Question 1

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

Accepted Answer

A) True 
 B)False

Question 2

The ________ ratio is used to assess the risk of a company's financing structure.

Accepted Answer

The answer of The ________ ratio is used to assess...

Question 3

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 } 
\text

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Bond market values are expressed as a percent of their par (face) value.

Accepted Answer

A) True 
 B)False

Question 6

Marwick Corporation issues 8%, 5-year bonds with a par value of $1,000,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling) price, assuming the following Present Value factors: $$\begin{array}{l}
\begin{array} { r l c c } 
&&\text { Present Value of an }\
n = & \mathrm { i } = & \text { Annuity } & \text { Present value of \$1 } \
5 & 8 \% & 3.9927 & 0.6806 \
10 & 4 \% & 8.1109 & 0.6756 \
5 & 6 \% & 4.2124 & 0.7473 \
10 & 3 \% & 8.5302 & 0.7441
\end{array}
\end{array}$$

Accepted Answer

A)  $1,085,308 
B)  $658,792 
C)  $1,341,208 
D)  $1,000,000 
E)  $789,244 
A)  $1,085,308 
B)  $658,792 
C)  $1,341,208 
D)  $1,000,000 
E)  $789,244

Question 7

On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of
$473,845. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30 is
$25,000.

Accepted Answer

A) True 
 B)False

Question 8

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Accepted Answer

A) True 
 B)False

Question 9

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 second interest payment using the effective interest method of amortization is:

Accepted Answer

A)  Debit Interest Expense $12,648.28; debit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
B)  Debit Interest Expense $15,405.79; credit Discount on Bonds Payable $1,405.79; credit Cash $14,000.00. 
C)  Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
D)  Debit Interest Expense $12,648.28; debit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00. 
E)  Debit Interest Expense $15,351.72; credit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
A)  Debit Interest Expense $12,648.28; debit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00. 
B)  Debit Interest Expense $15,405.79; credit Discount on Bonds Payable $1,405.79; credit Cash $14,000.00. 
C)  Debit Interest Payable $14,000.00; credit Cash $14,000.00. 
D)  Debit Interest Expense $12,648.28; debit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00. 
E)  Debit Interest Expense $15,351.72; credit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00.

Question 10

On August 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The note requires equal payments of principal plus accrued interest be paid each year on July 31. The present value of an annuity factor for 3 years at 6% is 2.6730. The present value of a single sum factor for 3 years at 6% is 0.8396. The payment each July 31 will be:

Accepted Answer

A)  $80,190,00. 
B)  $10,000.00. 
C)  $10,400.00. 
D)  $11,223.34. 
E)  $1,223.34. 
A)  $80,190,00. 
B)  $10,000.00. 
C)  $10,400.00. 
D)  $11,223.34. 
E)  $1,223.34.

Question 11

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

Accepted Answer

A bond is a written promise to pay an am

Question 12

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;

Question 13

On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of
$473,845. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of discount amortized each period is $1,634.69.

Accepted Answer

A) True 
 B)False

Question 14

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

Accepted Answer

A) True 
 B)False

Question 15

Collateral agreements for a note or bond can:

Accepted Answer

A)  Increase the risk of loss in comparison with unsecured debt. 
B)  Have no effect on risk. 
C)  Increase total cost for the borrower. 
D)  Reduce the risk of loss in comparison with unsecured debt. 
E)  Reduce the issuer's assets. 
A)  Increase the risk of loss in comparison with unsecured debt. 
B)  Have no effect on risk. 
C)  Increase total cost for the borrower. 
D)  Reduce the risk of loss in comparison with unsecured debt. 
E)  Reduce the issuer's assets.

Question 16

A lessee has substantially all of the benefits and risks of ownership in an operating lease.

Accepted Answer

A) True 
 B)False

Question 17

Bonds owned by investors whose names and addresses are recorded by the issuing company, and for which interest payments are made with checks or cash transfers to the bondholders, are called:

Accepted Answer

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

Question 18

Amortizing a bond discount:

Accepted Answer

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

Question 19

On January 1, a company issues bonds dated January 1 with a par value of $600,000. The bonds mature in 3 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. 
-The bonds are sold for $564,000. The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A)  Debit Interest Expense $27,000; credit Discount on Bonds Payable $6,000; credit Cash $21,000. 
B)  Debit Interest Expense $21,000; credit Premium on Bonds Payable $6,000; credit Cash $15,000. 
C)  Debit Interest Expense $21,000; credit Cash $21,000. 
D)  Debit Interest Expense $15,000; debit Discount on Bonds Payable $6,000; credit Cash $21,000. 
E)  Debit Interest Payable $21,000; credit Cash $21,000. 
A)  Debit Interest Expense $27,000; credit Discount on Bonds Payable $6,000; credit Cash $21,000. 
B)  Debit Interest Expense $21,000; credit Premium on Bonds Payable $6,000; credit Cash $15,000. 
C)  Debit Interest Expense $21,000; credit Cash $21,000. 
D)  Debit Interest Expense $15,000; debit Discount on Bonds Payable $6,000; credit Cash $21,000. 
E)  Debit Interest Payable $21,000; credit Cash $21,000.

Question 20

A discount on bonds payable:

Accepted Answer

A)  Is not allowed in many states to protect creditors. 
B)  Increases the Bond Payable account. 
C)  Occurs when a company issues bonds with a contract rate more than the market rate. 
D)  Occurs when a company issues bonds with a contract rate less than the market rate. 
E)  Decreases the total bond interest expense. 
A)  Is not allowed in many states to protect creditors. 
B)  Increases the Bond Payable account. 
C)  Occurs when a company issues bonds with a contract rate more than the market rate. 
D)  Occurs when a company issues bonds with a contract rate less than the market rate. 
E)  Decreases the total bond interest expense.

Exam 14: Long-Term Liabilities

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

The ________ ratio is used to assess the risk of a company's financing structure.

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

Bond market values are expressed as a percent of their par (face) value.

On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $473,845. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30 is $25,000.

Mortgage bonds are backed only by the good faith and credit of the issuing company.

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

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 ________.

On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $473,845. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of discount amortized each period is $1,634.69.

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

Collateral agreements for a note or bond can:

A lessee has substantially all of the benefits and risks of ownership in an operating lease.

Bonds owned by investors whose names and addresses are recorded by the issuing company, and for which interest payments are made with checks or cash transfers to the bondholders, are called:

Amortizing a bond discount:

A discount on bonds payable:

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

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 .