Question 1

A company's ability to issue unsecured debt depends on its credit standing.

Accepted Answer

A) True 
 B)False

Question 2

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Accepted Answer

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

Question 3

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 4

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.
-After accruing interest at year end, the company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Accepted Answer

A)  $3,780,000. 
B)  $3,782,437. 
C)  $3,340,063. 
D)  $3,217,563. 
E)  $3,902,500. 
A)  $3,780,000. 
B)  $3,782,437. 
C)  $3,340,063. 
D)  $3,217,563. 
E)  $3,902,500.

Question 5

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

Accepted Answer

A)  Credit to Discount on Bonds Payable. 
B)  Credit to Premium on Bonds Payable. 
C)  Credit to Interest Income. 
D)  Debit to Discount on Bonds Payable. 
E)  Debit to Premium on Bonds Payable. 
A)  Credit to Discount on Bonds Payable. 
B)  Credit to Premium on Bonds Payable. 
C)  Credit to Interest Income. 
D)  Debit to Discount on Bonds Payable. 
E)  Debit to Premium on Bonds Payable.

Question 6

A bond with a par value of $1,000 trading at 101½ sells for a premium.

Accepted Answer

A) True 
 B)False

Question 7

A company enters into an agreement to make 5 annual year-end payments of $3,000 each, starting one year from now. The annual interest rate is 6%. The present value of an annuity factor for 5 periods at 6% is 4.2124. What is the present value of these five payments?

Accepted Answer

$3,000 * 4

Question 8

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 9

A company issued 10-year, 9% bonds, with a par value of $500,000 when the market rate was 9.5%. The issuer received $484,087 in cash proceeds. Prepare the issuer's journal entry to record the bond issuance.

Accepted Answer

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Question 10

The carrying (book) value of a bond at the time it is issued is always equal to its par value.

Accepted Answer

A) True 
 B)False

Question 11

Bonds payable to whoever holds them are called ________ bonds.

Accepted Answer

The answer of Bonds payable to whoever holds them are...

Question 12

On January 1, Year 1 a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 annual year-end payments of $21,607, the first of which is due on December 31, Year 1.
(a) Prepare the company's journal entry to record the note's issuance.
(b) Prepare the journal entries to record the first and second installment payments.

Accepted Answer

Second year Note Pay

Question 13

A bond with a par value of $1,000 trading at 97½ sells for a premium.

Accepted Answer

A) True 
 B)False

Question 14

The ________ concept is the idea that cash paid (or received) in the future has less value now than the same amount of cash paid (or received) today.

Accepted Answer

The answer of The ________ concept is the idea that...

Question 15

A pension plan:

Accepted Answer

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

Question 16

The market value (issue price) of a bond is equal to the present value of all future cash payments provided by the bond.

Accepted Answer

A) True 
 B)False

Question 17

On January 1, a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195. The first payment is due on December 31. Prepare the journal entries to record the first and second installment payments.

Accepted Answer

None

Question 18

The carrying value of bonds at maturity always equals:

Accepted Answer

A)  the amount of cash originally received in exchange for the bonds. 
B)  $0. 
C)  the amount of discount or premium. 
D)  the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. 
E)  the par value of the bond. 
A)  the amount of cash originally received in exchange for the bonds. 
B)  $0. 
C)  the amount of discount or premium. 
D)  the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. 
E)  the par value of the bond.

Question 19

Describe the journal entries required to record the issuance of bonds at a premium and the payment of bond interest, including any applicable amortization.

Accepted Answer

The journal entry to record a bond issua

Question 20

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

Exam 14: Long-Term Liabilities

A company's ability to issue unsecured debt depends on its credit standing.

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

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

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

A bond with a par value of $1,000 trading at 101½ sells for a premium.

A company enters into an agreement to make 5 annual year-end payments of $3,000 each, starting one year from now. The annual interest rate is 6%. The present value of an annuity factor for 5 periods at 6% is 4.2124. What is the present value of these five payments?

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

A company issued 10-year, 9% bonds, with a par value of $500,000 when the market rate was 9.5%. The issuer received $484,087 in cash proceeds. Prepare the issuer's journal entry to record the bond issuance.

The carrying (book) value of a bond at the time it is issued is always equal to its par value.

Bonds payable to whoever holds them are called ________ bonds.

A bond with a par value of $1,000 trading at 97½ sells for a premium.

The ________ concept is the idea that cash paid (or received) in the future has less value now than the same amount of cash paid (or received) today.

A pension plan:

The market value (issue price) of a bond is equal to the present value of all future cash payments provided by the bond.

On January 1, a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195. The first payment is due on December 31. Prepare the journal entries to record the first and second installment payments.

The carrying value of bonds at maturity always equals:

Describe the journal entries required to record the issuance of bonds at a premium and the payment of bond interest, including any applicable amortization.

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:

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

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