Question 1

A capital lease represents both an asset and a liability.

Accepted Answer

A) True 
 B)False

Question 2

The entry to record the issuance of bonds between interest payment dates will include a debit to Bond Interest Expense.

Accepted Answer

A) True 
 B)False

Question 3

When bonds are sold between interest dates,the interest collected when the bonds are sold is returned to investors on the next interest payment date.

Accepted Answer

A) True 
 B)False

Question 4

The distinction between current and long-term liabilities affects the evaluation of a company's solvency.

Accepted Answer

A) True 
 B)False

Question 5

Greco Co.issued ten-year term bonds on January 1,20x5,with a face value of $1,600,000.The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $1,381,920 to yield an effective annual rate of 8 percent.The effective interest method of amortization is to be used.The carrying value of the bonds payable on the December 31,20x5,balance sheet date should be

Accepted Answer

A) $1,392,824. 
B) $1,396,472. 
C) $1,396,764. 
D) $1,381,920. 
A) $1,392,824. 
B) $1,396,472. 
C) $1,396,764. 
D) $1,381,920.

Question 6

The convertibility feature of a bond can be exercised by the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 7

If a 20-year bond pays interest of 8 percent semiannually,the present value of the bond is calculated based upon (1)4 percent and 40 periods for the interest,and (2)8 percent and 20 periods for the face amount of the bond.

Accepted Answer

A) True 
 B)False

Question 8

Neville Co.issued 20-year term bonds at a discount in 20x5.Interest is payable semiannually.Which of the following statements is true,assuming that the effective interest method of amortization is used for the bond discount?

Accepted Answer

A) Interest expense decreases each six-month interest period. 
B) Interest expense as a percentage of the bond's book value changes from period to period. 
C) Interest expense increases each six-month interest period. 
D) Interest expense remains constant in amount for each interest period. 
A) Interest expense decreases each six-month interest period. 
B) Interest expense as a percentage of the bond's book value changes from period to period. 
C) Interest expense increases each six-month interest period. 
D) Interest expense remains constant in amount for each interest period.

Question 9

The debt to equity ratio is a measure of financial leverage.

Accepted Answer

A) True 
 B)False

Question 10

The amortization of a bond discount will result in reporting an amount of interest expense for an interest period that

Accepted Answer

A) exceeds the amount of cash to be paid for interest for the period. 
B) is less than the amount of cash to be paid for interest for the period. 
C) has no predictable relationship with the amount of cash to be paid for interest for the period. 
D) equals the amount of cash to be paid for interest for the period. 
A) exceeds the amount of cash to be paid for interest for the period. 
B) is less than the amount of cash to be paid for interest for the period. 
C) has no predictable relationship with the amount of cash to be paid for interest for the period. 
D) equals the amount of cash to be paid for interest for the period.

Question 11

The entry to record the issuance of bonds at a discount on an interest payment date should include a

Accepted Answer

A) debit to Cash for the face amount of the bonds. 
B) debit to Cash for the face amount of the bonds plus the amount of discount. 
C) debit to Cash for the face amount of the bonds minus the amount of discount. 
D) credit to Cash for the face amount of the bonds. 
A) debit to Cash for the face amount of the bonds. 
B) debit to Cash for the face amount of the bonds plus the amount of discount. 
C) debit to Cash for the face amount of the bonds minus the amount of discount. 
D) credit to Cash for the face amount of the bonds.

Question 12

Managers need to understand how long-term liabilities are

Accepted Answer

A) valued. 
B) classified. 
C) recognized. 
D) All of these choices. 
A) valued. 
B) classified. 
C) recognized. 
D) All of these choices.

Question 13

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 14

Lassen Corporation issued ten-year term bonds on January 1,20x5,with a face value of $800,000.The face interest rate is 8 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $690,960 to yield an effective annual rate of 10 percent.The effective interest method of amortization is to be used.The entry on June 30,20x5,to record the payment of interest and amortization of discount is:

Accepted Answer

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

Question 15

Financial leverage is also known as trading on the equity.

Accepted Answer

A) True 
 B)False

Question 16

Parson Company issues $500,000 of 30-year,8 percent bonds at 106.Interest is paid semiannually,and the effective interest method is used for amortization.Assume that the market interest rate for similar investments is 7 percent and that the bonds are issued on an interest date.
a.What amount was received for the bonds?
b.How much interest is paid each interest period?
c.How much bond interest expense is recorded on the first interest date (after the issue date)?
d.What is the carrying value of the bonds after the first interest date (after the issue date)?

Accepted Answer

a.$530,000 ($500,000 × 1.06)
b

Question 17

Which of the following qualifies as a capital lease?

Accepted Answer

A) Four-year cancelable lease on a company vehicle. 
B) One-year lease on a computer with an option to renew for one more year. 
C) Five-year lease on a machine that has a five-year useful life. 
D) Monthly lease on office space that can be canceled with 30 days' notice. 
A) Four-year cancelable lease on a company vehicle. 
B) One-year lease on a computer with an option to renew for one more year. 
C) Five-year lease on a machine that has a five-year useful life. 
D) Monthly lease on office space that can be canceled with 30 days' notice.

Question 18

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 19

When bonds are converted to common stock,what is the basis for recording (valuing)the stock issued?

Accepted Answer

The value assigned to the stoc

Question 20

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

Exam 11: Long-Term Liabilities

A capital lease represents both an asset and a liability.

The entry to record the issuance of bonds between interest payment dates will include a debit to Bond Interest Expense.

When bonds are sold between interest dates,the interest collected when the bonds are sold is returned to investors on the next interest payment date.

The distinction between current and long-term liabilities affects the evaluation of a company's solvency.

The convertibility feature of a bond can be exercised by the issuing corporation.

If a 20-year bond pays interest of 8 percent semiannually,the present value of the bond is calculated based upon (1)4 percent and 40 periods for the interest,and (2)8 percent and 20 periods for the face amount of the bond.

Neville Co.issued 20-year term bonds at a discount in 20x5.Interest is payable semiannually.Which of the following statements is true,assuming that the effective interest method of amortization is used for the bond discount?

The debt to equity ratio is a measure of financial leverage.

The amortization of a bond discount will result in reporting an amount of interest expense for an interest period that

The entry to record the issuance of bonds at a discount on an interest payment date should include a

Managers need to understand how long-term liabilities are

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.

Financial leverage is also known as trading on the equity.

Which of the following qualifies as a capital lease?

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

When bonds are converted to common stock,what is the basis for recording (valuing)the stock issued?

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

Uses of Accounting Information and the Financial Statements

Measurement Concepts: Recording Business Transactions

Measuring Business Income: Adjusting the Accounts

Foundations of Financial Reporting and the Classified Balance Sheet

Accounting for Merchandising Operations

Inventories

Cash and Internal Control

Receivables

Long-Term Assets

Current Liabilities and Fair Value Accounting

Stockholders Equity

The Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting and Cost Concepts

Costing Systems: Job Order Costing

Costing Systems: Process Costing

Value-Based Systems: Activity-Based Costing and Lean Accounting

Cost-Volume-Profit Analysis

The Budgeting Process

Flexible Budgets and Performance Analysis

Standard Costing and Variance Analysis

Short-Run Decision Analysis

Capital Investment Analysis

Pricing Decisions, including Target Costing and Transfer Pricing

Quality Management and Measurement

Accounting for Unincorporated Businesses

Accounting for Investments

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