Question 1

Which of the following statements is true of a bond that is issued at a discount?

Accepted Answer

A) It will be sold at par. 
B) Its stated interest rate is higher than the prevailing market rate. 
C) It will repay a lesser amount than the face value at maturity. 
D) It will be sold for less than the face value. 
A) It will be sold at par. 
B) Its stated interest rate is higher than the prevailing market rate. 
C) It will repay a lesser amount than the face value at maturity. 
D) It will be sold for less than the face value.

Question 2

Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.

Accepted Answer

A) True 
 B)False

Question 3

A note payable can either be classified as a long-term liability or a short-term liability depending on the discretion of the accountant.

Accepted Answer

A) True 
 B)False

Question 4

Why would a corporation issue bonds payable instead of issuing stock?

Accepted Answer

A) Debt is a less expensive source of capital than stock. 
B) Borrowing by issuing bonds payable carries no risk to the company. 
C) Debts affect the percentage of ownership of the corporation by the stockholders. 
D) Debts don't carry any cost. 
A) Debt is a less expensive source of capital than stock. 
B) Borrowing by issuing bonds payable carries no risk to the company. 
C) Debts affect the percentage of ownership of the corporation by the stockholders. 
D) Debts don't carry any cost.

Question 5

If $12,000 is invested for one year at an annual interest rate of 12%, it will grow in value to:

Accepted Answer

A) $13,440. 
B) $14,400. 
C) $440. 
D) $400. 
A) $13,440. 
B) $14,400. 
C) $440. 
D) $400.

Question 6

Using the present value tables, compute the present value of an ordinary annuity which pays $3,000 per year for 15 years, discounted at 9%.

Accepted Answer

A) $24,183 
B) $24,200 
C) $23,180 
D) $25,390 
A) $24,183 
B) $24,200 
C) $23,180 
D) $25,390

Question 7

The Employee Bonus Payable would normally be shown on the balance sheet under long-term liabilities.

Accepted Answer

A) True 
 B)False

Question 8

Discount on Bonds Payable is considered to be an additional Interest Expense of the company that issues the bond.

Accepted Answer

A) True 
 B)False

Question 9

The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying interest payments.

Accepted Answer

A) True 
 B)False

Question 10

Refer to the following list of liability balances at December 31, 2015.   What is the total amount of current liabilities?

Accepted Answer

A) $18,880 
B) $15,380 
C) $14,980 
D) $14,380 
A) $18,880 
B) $15,380 
C) $14,980 
D) $14,380

Question 11

A bond is sold for an amount higher than face value. Which of the following statements is true?

Accepted Answer

A) The bond's stated rate is lower than the prevailing market rate at time of sale. 
B) The bond's stated rate is the same as the prevailing market rate at time of sale. 
C) The bond's stated rate is higher than the prevailing market rate at time of sale. 
D) The bond is not secured by specific assets of the issuer. 
A) The bond's stated rate is lower than the prevailing market rate at time of sale. 
B) The bond's stated rate is the same as the prevailing market rate at time of sale. 
C) The bond's stated rate is higher than the prevailing market rate at time of sale. 
D) The bond is not secured by specific assets of the issuer.

Question 12

If bonds with a face value of $200,000 are sold at 98, the amount of cash proceeds is:

Accepted Answer

A) $202,000. 
B) $200,000. 
C) $196,000. 
D) $192,157. 
A) $202,000. 
B) $200,000. 
C) $196,000. 
D) $192,157.

Question 13

An instrument that matures at one specified time is known as a:

Accepted Answer

A) preferred share. 
B) common share. 
C) bond. 
D) letter of credit. 
A) preferred share. 
B) common share. 
C) bond. 
D) letter of credit.

Question 14

On March 1, 2015, Vinnie Services issued a 5% long-term notes payable for $15,000. It is payable over a 3-year term in $5,000 annual principal payments on March 1 of each year plus interest, beginning March 1, 2016. How will this information be shown on the balance sheet dated December 31, 2015?

Accepted Answer

A) $15,000 shown as current liability only 
B) $5,000 shown as current liability; $15,000 shown as long-term liability 
C) $5,000 shown as current liability; $10,000 shown as long-term liability 
D) the entire $15,000 shown as long-term liability 
A) $15,000 shown as current liability only 
B) $5,000 shown as current liability; $15,000 shown as long-term liability 
C) $5,000 shown as current liability; $10,000 shown as long-term liability 
D) the entire $15,000 shown as long-term liability

Question 15

On May 1, 2015, Vinnie Services issued a long-term notes payable for $35,000. It is payable over a 5-year term in $7,000 annual principal payments plus interest, on May 1 of each year beginning on May 1, 2016. Provide the initial journal entry for the issuance of the note.

Accepted Answer

The answer of On May 1, 2015, Vinnie Services issued...

Question 16

On January 1, 2015, Carter Sales issued $15,000 in bonds for $15,800. They were 8-year bonds with a stated rate of 9%, and pay semiannual interest. Carter Sales uses the straight-line method to amortize the Bond Premium. Immediately after issue of the bonds, the ledger balances appeared as follows:   After the first interest payment on June 30, 2015, what will be the balance in the Premium Account?

Accepted Answer

A) debit of $50 
B) debit of $900 
C) credit of $625 
D) credit of $750 
A) debit of $50 
B) debit of $900 
C) credit of $625 
D) credit of $750

Question 17

On June 1, 2015, Smith Services issued $30,000 of 7.50% bonds that mature in five years. They were sold at par. The bonds pay semiannual interest payments on June 30 and December 31 of each year. On December 31, 2015, how much is the total interest payments made to bondholders?

Accepted Answer

A) $1,125.00 
B) $2,250.00 
C) $562.25 
D) $750.00 
A) $1,125.00 
B) $2,250.00 
C) $562.25 
D) $750.00

Question 18

The face value of a bond payable minus the current balance of the discount account plus the current balance of the premium account is the bond's carrying amount.

Accepted Answer

A) True 
 B)False

Question 19

On January 1, 2013, Anderson Company purchases machinery with a fair value of $300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance. On January 1, 2013, what will be the journal entry?

Accepted Answer

The answer of On January 1, 2013, Anderson Company purchases...

Question 20

On January 1, 2015, Carter Sales issued $15,000 in bonds for $14,700. They were 6-year bonds with a stated rate of 9%, and pay semiannual interest. Carter Sales uses the straight-line method to amortize the Bond Discount. Immediately after issue of the bonds, the ledger balances appeared as follows:   After the first interest payment on June 30, 2015, what will be the balance in the Discount Account?

Accepted Answer

A) Debit of $275 
B) Debit of $300 
C) Debit of $325 
D) Credit of $25 
A) Debit of $275 
B) Debit of $300 
C) Debit of $325 
D) Credit of $25

Exam 14: Long-Term Liabilities

Which of the following statements is true of a bond that is issued at a discount?

Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.

A note payable can either be classified as a long-term liability or a short-term liability depending on the discretion of the accountant.

Why would a corporation issue bonds payable instead of issuing stock?

If $12,000 is invested for one year at an annual interest rate of 12%, it will grow in value to:

Using the present value tables, compute the present value of an ordinary annuity which pays $3,000 per year for 15 years, discounted at 9%.

The Employee Bonus Payable would normally be shown on the balance sheet under long-term liabilities.

Discount on Bonds Payable is considered to be an additional Interest Expense of the company that issues the bond.

The main reason companies retire bonds prior to their maturity date is to relieve the pressure of paying interest payments.

Refer to the following list of liability balances at December 31, 2015. What is the total amount of current liabilities?

A bond is sold for an amount higher than face value. Which of the following statements is true?

If bonds with a face value of $200,000 are sold at 98, the amount of cash proceeds is:

An instrument that matures at one specified time is known as a:

On March 1, 2015, Vinnie Services issued a 5% long-term notes payable for $15,000. It is payable over a 3-year term in $5,000 annual principal payments on March 1 of each year plus interest, beginning March 1, 2016. How will this information be shown on the balance sheet dated December 31, 2015?

On May 1, 2015, Vinnie Services issued a long-term notes payable for $35,000. It is payable over a 5-year term in $7,000 annual principal payments plus interest, on May 1 of each year beginning on May 1, 2016. Provide the initial journal entry for the issuance of the note.

On June 1, 2015, Smith Services issued $30,000 of 7.50% bonds that mature in five years. They were sold at par. The bonds pay semiannual interest payments on June 30 and December 31 of each year. On December 31, 2015, how much is the total interest payments made to bondholders?

The face value of a bond payable minus the current balance of the discount account plus the current balance of the premium account is the bond's carrying amount.

On January 1, 2013, Anderson Company purchases machinery with a fair value of $300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance. On January 1, 2013, what will be the journal entry?

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