Question 1

A pension plan:

Accepted Answer

A) Is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire. 
B) Can be underfunded if the plan assets are more than the accumulated benefit obligation. 
C) Is always funded fully by employers. 
D) Can be a defined benefit plan or an undefined benefit plan. 
E) Is a contract between the company and the government. 
A) Is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire. 
B) Can be underfunded if the plan assets are more than the accumulated benefit obligation. 
C) Is always funded fully by employers. 
D) Can be a defined benefit plan or an undefined benefit plan. 
E) Is a contract between the company and the government.

Question 2

Chang Industries has bonds outstanding with a par value of $200,000 and a carrying value of $203,000.If the company calls these bonds at a price of $201,000,the gain or loss on retirement is:

Accepted Answer

A) $1,000 gain. 
B) $2,000 loss. 
C) $3,000 gain. 
D) $1,000 loss. 
E) $2,000 gain. 
A) $1,000 gain. 
B) $2,000 loss. 
C) $3,000 gain. 
D) $1,000 loss. 
E) $2,000 gain.

Question 3

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

Accepted Answer

A) Debit Bond Interest Expense $14,000; credit Cash $14,000. 
B) Debit Bond Interest Expense $28,000; credit Cash $28,000. 
C) Debit Bond Interest Expense $14,000; debit Discount on Bonds Payable $200; credit Cash $14,200. 
D) Debit Bond Interest Expense $13,800; debit Discount on Bonds Payable $200; credit Cash $14,000. 
E) Debit Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds Payable $200. 
A) Debit Bond Interest Expense $14,000; credit Cash $14,000. 
B) Debit Bond Interest Expense $28,000; credit Cash $28,000. 
C) Debit Bond Interest Expense $14,000; debit Discount on Bonds Payable $200; credit Cash $14,200. 
D) Debit Bond Interest Expense $13,800; debit Discount on Bonds Payable $200; credit Cash $14,000. 
E) Debit Bond Interest Expense $14,200; credit Cash $14,000; credit Discount on Bonds Payable $200.

Question 4

An advantage of bonds is:

Accepted Answer

A) Bonds do not affect owner control. 
B) Bonds require payment of par value at maturity. 
C) Bonds can decrease return on equity. 
D) Bond payments can be burdensome when income and cash flow are low. 
E) Bonds require payment of periodic interest. 
A) Bonds do not affect owner control. 
B) Bonds require payment of par value at maturity. 
C) Bonds can decrease return on equity. 
D) Bond payments can be burdensome when income and cash flow are low. 
E) Bonds require payment of periodic interest.

Question 5

On January 1,a company issues 8%,5-year,$300,000 bonds that pay interest semiannually.On the issue date,the annual market rate of interest is 6%.The following information is taken from present value tables:  What is the issue (selling)price of the bond?

Accepted Answer

A) $420,000 
B) $402,362 
C) $300,010 
D) $308,107 
E) $325,592 
A) $420,000 
B) $402,362 
C) $300,010 
D) $308,107 
E) $325,592

Question 6

A disadvantage of bond financing is:

Accepted Answer

A) Bonds do not affect owners' control. 
B) Interest on bonds is tax deductible. 
C) Bonds can increase return on equity. 
D) It allows firms to trade on the equity. 
E) Bonds pay periodic interest and the repayment of par value at maturity. 
A) Bonds do not affect owners' control. 
B) Interest on bonds is tax deductible. 
C) Bonds can increase return on equity. 
D) It allows firms to trade on the equity. 
E) Bonds pay periodic interest and the repayment of par value at maturity.

Question 7

The rate of interest that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level is the ________ of interest.

Accepted Answer

The answer of The rate of interest that borrowers are...

Question 8

Indenture refers to a bond's legal contract; debenture refers to an unsecured bond.

Accepted Answer

A) True 
 B)False

Question 9

A bond is an issuer's written promise to pay an amount identified as the par value of the bond along with periodic interest payments.

Accepted Answer

A) True 
 B)False

Question 10

Seedly Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000.Management is considering issuing $5,000,000 of par value bonds (at par)with a maturity date of ten years and a contract rate of 7%.What effect,if any,would issuing the bonds have on the company's debt-to-equity ratio?

Accepted Answer

A) Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3. 
B) Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3. 
C) Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged. 
D) Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8. 
E) Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8. 
A) Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3. 
B) Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3. 
C) Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged. 
D) Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8. 
E) Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.

Question 11

The factor for the present value of an annuity at 8% for 10 years is 6.7101.This means that an annuity of ten $15,000 payments at 8% has a present value of $2,235.

Accepted Answer

A) True 
 B)False

Question 12

A company issues bonds with a $100,000 par value,an 8% annual contract rate,semiannual interest payments,and a five year life.The bonds sold for $107,850.The entry to record the issuance of the bonds will include:

Accepted Answer

A) A credit to Premium on Bonds Payable of $7,850. 
B) A debit to Discount on Bonds Payable of $7,850. 
C) A credit to Cash of $100,000. 
D) A credit to Bonds Payable of $107,850. 
E) A debit to Interest Expense of $7,850. 
A) A credit to Premium on Bonds Payable of $7,850. 
B) A debit to Discount on Bonds Payable of $7,850. 
C) A credit to Cash of $100,000. 
D) A credit to Bonds Payable of $107,850. 
E) A debit to Interest Expense of $7,850.

Question 13

A company borrows $40,000 and issues a 3-year,10% installment note with interest payable annually.The factor for the present value of an annuity at 10% for 3 years is 2.4869.The factor for the present value of a single sum at 10% for 3 years is 0.7513.The amount of the annual interest payment is $16,084.28.

Accepted Answer

A) True 
 B)False

Question 14

Bonds that have an option giving the issuer the right to retire them at a stated dollar amount before maturity are known as:

Accepted Answer

A) Convertible bonds. 
B) Sinking fund bonds. 
C) Callable bonds. 
D) Serial bonds. 
E) Junk bonds. 
A) Convertible bonds. 
B) Sinking fund bonds. 
C) Callable bonds. 
D) Serial bonds. 
E) Junk bonds.

Question 15

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

Accepted Answer

A bond premium occurs when bonds are sol

Question 16

On January 1 of Year 1,Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1.The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%.The bond premium or discount is being amortized at a rate of $10,087 every six months. The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:

Accepted Answer

A) $132,500. 
B) $225,000. 
C) $265,174. 
D) $245,000. 
E) $224,826. 
A) $132,500. 
B) $225,000. 
C) $265,174. 
D) $245,000. 
E) $224,826.

Question 17

When applying equal total payments to a note,with each payment the amount applied to the note principal ________ while the interest expense for the note ________.

Accepted Answer

increases; decreases

Question 18

A disadvantage of lease financing is the potential to deduct rental payments from taxable income.

Accepted Answer

A) True 
 B)False

Question 19

Explain the amortization of a bond discount.Identify and describe the amortization methods available.

Accepted Answer

A bond discount occurs when bonds are so

Question 20

What are methods that a company may use to retire its bonds?

Accepted Answer

The company can retire the bonds at thei

Exam 10: Accounting for Long-Term Liabilities

A pension plan:

Chang Industries has bonds outstanding with a par value of $200,000 and a carrying value of $203,000.If the company calls these bonds at a price of $201,000,the gain or loss on retirement is:

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

An advantage of bonds is:

On January 1,a company issues 8%,5-year,$300,000 bonds that pay interest semiannually.On the issue date,the annual market rate of interest is 6%.The following information is taken from present value tables: What is the issue (selling)price of the bond?

A disadvantage of bond financing is:

The rate of interest that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level is the ________ of interest.

Indenture refers to a bond's legal contract; debenture refers to an unsecured bond.

A bond is an issuer's written promise to pay an amount identified as the par value of the bond along with periodic interest payments.

The factor for the present value of an annuity at 8% for 10 years is 6.7101.This means that an annuity of ten $15,000 payments at 8% has a present value of $2,235.

A company issues bonds with a $100,000 par value,an 8% annual contract rate,semiannual interest payments,and a five year life.The bonds sold for $107,850.The entry to record the issuance of the bonds will include:

Bonds that have an option giving the issuer the right to retire them at a stated dollar amount before maturity are known as:

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

When applying equal total payments to a note,with each payment the amount applied to the note principal ________ while the interest expense for the note ________.

A disadvantage of lease financing is the potential to deduct rental payments from taxable income.

Explain the amortization of a bond discount.Identify and describe the amortization methods available.

What are methods that a company may use to retire its bonds?

Accounting in Business

Accounting for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash,fraud,and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Analysis

Master Budgets and Performance Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Time Value of Money

Investments

Lean Principles and Accounting

Filters

When applying equal total payments to a note,with each payment the amount applied to the note principal while the interest expense for the note .