Question 1

All of the following statements regarding accounting treatments for liabilities under U.S.GAAP and IFRS are true except:

Accepted Answer

A)  Accounting for bonds and notes under U.S. GAAP and IFRS is similar. 
B)  Both U.S. GAAP and IFRS require companies to distinguish between operating leases and capital leases. 
C)  The criteria for identifying a lease as a capital lease are more general under IFRS. 
D)  Both U.S. GAAP and IFRS require companies to record costs of retirement benefits as employees work and earn them. 
E)  Use of the fair value option to account for bonds and notes is not acceptable under U.S. GAAP or IFRS. 
A)  Accounting for bonds and notes under U.S. GAAP and IFRS is similar. 
B)  Both U.S. GAAP and IFRS require companies to distinguish between operating leases and capital leases. 
C)  The criteria for identifying a lease as a capital lease are more general under IFRS. 
D)  Both U.S. GAAP and IFRS require companies to record costs of retirement benefits as employees work and earn them. 
E)  Use of the fair value option to account for bonds and notes is not acceptable under U.S. GAAP or IFRS.

Question 2

A bondholder that owns a $1,000,10%,10-year bond has:

Accepted Answer

A)  Ownership rights in the issuing company. 
B)  The right to receive $10 per year until maturity. 
C)  The right to receive $1,000 at maturity. 
D)  The right to receive $10,000 at maturity. 
E)  The right to receive dividends of $1,000 per year. 
A)  Ownership rights in the issuing company. 
B)  The right to receive $10 per year until maturity. 
C)  The right to receive $1,000 at maturity. 
D)  The right to receive $10,000 at maturity. 
E)  The right to receive dividends of $1,000 per year.

Question 3

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

Accepted Answer

A) True 
 B)False

Question 4

On January 1,a company issues bonds dated January 1 with a par value of $400,000.The bonds mature in 5 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $383,793.
-The journal entry to record the issuance of the bond is:

Accepted Answer

A)  Debit Cash $400,000; credit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207. 
B)  Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000. 
C)  Debit Bonds Payable $400,000; debit Bond Interest Expense $16,207; credit Cash $416,207. 
D)  Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000. 
E)  Debit Cash $383,793; credit Bonds Payable $383,793. 
A)  Debit Cash $400,000; credit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207. 
B)  Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000. 
C)  Debit Bonds Payable $400,000; debit Bond Interest Expense $16,207; credit Cash $416,207. 
D)  Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000. 
E)  Debit Cash $383,793; credit Bonds Payable $383,793.

Question 5

A company issues 6%,5 year bonds with a par value of $800,000 and semiannual interest payments.On the issue date,the annual market rate of interest is 8%.Compute the issue (selling)price of the bonds.The following information is taken from present value tables:
 $\begin{array}{llr}
  \text {Present value of an annuity for 10 periods at $ 3 \% $  } &8.5302\
 \text {  Present value of an annuity for 10 periods at $ 4 \% $ } &8.1109\
 \text { Present value of 1 due in 10 periods at $ 3 \% $ } &0.7441\
 \text { Present value of 1 due in 10 periods at $ 4 \% $ } &0.6756\
\end{array}$

Accepted Answer

\[\begin{array} { | l | l | } 
\hline \t

Question 6

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Accepted Answer

A) True 
 B)False

Question 7

A premium reduces the interest expense of a bond over its life.

Accepted Answer

A) True 
 B)False

Question 8

On January 1,a company issued 10-year,10% bonds payable with a par value of $500,000,and received $442,647 in cash proceeds.The market rate of interest at the date of issuance was 12%.The bonds pay interest semiannually on July 1 and January 1.The issuer uses the straight-line method for amortization.Prepare the issuer's journal entry to record the first semiannual interest payment on July 1.

Accepted Answer

\[\begin{array} { | l | l | l | l | } 
\

Question 9

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring equal annual payments each December 31 of $32,136.What journal entry would the issuer record for the first payment?

Accepted Answer

A)  Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136. 
B)  Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386. 
C)  Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136. 
D)  Debit Notes Payable $32,136; credit Cash $32,136. 
E)  Debit Notes Payable $11,250; credit Cash $11,250. 
A)  Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136. 
B)  Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386. 
C)  Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136. 
D)  Debit Notes Payable $32,136; credit Cash $32,136. 
E)  Debit Notes Payable $11,250; credit Cash $11,250.

Question 10

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

Accepted Answer

A) True 
 B)False

Question 11

On January 1,a company issues bonds dated January 1 with a par value of $400,000.The bonds mature in 5 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $383,793.
-The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A)  Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
B)  Debit Interest Expense $14,000.00; credit Cash $14,000.00. 
C)  Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
D)  Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
E)  Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00. 
A)  Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
B)  Debit Interest Expense $14,000.00; credit Cash $14,000.00. 
C)  Debit Interest Expense $15,620.70; credit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
D)  Debit Interest Expense $12,379.30; debit Discount on Bonds Payable $1,620.70; credit Cash $14,000.00. 
E)  Debit Interest Expense $15,620.70; credit Premium on Bonds Payable $1,620.70; credit Cash $14,000.00.

Question 12

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Accepted Answer

A) True 
 B)False

Question 13

Clabber Company has bonds outstanding with a par value of $100,000 and a carrying value of $97,300.If the company calls these bonds at a price of $95,000,the gain or loss on retirement is:

Accepted Answer

A)  $5,000 loss. 
B)  $2,700 gain. 
C)  $2,700 loss. 
D)  $2,300 loss. 
E)  $2,300 gain. 
A)  $5,000 loss. 
B)  $2,700 gain. 
C)  $2,700 loss. 
D)  $2,300 loss. 
E)  $2,300 gain.

Question 14

On January 1,a company issues bonds dated January 1 with a par value of $200,000.The bonds mature in 3 years.The contract rate is 4%,and interest is paid semiannually on June 30 and December 31.The market rate is 5%.Using the present value factors below,the issue (selling)price of the bonds is:
$$\begin{array} { c c c c } 
&&{ \text { Present Value of arn } } \
\mathrm { n} = & \mathrm { i } = & \text { Annuity } & \text { Present value of } \$ 1 \
3 & 4.0 \% & 2.7751 & 0.8890 \
6 & 2.0 \% & 5.6014 & 0.8880 \
3 & 5.0 \% & 2.7232 & 0.8638 \
6 & 2.5 \% & 5.5081 & 0.8623
\end{array}$$

Accepted Answer

A)  $205,607. 
B)  $194,492. 
C)  $200,000. 
D)  $22,032. 
E)  $172,460. 
A)  $205,607. 
B)  $194,492. 
C)  $200,000. 
D)  $22,032. 
E)  $172,460.

Question 15

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

Accepted Answer

A)  Registered bonds. 
B)  Bearer bonds. 
C)  Callable bonds. 
D)  Sinking fund bonds. 
E)  Serial bonds. 
A)  Registered bonds. 
B)  Bearer bonds. 
C)  Callable bonds. 
D)  Sinking fund bonds. 
E)  Serial bonds.

Question 16

Which of the following accurately describes a debenture?

Accepted Answer

A)  A bond with specific assets pledged as collateral. 
B)  A type of bond issued in the names and addresses of the bondholders. 
C)  A type of bond which requires the bond issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds. 
D)  A type of bond which is not collateralized but backed only by the issuer's general credit standing. 
E)  A type of bond that can be exchanged for a fixed number of shares of the issuing corporation's common stock. 
A)  A bond with specific assets pledged as collateral. 
B)  A type of bond issued in the names and addresses of the bondholders. 
C)  A type of bond which requires the bond issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds. 
D)  A type of bond which is not collateralized but backed only by the issuer's general credit standing. 
E)  A type of bond that can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Question 17

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ________.

Accepted Answer

The answer of The legal document identifying the rights and...

Question 18

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

The company can retire the bonds at thei

Question 20

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Accepted Answer

A) True 
 B)False

All of the following statements regarding accounting treatments for liabilities under U.S.GAAP and IFRS are true except:

A bondholder that owns a $1,000,10%,10-year bond has:

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

A premium reduces the interest expense of a bond over its life.

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring equal annual payments each December 31 of $32,136.What journal entry would the issuer record for the first payment?

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Clabber Company has bonds outstanding with a par value of $100,000 and a carrying value of $97,300.If the company calls these bonds at a price of $95,000,the gain or loss on retirement is:

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

Which of the following accurately describes a debenture?

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ________.

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

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

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Accounting in Business

Analyzing 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

Time Value of Money

Investments

Partnership Accounting

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Exam 10: Accounting for Long-Term Liabilities

All of the following statements regarding accounting treatments for liabilities under U.S.GAAP and IFRS are true except:

A bondholder that owns a $1,000,10%,10-year bond has:

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

A premium reduces the interest expense of a bond over its life.

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring equal annual payments each December 31 of $32,136.What journal entry would the issuer record for the first payment?

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Clabber Company has bonds outstanding with a par value of $100,000 and a carrying value of $97,300.If the company calls these bonds at a price of $95,000,the gain or loss on retirement is:

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

Which of the following accurately describes a debenture?

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ________.

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

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

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Accounting in Business

Analyzing 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

Time Value of Money

Investments

Partnership Accounting

Filters