Question 1

The current portion of notes payable is reported on the balance sheet under current liabilities.

Accepted Answer

A) True 
 B)False

Question 2

Long-term liabilities can be structured either with an equal principal payment or with an equal total payment.

Accepted Answer

A) True 
 B)False

Question 3

A stream of equal cash payments made at equal time intervals is called a(n)________.

Accepted Answer

A)  present value 
B)  annuity 
C)  compound interest 
D)  future value 
A)  present value 
B)  annuity 
C)  compound interest 
D)  future value

Question 4

The issue price of a bond-whether it is issued at par,premium,or discount-has an effect on the principal repayment at maturity.

Accepted Answer

A) True 
 B)False

Question 5

Scotland,Inc.issued a $5,000 face value,10%,five-year bond at 98.What will be the journal entries at the maturity of the bond? The bonds have semiannual interest,and the company uses the straight-line method of amortization.Omit explanations.

Accepted Answer

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

Question 6

The debt to equity ratio measures the proportion of total liabilities relative to the total equity.

Accepted Answer

A) True 
 B)False

Question 7

On January 1,2019,Burton Sales issued $23,000 in bonds for $35,800.These are eight-year bonds with a stated rate of 9% and pay semiannual interest.Burton Sales uses the straight-line method to amortize the bond premium.Immediately after the issue of the bonds,the ledger balances are as follows: Bonds Payable
  Premium on Bonds Payable
  After the first interest payment on June 30,2019,what is the balance of Premium on Bonds Payable? (Round your intermediate answers to the nearest dollar.)

Accepted Answer

A)  debit of $800 
B)  debit of $14,400 
C)  credit of $235 
D)  credit of $12,000 
A)  debit of $800 
B)  debit of $14,400 
C)  credit of $235 
D)  credit of $12,000

Question 8

On March 21,2019,the bond accounts of Pet Supplies Sales showed the following balances.   Pet Supplies Sales retires the bonds for $66,150.Prepare the journal entry to record the retirement of the bonds.Omit explanation.

Accepted Answer

None

Question 9

On January 1,2018,Belview,Inc.issued long-term notes payable for $50,000.The note will be paid over 10 years with payments of $5,000 plus 12% interest due each January 1,beginning January 1,2019.The amortization schedule for the first three payments is provided.Prepare the journal entries for the issuance of the note and for the January 1,2020 note payment.Omit explanation.
 $$\begin{array} { | l | r | r | r | r | r | } 
\hline & \begin{array} { c } 
\text { Beginning } \
\text { Balance }
\end{array} & \begin{array} { c } 
\text { Principal } \
\text { Payment }
\end{array} & \begin{array} { c } 
\text { Interest } \
\text { Expense }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Payment }
\end{array} & \begin{array} { c } 
\text { Ending } \
\text { Balance }
\end{array} \
\hline \mathrm { p } 1 / 01 / 2018 & & & & & \$ 50,000 \
\hline \mathrm { p } 1 / 01 / 2019 & \$ 50,000 & \$ 5,000 & \$ 6,000 & \$ 11,000 & 45,000 \
\hline \mathrm { p } 1 / 01 / 2020 & 45,000 & 5,000 & 5,400 & 10,400 & 40,000 \
\hline \mathrm { p } 1 / 01 / 2021 & 40,000 & 5,000 & 4,800 & 9,800 & 35,000 \
\hline
\end{array}$$

Accepted Answer

None

Question 10

The amount of cash interest the borrower pays each year is based on the ________.

Accepted Answer

A)  market conditions on the day of payment 
B)  market interest rate 
C)  stated interest rate 
D)  effective interest rate 
A)  market conditions on the day of payment 
B)  market interest rate 
C)  stated interest rate 
D)  effective interest rate

Question 11

When using the effective-interest amortization method,the amount of the interest expense is calculated using the face value of the bonds and the market interest rate.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following describes a serial bond?

Accepted Answer

A)  a bond that matures in installments at regular intervals 
B)  a bond that gives the bondholder a claim for specific assets 
C)  a bond that matures at one specified time 
D)  a bond that is not backed by specific assets 
A)  a bond that matures in installments at regular intervals 
B)  a bond that gives the bondholder a claim for specific assets 
C)  a bond that matures at one specified time 
D)  a bond that is not backed by specific assets

Question 13

When using the effective-interest amortization method,the discount amortization is the excess of the calculated interest expense based on the effective interest rate over the interest payment.

Accepted Answer

A) True 
 B)False

Question 14

On March 1,2018,Everson Services issued a 4% long-term notes payable for $16,000.It is payable over a 4-year term in $4000 annual principal payments on March 1 of each year plus interest,beginning March 1,2019.Each yearly installment will include both principal repayment of $4000 and interest payment for the preceding one-year period.On March 1,2019,________.The accounting period ends on December 31.

Accepted Answer

A)  Everson must accrue $4000 of Interest Expense 
B)  Everson must accrue the next note payment of $4000 as the current portion of principal payment 
C)  Everson must pay $640 of interest to the note holder 
D)  Everson will receive $4000 as an installment payment 
A)  Everson must accrue $4000 of Interest Expense 
B)  Everson must accrue the next note payment of $4000 as the current portion of principal payment 
C)  Everson must pay $640 of interest to the note holder 
D)  Everson will receive $4000 as an installment payment

Question 15

The lower the debt to equity ratio,the greater the company's financial risk.

Accepted Answer

A) True 
 B)False

Question 16

On November 1,2018,A-1 Products borrowed $64,000 on a 5%,5-year note with annual installment payments of $12,800 plus interest due on November 1 of each succeeding year.On November 1,2020,what is the balance of the Long-Term Notes Payable account? (Round your answer to nearest whole number.)

Accepted Answer

A)  $38,400 
B)  $64,000 
C)  $51,200 
D)  $12,800 
A)  $38,400 
B)  $64,000 
C)  $51,200 
D)  $12,800

Question 17

List three disadvantages of borrowing.

Accepted Answer

1.Debts must be paid during unprofitable

Question 18

If a bond is issued at a premium,the issue price is greater than face value.

Accepted Answer

A) True 
 B)False

Question 19

On November 1,2018,Arch Services issued $313,000 of eight-year bonds with a stated rate of 12% at par.Interest payments occur each April 30 and October 31.On December 31,2018,Arch made an adjusting entry to accrue interest at year-end.What is the amount of Interest Expense that will be recorded on December 31,2018? (Do not round any intermediate calculations,and round your final answer to the nearest dollar.)

Accepted Answer

A)  $37,560 
B)  $6260 
C)  $18,780 
D)  $783 
A)  $37,560 
B)  $6260 
C)  $18,780 
D)  $783

Question 20

Crystal Glassware Company issues $1,042,000 of its 14%,10-year bonds at 97 on February 28,2019.The bonds pay interest on February 28 and August 31.Assume that Crystal uses the straight-line method for amortization.What net amount will be reported for the bonds on the August 31,2019 balance sheet?

Accepted Answer

A)  $1,012,303 
B)  $1,042,000 
C)  $1,009,177 
D)  $1,010,740 
A)  $1,012,303 
B)  $1,042,000 
C)  $1,009,177 
D)  $1,010,740

Exam 14: Long-Term Liabilities

The current portion of notes payable is reported on the balance sheet under current liabilities.

Long-term liabilities can be structured either with an equal principal payment or with an equal total payment.

A stream of equal cash payments made at equal time intervals is called a(n)________.

The issue price of a bond-whether it is issued at par,premium,or discount-has an effect on the principal repayment at maturity.

Scotland,Inc.issued a $5,000 face value,10%,five-year bond at 98.What will be the journal entries at the maturity of the bond? The bonds have semiannual interest,and the company uses the straight-line method of amortization.Omit explanations.

The debt to equity ratio measures the proportion of total liabilities relative to the total equity.

On March 21,2019,the bond accounts of Pet Supplies Sales showed the following balances. Pet Supplies Sales retires the bonds for $66,150.Prepare the journal entry to record the retirement of the bonds.Omit explanation.

The amount of cash interest the borrower pays each year is based on the ________.

When using the effective-interest amortization method,the amount of the interest expense is calculated using the face value of the bonds and the market interest rate.

Which of the following describes a serial bond?

When using the effective-interest amortization method,the discount amortization is the excess of the calculated interest expense based on the effective interest rate over the interest payment.

The lower the debt to equity ratio,the greater the company's financial risk.

On November 1,2018,A-1 Products borrowed $64,000 on a 5%,5-year note with annual installment payments of $12,800 plus interest due on November 1 of each succeeding year.On November 1,2020,what is the balance of the Long-Term Notes Payable account? (Round your answer to nearest whole number.)

List three disadvantages of borrowing.

If a bond is issued at a premium,the issue price is greater than face value.

Crystal Glassware Company issues $1,042,000 of its 14%,10-year bonds at 97 on February 28,2019.The bonds pay interest on February 28 and August 31.Assume that Crystal uses the straight-line method for amortization.What net amount will be reported for the bonds on the August 31,2019 balance sheet?

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets,natural Resources,and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

Filters