Question 1

When bonds are sold at face value between interest dates, the result is a debit to the Cash account that

Accepted Answer

A)  equals face value. 
B)  depends on the circumstances. 
C)  is less than face value. 
D)  exceeds face value. 
A)  equals face value. 
B)  depends on the circumstances. 
C)  is less than face value. 
D)  exceeds face value.

Question 2

Fiona Corporation has a 7 percent, $600,000 bond issue that originally was issued five years ago. There are now ten years remaining on the bond issue, and the market interest rate is 12 percent. Interest is paid semiannually. Calculate the current market value of the bond issue, using present value tables.

Accepted Answer

The answer of Fiona Corporation has a 7 percent, $600,000...

Question 3

A notice appeared in the Grant Street Times stating that Dollar Savings Association of Texas was issuing $2.9 billion in zero coupon bonds. "The Bonds do not pay interest periodically. The only scheduled payment to the holder of a Bond will be the amount at maturity," the ad read. The details of two components of the issue were as follows: $500,000,000 Bonds due December 12, 2014, at 3.254; $500,000,000 Bonds due December 12, 2024, at 1.380; plus accrued amortization, if any, of the original issue discount from December 12, 1984, to date of delivery.
a. Assuming all the bonds were issued on December 12, 1984, prepare entries in journal form to record each component shown above.
   
b. Determine the approximate market interest rate on each of the two components of the bond issue. Assume that interest is compounded annually. Use Table 3 in the appendix on future value and present value tables.
c. Prepare entries in journal form to record bond interest expense for each of the first two years (December 12, 1985 and 1986) on the component of the bond due in 2014 (ignore effects of fiscal year ends). What advantages or disadvantages are there to Dollar in issuing zero coupon bonds?

Accepted Answer

a.
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b. Since there are no interest pay

Question 4

Under a capital lease, the lessor, not the lessee, should record depreciation.

Accepted Answer

A) True 
 B)False

Question 5

Under a defined contribution pension plan,

Accepted Answer

A)  the pension expense account must be determined by actuarial calculations. 
B)  the employer guarantees the employee certain benefits upon retirement. 
C)  accounting for annual pension expense is simple. 
D)  the annual contribution is based on estimated future benefits. 
A)  the pension expense account must be determined by actuarial calculations. 
B)  the employer guarantees the employee certain benefits upon retirement. 
C)  accounting for annual pension expense is simple. 
D)  the annual contribution is based on estimated future benefits.

Question 6

Suffolk Corporation issued $100,000 of 20-year, 6 percent bonds at 98 on one of its semiannual interest dates. The straight-line method of amortization is to be used. What is the total interest cost of the bonds?

Accepted Answer

A)  $120,000 
B)  $122,000 
C)  $118,000 
D)  $117,500 
A)  $120,000 
B)  $122,000 
C)  $118,000 
D)  $117,500

Question 7

On December 31, 2009, the balance sheet of Gamma Corporation reported bonds outstanding with a face value of $2,000,000 and a related unamortized premium of $60,000. Interest is payable semiannually on January 1 and July 1.
a. Prepare an entry in journal form without explanations to record the retirement of bonds with a face value of $1,200,000 on January 1, 2010, assuming the bonds were redeemed at a call price of 104.
b. Prepare an entry in journal form without explanation on January 1, 2010, to record the conversion of bonds with a face value of $800,000 into common stock. Each $1,000 bond is convertible into 30 shares of $20 par value common stock.

Accepted Answer

The answer of On December 31, 2009, the balance sheet...

Question 8

When bonds are converted to stock, no gain or loss is recognized.

Accepted Answer

A) True 
 B)False

Question 9

If bonds payable were issued initially at a discount, the carrying value of the bonds at a balance sheet date will be calculated by

Accepted Answer

A)  deducting the amount of discount amortized between the issuance date and the balance sheet date from the face value. 
B)  deducting the balance of unamortized bond discount from the face value. 
C)  adding the balance of unamortized bond discount to the face value. 
D)  adding the amount of discount amortized between the issuance date and the balance sheet date to the face value. 
A)  deducting the amount of discount amortized between the issuance date and the balance sheet date from the face value. 
B)  deducting the balance of unamortized bond discount from the face value. 
C)  adding the balance of unamortized bond discount to the face value. 
D)  adding the amount of discount amortized between the issuance date and the balance sheet date to the face value.

Question 10

The callable feature of a bond can be exercised by the bondholder.

Accepted Answer

A) True 
 B)False

Question 11

Bond issue costs

Accepted Answer

A)  must be expensed when incurred. 
B)  must be amortized over the life of the bonds. 
C)  are recorded in an asset account and not amortized. 
D)  appear on the balance sheet as a liability. 
A)  must be expensed when incurred. 
B)  must be amortized over the life of the bonds. 
C)  are recorded in an asset account and not amortized. 
D)  appear on the balance sheet as a liability.

Question 12

Costs of postretirement benefits other than pension plans should be expensed when paid to the retired employee.

Accepted Answer

A) True 
 B)False

Question 13

Secured bonds are also known as debentures.

Accepted Answer

A) True 
 B)False

Question 14

It is illegal for a company to use depreciation methods for financial reporting that differ from those used for income tax return purposes.

Accepted Answer

A) True 
 B)False

Question 15

A bond sells at the face value when the face interest rate of the bond is identical to the market interest rate for similar bonds on the date of the issue.

Accepted Answer

A) True 
 B)False

Question 16

When a bond sells at a discount, what is probably true about the market interest versus the face interest rate? Discuss.

Accepted Answer

For someone to purchase a bond at a disc

Question 17

Deferred income taxes arise when accounting methods used for financial reporting differ from those used on the income tax return.

Accepted Answer

A) True 
 B)False

Question 18

When the effective interest method of amortization is used for a bond premium, the amount of premium to be amortized for a period is calculated by subtracting the amount of bond interest expense for the period from the amount of cash to be paid for interest for the same period.

Accepted Answer

A) True 
 B)False

Question 19

Boris Corporation had income before income taxes of $4,000,000 and interest expense of $450,000. Calculate Boris's interest coverage ratio, rounded to one decimal place.

Accepted Answer

9.9 times

Question 20

The debt to equity ratio is expressed in terms of

Accepted Answer

A)  a percentage. 
B)  dollars. 
C)  units. 
D)  times. 
A)  a percentage. 
B)  dollars. 
C)  units. 
D)  times.

Exam 13: Long Term Liabilities

When bonds are sold at face value between interest dates, the result is a debit to the Cash account that

Under a capital lease, the lessor, not the lessee, should record depreciation.

Under a defined contribution pension plan,

Suffolk Corporation issued $100,000 of 20-year, 6 percent bonds at 98 on one of its semiannual interest dates. The straight-line method of amortization is to be used. What is the total interest cost of the bonds?

When bonds are converted to stock, no gain or loss is recognized.

If bonds payable were issued initially at a discount, the carrying value of the bonds at a balance sheet date will be calculated by

The callable feature of a bond can be exercised by the bondholder.

Bond issue costs

Costs of postretirement benefits other than pension plans should be expensed when paid to the retired employee.

Secured bonds are also known as debentures.

It is illegal for a company to use depreciation methods for financial reporting that differ from those used for income tax return purposes.

A bond sells at the face value when the face interest rate of the bond is identical to the market interest rate for similar bonds on the date of the issue.

When a bond sells at a discount, what is probably true about the market interest versus the face interest rate? Discuss.

Deferred income taxes arise when accounting methods used for financial reporting differ from those used on the income tax return.

When the effective interest method of amortization is used for a bond premium, the amount of premium to be amortized for a period is calculated by subtracting the amount of bond interest expense for the period from the amount of cash to be paid for interest for the same period.

Boris Corporation had income before income taxes of $4,000,000 and interest expense of $450,000. Calculate Boris's interest coverage ratio, rounded to one decimal place.

The debt to equity ratio is expressed in terms of

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Measuring Business Income

Completing the Accounting Cycle

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Internal Control

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Contributed Capital

The Corporate Income Statement and the Statement of Stockholders Equity

The Statement of Cash Flows

Financial Performance Measurement

Partnerships

The Changing Business Environment-A Managers Pers

Cost Concepts and Cost Allocation

Costing Systems: Job Order Costing

Costing Systems Process Costing

Activity-Based Systems-Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

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