Question 1

When the effective interest method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by multiplying the

Accepted Answer

A)  carrying value of the bonds at the beginning of the period by the face interest rate. 
B)  face value of the bonds at the beginning of the period by the effective interest rate. 
C)  carrying value of the bonds at the beginning of the period by the effective interest rate. 
D)  face value of the bonds at the beginning of the period by the face interest rate. 
A)  carrying value of the bonds at the beginning of the period by the face interest rate. 
B)  face value of the bonds at the beginning of the period by the effective interest rate. 
C)  carrying value of the bonds at the beginning of the period by the effective interest rate. 
D)  face value of the bonds at the beginning of the period by the face interest rate.

Question 2

On July 1, 2010, Aloha Corporation issued bonds with a face value of $400,000. The bonds carry a face interest rate of 8 percent that is payable each July 1 and January 1.
a. Prepare the entry in journal form without explanation for the issuance of the bonds assuming the bonds are issued at 98.
b. Prepare the entry in journal form without explanation for the issuance of the bonds assuming the bonds are issued at 101.

Accepted Answer

The answer of On July 1, 2010, Aloha Corporation issued...

Question 3

The more debt securities a corporation issues, the greater the risk of default.

Accepted Answer

A) True 
 B)False

Question 4

On July 1, 2010,Benchley Corporation issued bonds with a face value of $600,000. The bonds carry a face interest rate of 8 percent that is payable each June 1 and December 1.
a. Prepare an entry in journal form without explanations to record the issuance assuming the bonds are issued at 100.
b. Prepare an entry in journal form without explanations to record the issuance assuming the bonds are issued at 97.
c. Prepare an entry in journal form without explanations to record the issuance assuming the bonds are issued at 103.

Accepted Answer

The answer of On July 1, 2010,Benchley Corporation issued bonds...

Question 5

If the market interest rate at the date of issuance of a bond exceeds the face interest rate, the bond will probably be sold at a premium.

Accepted Answer

A) True 
 B)False

Question 6

A corporation issues bond certificates to

Accepted Answer

A)  owners. 
B)  principals. 
C)  creditors. 
D)  debtors. 
A)  owners. 
B)  principals. 
C)  creditors. 
D)  debtors.

Question 7

Comment on the change in both the carrying value and the balance of the Unamortized Bond Discount account over the life of a bond issue.

Accepted Answer

The carrying value starts out lower than

Question 8

Under an operating lease, the lessee

Accepted Answer

A)  debits Capital Lease Equipment. 
B)  debits Rent Expense. 
C)  records depreciation on the leased asset. 
D)  credits Capital Lease Obligations. 
A)  debits Capital Lease Equipment. 
B)  debits Rent Expense. 
C)  records depreciation on the leased asset. 
D)  credits Capital Lease Obligations.

Question 9

When a bond has been issued at a discount, the carrying value at the end of one period is equal to the carrying value at the beginning of the period plus the amount of discount that was amortized during the period.

Accepted Answer

A) True 
 B)False

Question 10

A bond with a face value of $10,000 has a current price quote of 102.62. The price in dollars and cents is

Accepted Answer

A)  $10,002.62. 
B)  $10,200.62. 
C)  $10,026.20. 
D)  $10,262.00. 
A)  $10,002.62. 
B)  $10,200.62. 
C)  $10,026.20. 
D)  $10,262.00.

Question 11

A bond indenture is

Accepted Answer

A)  a bond that is secured by specific assets of the issuing corporation. 
B)  the agreement between the issuing corporation and the bondholders. 
C)  a bond that is unsecured. 
D)  a bond that has past due interest payments. 
A)  a bond that is secured by specific assets of the issuing corporation. 
B)  the agreement between the issuing corporation and the bondholders. 
C)  a bond that is unsecured. 
D)  a bond that has past due interest payments.

Question 12

The calculation of cash for interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance.

Accepted Answer

A) True 
 B)False

Question 13

Under a defined contribution pension plan, retirement benefits are based entirely on the annual contribution to the fund plus earnings thereon.

Accepted Answer

A) True 
 B)False

Question 14

Other postretirement benefits should be expensed

Accepted Answer

A)  on the employee's retirement date. 
B)  as they are received by the employee. 
C)  when the employee is hired. 
D)  as the employee earns them. 
A)  on the employee's retirement date. 
B)  as they are received by the employee. 
C)  when the employee is hired. 
D)  as the employee earns them.

Question 15

In a monthly mortgage payment, the same amount is devoted to interest expense as in the previous month's payment.

Accepted Answer

A) True 
 B)False

Question 16

When a monthly mortgage payment is made and recorded, the debit to Mortgage Payable represents the reduction in the principal balance.

Accepted Answer

A) True 
 B)False

Question 17

Bondholders are creditors of the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 18

Under the effective interest method of amortizing a bond discount, the bond interest expense recorded for each period increases over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 19

Technically, what is meant by the amortization of a bond discount, and why is it necessary?

Accepted Answer

Amortization of a bond discount is the p

Question 20

Knollwood Corporation issued $278,000 of 30-year, 8 percent bonds at 106 on one of its semiannual interest dates. The straight-line method of amortization is to be used. After 11 years, what is the carrying value of the bonds?

Accepted Answer

A)  $286,340 
B)  $286,896 
C)  $284,950 
D)  $288,564 
A)  $286,340 
B)  $286,896 
C)  $284,950 
D)  $288,564

Exam 13: Long Term Liabilities

When the effective interest method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by multiplying the

The more debt securities a corporation issues, the greater the risk of default.

If the market interest rate at the date of issuance of a bond exceeds the face interest rate, the bond will probably be sold at a premium.

A corporation issues bond certificates to

Comment on the change in both the carrying value and the balance of the Unamortized Bond Discount account over the life of a bond issue.

Under an operating lease, the lessee

When a bond has been issued at a discount, the carrying value at the end of one period is equal to the carrying value at the beginning of the period plus the amount of discount that was amortized during the period.

A bond with a face value of $10,000 has a current price quote of 102.62. The price in dollars and cents is

A bond indenture is

The calculation of cash for interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance.

Under a defined contribution pension plan, retirement benefits are based entirely on the annual contribution to the fund plus earnings thereon.

Other postretirement benefits should be expensed

In a monthly mortgage payment, the same amount is devoted to interest expense as in the previous month's payment.

When a monthly mortgage payment is made and recorded, the debit to Mortgage Payable represents the reduction in the principal balance.

Bondholders are creditors of the issuing corporation.

Under the effective interest method of amortizing a bond discount, the bond interest expense recorded for each period increases over the life of the bond.

Technically, what is meant by the amortization of a bond discount, and why is it necessary?

Knollwood Corporation issued $278,000 of 30-year, 8 percent bonds at 106 on one of its semiannual interest dates. The straight-line method of amortization is to be used. After 11 years, what is the carrying value of the bonds?

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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