Question 1

An entity would be considered the primary beneficiary of a variable interest entity (VIE)if the entity

Accepted Answer

A) holds an equity interest equal to 10% of the total assets of the VIE. 
B) holds the largest voting interest in the VIE. 
C) provides the majority of financial support when other parties are providing financial support to the VIE as well. 
D) holds an equity interest equal to 20% of the total assets of the VIE. 
A) holds an equity interest equal to 10% of the total assets of the VIE. 
B) holds the largest voting interest in the VIE. 
C) provides the majority of financial support when other parties are providing financial support to the VIE as well. 
D) holds an equity interest equal to 20% of the total assets of the VIE.

Question 2

When bonds are sold between interest dates,any accrued interest is credited to

Accepted Answer

A) Interest Payable. 
B) Interest Revenue. 
C) Interest Receivable. 
D) Bonds Payable. 
A) Interest Payable. 
B) Interest Revenue. 
C) Interest Receivable. 
D) Bonds Payable.

Question 3

Bond discount should be presented in the financial statements of the issuer as a(n)

Accepted Answer

A) adjunct liability. 
B) contra liability. 
C) deferred charge. 
D) contra asset. 
A) adjunct liability. 
B) contra liability. 
C) deferred charge. 
D) contra asset.

Question 4

At December 31,2014,Strom Corp.owed notes payable of $1,000,000 with a maturity date of April 30,2015.These notes did not arise from transactions in the normal course of business.On February 1,2015,Strom issued $3,000,000 of ten-year bonds with the intention of using part of the bond proceeds to liquidate the $1,000,000 of notes payable.Strom's December 31,2014,financial statements were issued on March 29,2015.How much of the $1,000,000 notes payable should be classified as current in Strom's balance sheet at December 31,2014?

Accepted Answer

A) $0 
B) $100,000 
C) $900,000 
D) $1,000,000 
A) $0 
B) $100,000 
C) $900,000 
D) $1,000,000

Question 5

Moreland 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 12 percent,what will be the issuance price of the bonds?

Accepted Answer

A) $114,699 
B) $177,059 
C) $190,079 
D) $224,926 
A) $114,699 
B) $177,059 
C) $190,079 
D) $224,926

Question 6

When the interest payment dates of a bond are May 1 and November 1,and the bond is issued on June 1,the amount of interest expense at December 31 of the year of issuance would be for

Accepted Answer

A) two months. 
B) six months. 
C) seven months. 
D) eight months. 
A) two months. 
B) six months. 
C) seven months. 
D) eight months.

Question 7

The most conceptually appropriate method of valuing a liability under the historical cost basis is to

Accepted Answer

A) discount the amount of expected cash outflows that are necessary to liquidate the liability using the market rate of interest at the date the liability was initially incurred. 
B) discount the amount of expected cash outflows that are necessary to liquidate the liability using the market rate of interest at the date financial statements are prepared subsequent to issuance. 
C) record as a liability the amount of cash or cash-equivalent value that the company would be required to pay to eliminate the liability in the ordinary course of business on the date of the financial statements. 
D) record as a liability the amount of cash or cash-equivalent proceeds actually received when a liability was incurred. 
A) discount the amount of expected cash outflows that are necessary to liquidate the liability using the market rate of interest at the date the liability was initially incurred. 
B) discount the amount of expected cash outflows that are necessary to liquidate the liability using the market rate of interest at the date financial statements are prepared subsequent to issuance. 
C) record as a liability the amount of cash or cash-equivalent value that the company would be required to pay to eliminate the liability in the ordinary course of business on the date of the financial statements. 
D) record as a liability the amount of cash or cash-equivalent proceeds actually received when a liability was incurred.

Question 8

On July 1,2014,Saunter issued 2,000 of its 8 percent,$1,000 bonds for $1,752,000.The bonds were issued to yield 10 percent.The bonds are dated July 1,2014,and mature on July 1,2024.Interest is payable semiannually on January 1 and July 1.Using the effective-interest method,how much of the bond discount should be amortized for the six months ended December 31,2014?

Accepted Answer

A) $15,200 
B) $12,400 
C) $9,920 
D) $7,600 
A) $15,200 
B) $12,400 
C) $9,920 
D) $7,600

Question 9

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

Accepted Answer

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

Question 10

On January 1,2014,Marco Hospital issued a $250,000,10 percent,5-year bond for $231,601.Interest is payable on June 30 and December 31.Marco uses the effective-interest method to amortize all premiums and discounts.Assuming an effective interest rate of 12 percent,approximately how much discount will be amortized on December 31,2014?

Accepted Answer

A) $2,230 
B) $1,480 
C) $1,396 
D) $987 
A) $2,230 
B) $1,480 
C) $1,396 
D) $987

Question 11

On July 1,2008 Magda Corporation issued for $960,000 one thousand of its 9 percent,$1,000 callable bonds.The bonds are dated July 1,2008,and mature on July 1,2018.Interest is payable semiannually on January 1 and July 1.Magda uses the straight-line method of amortizing bond discount.The bonds can be called by the issuer at 101 at any time after June 30,2013.On July 1,2014,Magda called in all of the bonds and retired them.Ignoring income taxes,how much loss should Magda report on this early extinguishment of debt for the year ended December 31,2014?

Accepted Answer

A) $50,000 
B) $34,000 
C) $26,000 
D) $10,000 
A) $50,000 
B) $34,000 
C) $26,000 
D) $10,000

Question 12

On March 1,2014,Wunder Furniture Co.issued $950,000 of 10 percent bonds to yield 8 percent.Interest is payable semiannually on March 31 and September 30.The bonds mature in ten years.Wunder Furniture Co.is a calendar-year corporation.
(1)Determine the issue price of the bonds.Show your computations.
(2)Prepare an amortization table through the first two interest periods using the effective-interest method.
(3)Prepare the journal entries to record bond-related transactions as of the following dates:
(a)April 1,2014
(b)September 30,2014
(c)January 31,2015
(d)March 31,2015

Accepted Answer

@#IMG-DLM& (2) @#IMG-DLM& (3)J

Question 13

When a company issues bonds,how are unamortized bond discounts and premiums classified on the balance sheet?

Accepted Answer

A) Bond discounts are classified as assets, and bond premiums are classified as contra-asset accounts. 
B) Bond discounts are classified as expenses, and bond premiums are classified as revenues. 
C) Bond premiums are classified as additions to, and bond discounts are classified as deductions from, the face value of bonds. 
D) None of these are correct. 
A) Bond discounts are classified as assets, and bond premiums are classified as contra-asset accounts. 
B) Bond discounts are classified as expenses, and bond premiums are classified as revenues. 
C) Bond premiums are classified as additions to, and bond discounts are classified as deductions from, the face value of bonds. 
D) None of these are correct.

Question 14

When interest expense is calculated using the effective-interest amortization method,interest expense (assuming that interest is paid annually)always equals the

Accepted Answer

A) actual amount of interest paid. 
B) book value of the bonds multiplied by the stated interest rate. 
C) book value of the bonds multiplied by the effective interest rate. 
D) maturity value of the bonds multiplied by the effective interest rate. 
A) actual amount of interest paid. 
B) book value of the bonds multiplied by the stated interest rate. 
C) book value of the bonds multiplied by the effective interest rate. 
D) maturity value of the bonds multiplied by the effective interest rate.

Question 15

The December 31,2014,balance sheet of Far Imports includes the following items:
   
The bonds were issued on December 31,2013,at 97,with interest payable on June 30 and December 31 of each year.The straight-line method is used for discount amortization.
On March 1,2015,Far Imports retired $400,000 of these bonds at 98 plus accrued interest.Prepare the journal entries to record retirement of the bonds,including accrual of interest since the last payment and amortization of the discount.

Accepted Answer

The answer of The December 31,2014,balance sheet of Far Imports...

Question 16

Callable bonds

Accepted Answer

A) can be redeemed by the issuer at some time at a pre-specified price. 
B) can be converted to stock. 
C) mature in a series of payments. 
D) None of these is correct. 
A) can be redeemed by the issuer at some time at a pre-specified price. 
B) can be converted to stock. 
C) mature in a series of payments. 
D) None of these is correct.

Question 17

Which one of the following is true when the effective-interest method of amortizing bond discount is used?

Accepted Answer

A) Interest expense as a percentage of the bonds' book value varies from period to period. 
B) Interest expense remains constant for each period. 
C) Interest expense increases each period. 
D) The interest rate decreases each period. 
A) Interest expense as a percentage of the bonds' book value varies from period to period. 
B) Interest expense remains constant for each period. 
C) Interest expense increases each period. 
D) The interest rate decreases each period.

Question 18

Which of the following is true regarding SIC 12,"Consolidation--Special Purpose Entities",and FIN 46R,"Consolidation of Variable Interest Entities"?

Accepted Answer

A) Both pronouncements show evidence of being a principles-based standard. 
B) Both pronouncements state that the substance of the relationship between an entity and the variable-interest or special-purpose entity is the determining factor in deciding to consolidate a variable-interest or special-purpose entity. 
C) Both pronouncements state that the entity expected to bear the majority of the expected gains or losses of the variable-interest or special-purpose entity should consolidate the variable-interest or special-purpose entity. 
D) Both pronouncements state that technical voting control of an SPE is the determining factor in deciding to consolidate a variable-interest or special-interest entity. 
A) Both pronouncements show evidence of being a principles-based standard. 
B) Both pronouncements state that the substance of the relationship between an entity and the variable-interest or special-purpose entity is the determining factor in deciding to consolidate a variable-interest or special-purpose entity. 
C) Both pronouncements state that the entity expected to bear the majority of the expected gains or losses of the variable-interest or special-purpose entity should consolidate the variable-interest or special-purpose entity. 
D) Both pronouncements state that technical voting control of an SPE is the determining factor in deciding to consolidate a variable-interest or special-interest entity.

Question 19

The price of a bond issue is determined by the market or effective rate of interest.A bond issue with a 8% stated interest rate will sell for less than face value if the market or effective rate of interest is 10%.The creditworthiness of the issuing entity is one of the factors that influence the market rate for a specific bond issue.Investors rely heavily on bond ratings provided by Standard & Poor's Corporation and by Moody's Investors Service,Inc.Required:
Complete the table below by entering the appropriate rating for each level of risk under the S&P and Moody's rating systems.

Accepted Answer

The answer of The price of a bond issue is...

Question 20

During the year,Franklin Corporation incurred the following costs in connection with the issuance of bonds:
 
The amount recorded as a deferred charge to be amortized over the term of the bonds is

Accepted Answer

A) $0. 
B) $30,000. 
C) $300,000. 
D) $510,000. 
A) $0. 
B) $30,000. 
C) $300,000. 
D) $510,000.

An entity would be considered the primary beneficiary of a variable interest entity (VIE)if the entity

When bonds are sold between interest dates,any accrued interest is credited to

Bond discount should be presented in the financial statements of the issuer as a(n)

Moreland 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 12 percent,what will be the issuance price of the bonds?

When the interest payment dates of a bond are May 1 and November 1,and the bond is issued on June 1,the amount of interest expense at December 31 of the year of issuance would be for

The most conceptually appropriate method of valuing a liability under the historical cost basis is to

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

When a company issues bonds,how are unamortized bond discounts and premiums classified on the balance sheet?

When interest expense is calculated using the effective-interest amortization method,interest expense (assuming that interest is paid annually)always equals the

Callable bonds

Which one of the following is true when the effective-interest method of amortizing bond discount is used?

Which of the following is true regarding SIC 12,"Consolidation--Special Purpose Entities",and FIN 46R,"Consolidation of Variable Interest Entities"?

During the year,Franklin Corporation incurred the following costs in connection with the issuance of bonds: The amount recorded as a deferred charge to be amortized over the term of the bonds is

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

Exam 12: Debt Financing

An entity would be considered the primary beneficiary of a variable interest entity (VIE)if the entity

When bonds are sold between interest dates,any accrued interest is credited to

Bond discount should be presented in the financial statements of the issuer as a(n)

Moreland 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 12 percent,what will be the issuance price of the bonds?

When the interest payment dates of a bond are May 1 and November 1,and the bond is issued on June 1,the amount of interest expense at December 31 of the year of issuance would be for

The most conceptually appropriate method of valuing a liability under the historical cost basis is to

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

When a company issues bonds,how are unamortized bond discounts and premiums classified on the balance sheet?

When interest expense is calculated using the effective-interest amortization method,interest expense (assuming that interest is paid annually)always equals the

Callable bonds

Which one of the following is true when the effective-interest method of amortizing bond discount is used?

Which of the following is true regarding SIC 12,"Consolidation--Special Purpose Entities",and FIN 46R,"Consolidation of Variable Interest Entities"?

During the year,Franklin Corporation incurred the following costs in connection with the issuance of bonds: The amount recorded as a deferred charge to be amortized over the term of the bonds is

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