bonds were sold at a

Accrued interest on bonds that are sold between interest dates

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll,pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

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Exam 12: Debt Financing

When bonds are retired prior to maturity with proceeds from a new bond issue,gain or loss from the early extinguishment of debt,if material,should be

Which of the following does NOT meet the FASB's definition of a liability?

The effective interest rate on bonds is higher than the stated rate when bonds sell

Which of the following represents a liability?

Bonds usually sell at a premium

Eli Corporation issued $200,000 of 10-year bonds on January 1.The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent.If the market rate of interest at the time the bonds are sold is 8 percent,what will be the issuance price of the bonds?

A short-term note payable with no stated rate of interest should be

For a bond issue that sells for more than its face value,the market rate of interest is

Assuming the straight-line method of amortization is used,the average yearly interest expense on a $250,000,11 percent,20-year bond issued at 94 would be

On December 31,2014,Value Corporation's current liabilities total $50,000 and long-term liabilities total $150,000.Working capital at December 31,2014,is equal to $80,000.If Value Corporation's debt-to-equity ratio is .32 to 1,total long-term assets must equal

How much interest expense should Gunnison record on December 31,2014?

For the issuer of ten-year bonds,the amount of amortization using the effective-interest method would increase each year if the bonds were sold at a

Accrued interest on bonds that are sold between interest dates

Financial Reporting

A Review of the Accounting Cycle

The Balance Sheet and Notes to the Financial Statements

The Income Statement

Statement of Cash Flows and Articulation

Earnings Management

The Revenuereceivablescash Cycle

Revenue Recognition

Inventory and Cost of Goods Sold

Investments in Noncurrent Operating Assets-Acquisition

Investments in Noncurrent Operating Assets-Utilization and Retirement

Equity Financing

Investments in Debt and Equity Securities

Leases

Income Taxes

Employee Compensation-Payroll,pensions, Other Compissues

Earnings Per Share

Derivatives, contingencies, business Segments, and Interim Reports

Accounting Changes and Error Corrections

Statement of Cash Flows Revisited

Accounting in a Global Market

Analysis of Financial Statements

Filters