Question 1

A bond traded at 102½ means that:

Accepted Answer

A)  The bond pays 2.5% interest. 
B)  The bond traded at 102.5% of its par value. 
C)  The market rate of interest is 2.5%. 
D)  The bonds were retired at $1,025 each. 
E)  The market rate of interest is 2½% above the contract rate. 
A)  The bond pays 2.5% interest. 
B)  The bond traded at 102.5% of its par value. 
C)  The market rate of interest is 2.5%. 
D)  The bonds were retired at $1,025 each. 
E)  The market rate of interest is 2½% above the contract rate.

Question 2

The carrying value of a long-term note is computed as the present value of all remaining future payments,discounted using the market rate at the time of issuance.

Accepted Answer

A) True 
 B)False

Question 3

Identify the advantages and disadvantages of bond financing.

Accepted Answer

The advantages of bond financing include

Question 4

A company holds $150,000 par value of bonds with a carrying value of $147,950.The company calls the bonds at $151,000.Prepare the journal entry to record the retirement of the bonds.

Accepted Answer

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Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Operating leases are long-term or noncancelable leases in which the lessor transfers substantially all the risks and rewards of ownership to the lessee.

Accepted Answer

A) True 
 B)False

Question 7

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A)  Debit Interest Payable $13,500; credit Cash $13,500.00. 
B)  Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
C)  Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
D)  Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E)  Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
A)  Debit Interest Payable $13,500; credit Cash $13,500.00. 
B)  Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
C)  Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
D)  Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E)  Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.

Question 8

Morgan Company issues 9%,20-year bonds with a par value of $750,000 that pay interest semiannually.The current market rate is 8%.The amount paid to the bondholders for each semiannual interest payment is:

Accepted Answer

A)  $60,000. 
B)  $33,750. 
C)  $67,500. 
D)  $30,000. 
E)  $375,000. 
A)  $60,000. 
B)  $33,750. 
C)  $67,500. 
D)  $30,000. 
E)  $375,000.

Question 9

Match each of the following terms with the appropriate definitions.
-The contract between the bond issuer and the bondholders; it identifies the rights and obligations of the parties.

Accepted Answer

A) Convertible bonds 
B) Coupon bonds 
C) Bearer bonds 
D) Bond indenture 
E) Installment note
F)Unsecured bonds
G)Market rate
H)Serial bonds
I)Effective interest rate method
J)Term bonds 
A) Convertible bonds 
B) Coupon bonds 
C) Bearer bonds 
D) Bond indenture 
E) Installment note
F)Unsecured bonds
G)Market rate
H)Serial bonds
I)Effective interest rate method
J)Term bonds

Question 10

Amortizing a bond discount:

Accepted Answer

A)  Allocates a portion of the total discount to interest expense each interest period. 
B)  Increases the market value of the Bonds Payable. 
C)  Decreases the Bonds Payable account. 
D)  Decreases interest expense each period. 
E)  Increases cash flows from the bond. 
A)  Allocates a portion of the total discount to interest expense each interest period. 
B)  Increases the market value of the Bonds Payable. 
C)  Decreases the Bonds Payable account. 
D)  Decreases interest expense each period. 
E)  Increases cash flows from the bond.

Question 11

Secured bonds:

Accepted Answer

A)  Are called debentures. 
B)  Have specific assets of the issuing company pledged as collateral. 
C)  Are backed by the issuer's bank. 
D)  Are subordinated to those of other unsecured liabilities. 
E)  Are the same as sinking fund bonds. 
A)  Are called debentures. 
B)  Have specific assets of the issuing company pledged as collateral. 
C)  Are backed by the issuer's bank. 
D)  Are subordinated to those of other unsecured liabilities. 
E)  Are the same as sinking fund bonds.

Question 12

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,947 cash for the bonds.Using the effective interest method,the amount of interest expense for the first semiannual interest period is:

Accepted Answer

A)  $3,500.00. 
B)  $3,673.01. 
C)  $3,705.30. 
D)  $7,000.00. 
E)  $7,346.03. 
A)  $3,500.00. 
B)  $3,673.01. 
C)  $3,705.30. 
D)  $7,000.00. 
E)  $7,346.03.

Question 13

Match each of the following terms with the appropriate definitions.
-Bonds that are scheduled for maturity on one specified date.

Accepted Answer

A) Convertible bonds 
B) Coupon bonds 
C) Bearer bonds 
D) Bond indenture 
E) Installment note
F)Unsecured bonds
G)Market rate
H)Serial bonds
I)Effective interest rate method
J)Term bonds 
A) Convertible bonds 
B) Coupon bonds 
C) Bearer bonds 
D) Bond indenture 
E) Installment note
F)Unsecured bonds
G)Market rate
H)Serial bonds
I)Effective interest rate method
J)Term bonds

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 carrying value of the bonds immediately after the first interest payment is:

Accepted Answer

A)  $400,000. 
B)  $399,800. 
C)  $400,200. 
D)  $395,800. 
E)  $396,200. 
A)  $400,000. 
B)  $399,800. 
C)  $400,200. 
D)  $395,800. 
E)  $396,200.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the first interest payment using the effective interest method of amortization is:

Accepted Answer

A)  Debit Interest Expense $12,487.08; debit Premium on Bonds Payable $1,012.92; credit Cash $13,500.00. 
B)  Debit Interest Payable $13,500; credit Cash $13,500.00. 
C)  Debit Bond Interest Expense $12,487.08; debit Discount on Bonds Payable $1,012.92; credit Cash $13,500.00. 
D)  Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E)  Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
A)  Debit Interest Expense $12,487.08; debit Premium on Bonds Payable $1,012.92; credit Cash $13,500.00. 
B)  Debit Interest Payable $13,500; credit Cash $13,500.00. 
C)  Debit Bond Interest Expense $12,487.08; debit Discount on Bonds Payable $1,012.92; credit Cash $13,500.00. 
D)  Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00. 
E)  Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.

Question 18

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Accepted Answer

A) True 
 B)False

Question 19

What is a lease? Explain the difference between an operating lease and a capital lease.

Accepted Answer

A lease is a contractual agreement betwe

Question 20

A company issues 9%,5-year bonds with a par value of $100,000 on January 1 at a price of $106,160,when the market rate of interest was 8%.The bonds pay interest semiannually.The amount of each semiannual interest payment is:

Accepted Answer

A)  $9,000. 
B)  $8,000. 
C)  $4,000. 
D)  $4,500. 
E)  $0. 
A)  $9,000. 
B)  $8,000. 
C)  $4,000. 
D)  $4,500. 
E)  $0.

A bond traded at 102½ means that:

The carrying value of a long-term note is computed as the present value of all remaining future payments,discounted using the market rate at the time of issuance.

Identify the advantages and disadvantages of bond financing.

A company holds $150,000 par value of bonds with a carrying value of $147,950.The company calls the bonds at $151,000.Prepare the journal entry to record the retirement of the bonds.

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

Operating leases are long-term or noncancelable leases in which the lessor transfers substantially all the risks and rewards of ownership to the lessee.

Morgan Company issues 9%,20-year bonds with a par value of $750,000 that pay interest semiannually.The current market rate is 8%.The amount paid to the bondholders for each semiannual interest payment is:

Match each of the following terms with the appropriate definitions. -The contract between the bond issuer and the bondholders; it identifies the rights and obligations of the parties.

Amortizing a bond discount:

Secured bonds:

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,947 cash for the bonds.Using the effective interest method,the amount of interest expense for the first semiannual interest period is:

Match each of the following terms with the appropriate definitions. -Bonds that are scheduled for maturity on one specified date.

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

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

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

What is a lease? Explain the difference between an operating lease and a capital lease.

A company issues 9%,5-year bonds with a par value of $100,000 on January 1 at a price of $106,160,when the market rate of interest was 8%.The bonds pay interest semiannually.The amount of each semiannual interest payment is:

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

A bond traded at 102½ means that:

The carrying value of a long-term note is computed as the present value of all remaining future payments,discounted using the market rate at the time of issuance.

Identify the advantages and disadvantages of bond financing.

A company holds $150,000 par value of bonds with a carrying value of $147,950.The company calls the bonds at $151,000.Prepare the journal entry to record the retirement of the bonds.

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

Operating leases are long-term or noncancelable leases in which the lessor transfers substantially all the risks and rewards of ownership to the lessee.

Morgan Company issues 9%,20-year bonds with a par value of $750,000 that pay interest semiannually.The current market rate is 8%.The amount paid to the bondholders for each semiannual interest payment is:

Match each of the following terms with the appropriate definitions. -The contract between the bond issuer and the bondholders; it identifies the rights and obligations of the parties.

Amortizing a bond discount:

Secured bonds:

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,947 cash for the bonds.Using the effective interest method,the amount of interest expense for the first semiannual interest period is:

Match each of the following terms with the appropriate definitions. -Bonds that are scheduled for maturity on one specified date.

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

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

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

What is a lease? Explain the difference between an operating lease and a capital lease.

A company issues 9%,5-year bonds with a par value of $100,000 on January 1 at a price of $106,160,when the market rate of interest was 8%.The bonds pay interest semiannually.The amount of each semiannual interest payment is:

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