Question 1

Bond issue costs have the effect of increasing a premium, or reducing a discount, on bonds issued.

Accepted Answer

A) True 
 B)False

Question 2

Debenture bonds are

Accepted Answer

A)  bonds that have a single maturity date. 
B)  bonds secured by specific assets of the issuing corporation. 
C)  issued only by the federal government. 
D)  issued on the general credit of the corporation and do not pledge certain assets as collateral. 
A)  bonds that have a single maturity date. 
B)  bonds secured by specific assets of the issuing corporation. 
C)  issued only by the federal government. 
D)  issued on the general credit of the corporation and do not pledge certain assets as collateral.

Question 3

Dennis Corporation entered into a long-term lease for a piece of equipment. The lease term calls for an annual payment of $2,000 for six years, which approximates the useful life of the equipment. Assume a discount factor of 16 percent. (Note: Present value of a single sum factor at six years and 16% is 0.410; present value of an annuity factor at six years and 16% is 3.685.) Round answers to the nearest dollar.
a. Prepare the entry without explanation to record the leased equipment.
b. Prepare the entry without explanation to record annual depreciation, assuming the straight-line method and no residual value.
c. Prepare the entry without explanation to record the first annual payment of $2,000, after the company has had the equipment for one year.

Accepted Answer

The answer of Dennis Corporation entered into a long-term lease...

Question 4

Bonds that mature in installments are called

Accepted Answer

A)  term bonds. 
B)  debenture bonds. 
C)  zero coupon bonds. 
D)  serial bonds. 
A)  term bonds. 
B)  debenture bonds. 
C)  zero coupon bonds. 
D)  serial bonds.

Question 5

Bond certificates are issued to creditors of the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 6

Accounting for capital leases can be thought of as similar to accounting for mortgage payments.

Accepted Answer

A) True 
 B)False

Question 7

A company has $900,000 in bonds payable with an unamortized discount of $21,000. If two-thirds of the bonds are converted to common stock, the carrying value of the bonds payable will decrease by

Accepted Answer

A)  $293,000. 
B)  $586,000. 
C)  $614,000. 
D)  $628,000. 
A)  $293,000. 
B)  $586,000. 
C)  $614,000. 
D)  $628,000.

Question 8

The effective interest method of amortization of bond premiums and discounts is superior to the straight-line method because it results in a(n)

Accepted Answer

A)  more variable interest rate. 
B)  uniform rate of interest. 
C)  interest rate that increases or decreases slightly over time. 
D)  interest rate that is close to the market interest rate. 
A)  more variable interest rate. 
B)  uniform rate of interest. 
C)  interest rate that increases or decreases slightly over time. 
D)  interest rate that is close to the market interest rate.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

A capital lease represents both an asset and a liability.

Accepted Answer

A) True 
 B)False

Question 11

Dividends on stock are tax-deductible to the issuing corporation, whereas interest on debt is not.

Accepted Answer

A) True 
 B)False

Question 12

Entering into a lease is an example of off-balance-sheet financing.

Accepted Answer

A) True 
 B)False

Question 13

Bonds that contain a provision that allows the issuing corporation to buy back the bonds prior to the maturity date are called

Accepted Answer

A)  secured bonds. 
B)  callable bonds. 
C)  convertible bonds. 
D)  debenture bonds. 
A)  secured bonds. 
B)  callable bonds. 
C)  convertible bonds. 
D)  debenture bonds.

Question 14

When bonds are converted to stock, any excess carrying value of the bonds over the par value of the stock is to be recorded as Additional Paid-in Capital.

Accepted Answer

A) True 
 B)False

Question 15

The market interest rate is the rate that an issuer of bonds actually will have to bear and that an investor (purchaser) actually will earn over the bond's life.

Accepted Answer

A) True 
 B)False

Question 16

The higher the debt to equity ratio, the greater the financial risk the company is taking.

Accepted Answer

A) True 
 B)False

Question 17

When the present value of a bond issue is calculated, both the present value of a single sum table and the present value of an annuity table must be used.

Accepted Answer

A) True 
 B)False

Question 18

An unsecured bond is the same as a

Accepted Answer

A)  term bond. 
B)  zero coupon bond. 
C)  debenture bond. 
D)  bond indenture. 
A)  term bond. 
B)  zero coupon bond. 
C)  debenture bond. 
D)  bond indenture.

Question 19

Under a defined benefit pension plan,

Accepted Answer

A)  actuarial computations are unnecessary. 
B)  accounting for annual pension expense is simple. 
C)  retirement payments are based on the amount accumulated in the pension fund. 
D)  the employer guarantees the employees certain benefits upon retirement. 
A)  actuarial computations are unnecessary. 
B)  accounting for annual pension expense is simple. 
C)  retirement payments are based on the amount accumulated in the pension fund. 
D)  the employer guarantees the employees certain benefits upon retirement.

Question 20

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. After seven years, what is the carrying value of the bonds?

Accepted Answer

A)  $98,350 
B)  $98,700 
C)  $99,300 
D)  $99,650 
A)  $98,350 
B)  $98,700 
C)  $99,300 
D)  $99,650

Exam 13: Long Term Liabilities

Bond issue costs have the effect of increasing a premium, or reducing a discount, on bonds issued.

Debenture bonds are

Bonds that mature in installments are called

Bond certificates are issued to creditors of the issuing corporation.

Accounting for capital leases can be thought of as similar to accounting for mortgage payments.

A company has $900,000 in bonds payable with an unamortized discount of $21,000. If two-thirds of the bonds are converted to common stock, the carrying value of the bonds payable will decrease by

The effective interest method of amortization of bond premiums and discounts is superior to the straight-line method because it results in a(n)

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

A capital lease represents both an asset and a liability.

Dividends on stock are tax-deductible to the issuing corporation, whereas interest on debt is not.

Entering into a lease is an example of off-balance-sheet financing.

Bonds that contain a provision that allows the issuing corporation to buy back the bonds prior to the maturity date are called

When bonds are converted to stock, any excess carrying value of the bonds over the par value of the stock is to be recorded as Additional Paid-in Capital.

The market interest rate is the rate that an issuer of bonds actually will have to bear and that an investor (purchaser) actually will earn over the bond's life.

The higher the debt to equity ratio, the greater the financial risk the company is taking.

When the present value of a bond issue is calculated, both the present value of a single sum table and the present value of an annuity table must be used.

An unsecured bond is the same as a

Under a defined benefit 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. After seven 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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