Question 1

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 2

On March 1,2016,Hughes Services issued a 9% long-term notes payable for $25,000.It is payable over a 5-year term in $5,000 principal installments on March 1 of each year,beginning March 1,2017.Which of the following entries needs to be made on March 1,2016?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 3

On July 1,2017,Miniature Company has bonds with balances as shown below.
 
Discount on Bonds Payable
 
If the company retires the bonds for $72,150,what will be the effect on the income statement?

Accepted Answer

A) loss on retirement of $7,150 
B) gain on retirement of $7,150 
C) sales revenue of $65,000 
D) no effect on net income 
A) loss on retirement of $7,150 
B) gain on retirement of $7,150 
C) sales revenue of $65,000 
D) no effect on net income

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Larsen Corporation issued a $400,000,5.5%,10-year bonds payable at 101 on January 1,2007.The bonds are retired on 1/1/2017.Prepare the journal entries on the date issuance and at the date of retirement.

Accepted Answer

The answer of Larsen Corporation issued a $400,000,5.5%,10-year bonds payable...

Question 6

Debentures are backed only by the goodwill of the bond issuer.

Accepted Answer

A) True 
 B)False

Question 7

Financial leverage occurs when a company earns less income on borrowed money than the related interest expense.

Accepted Answer

A) True 
 B)False

Question 8

An amortization schedule details each loan payment's allocation between principal as well as interest and the beginning and ending balances of the loan.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Debentures are bonds that mature in installments at regular intervals.

Accepted Answer

A) True 
 B)False

Question 11

The face value of a bond payable minus the current balance of the discount account or plus the current balance of the premium account is the bond's carrying amount.

Accepted Answer

A) True 
 B)False

Question 12

On January 1,2017,Finch Company issued $89,000 of five-year,8% bonds when the market interest rate was 12%.The issue price of the bonds was $73,000.Finch uses the effective-interest method of amortization for bond discount.Semiannual interest payments are made on June 30 and December 31 of each year.How much interest expense will be recorded when the first interest payment is made? (Round your answer to the nearest dollar number. )

Accepted Answer

A) $2,920 
B) $4,380 
C) $3,560 
D) $5,340 
A) $2,920 
B) $4,380 
C) $3,560 
D) $5,340

Question 13

Bonds affect the percentage of ownership of a corporation.

Accepted Answer

A) True 
 B)False

Question 14

Salt Lake Glassware Company issues $1,022,000 of its 9%,10-year bonds at 96 on February 28,2017.The bonds pay interest on February 28 and August 31.Assume that Salt Lake uses the straight-line method for amortization.The journal entry to record the first interest payment on August 31,2017 includes a ________.

Accepted Answer

A) debit to Cash for $45,990 
B) debit to Interest Expense for $48,034 
C) debit to Interest Expense for $43,946 
D) debit to Discount on Bonds Payable for $2,044 
A) debit to Cash for $45,990 
B) debit to Interest Expense for $48,034 
C) debit to Interest Expense for $43,946 
D) debit to Discount on Bonds Payable for $2,044

Question 15

Alexander Corp.has the following balances as of December 31,2017:
 
Calculate the debt to equity ratio.(Round your answer to two decimal points. )

Accepted Answer

A) 0.72 
B) 0.67 
C) 1.39 
D) 2.39 
A) 0.72 
B) 0.67 
C) 1.39 
D) 2.39

Question 16

On July 1,2017,Adams Company has bonds with balances as shown below.
 
Premium on Bonds Payable
 
If the company retires the bonds for $69,150,what will be the effect on the income statement?

Accepted Answer

A) gain on retirement of $8,750 
B) loss on retirement of $8,750 
C) gain on retirement of $450 
D) loss on retirement of $450 
A) gain on retirement of $8,750 
B) loss on retirement of $8,750 
C) gain on retirement of $450 
D) loss on retirement of $450

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Using the effective-interest amortization method,the calculation for the amount of premium amortization is the difference between the cash paid and the calculated interest expense.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

If bonds with a face value of $208,000 are issued at 97,the amount of cash proceeds is ________.

Accepted Answer

A) $207,903 
B) $208,000 
C) $201,760 
D) $195,520 
A) $207,903 
B) $208,000 
C) $201,760 
D) $195,520

Exam 14: Long-Term Liabilities

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

On March 1,2016,Hughes Services issued a 9% long-term notes payable for $25,000.It is payable over a 5-year term in $5,000 principal installments on March 1 of each year,beginning March 1,2017.Which of the following entries needs to be made on March 1,2016?

On July 1,2017,Miniature Company has bonds with balances as shown below. Discount on Bonds Payable If the company retires the bonds for $72,150,what will be the effect on the income statement?

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

Larsen Corporation issued a $400,000,5.5%,10-year bonds payable at 101 on January 1,2007.The bonds are retired on 1/1/2017.Prepare the journal entries on the date issuance and at the date of retirement.

Debentures are backed only by the goodwill of the bond issuer.

Financial leverage occurs when a company earns less income on borrowed money than the related interest expense.

An amortization schedule details each loan payment's allocation between principal as well as interest and the beginning and ending balances of the loan.

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

Debentures are bonds that mature in installments at regular intervals.

The face value of a bond payable minus the current balance of the discount account or plus the current balance of the premium account is the bond's carrying amount.

Bonds affect the percentage of ownership of a corporation.

Alexander Corp.has the following balances as of December 31,2017: Calculate the debt to equity ratio.(Round your answer to two decimal points. )

On July 1,2017,Adams Company has bonds with balances as shown below. Premium on Bonds Payable If the company retires the bonds for $69,150,what will be the effect on the income statement?

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

Using the effective-interest amortization method,the calculation for the amount of premium amortization is the difference between the cash paid and the calculated interest expense.

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

If bonds with a face value of $208,000 are issued at 97,the amount of cash proceeds is ________.

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Financial Statement Analysis

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