Question 1

When the board of directors decides to issue bonds,it is necessary to make an entry to record the SEC's authorization of the bond issue.

Accepted Answer

A) True 
 B)False

Question 2

When bonds have been issued at a discount the periodic amortization of the discount will

Accepted Answer

A) increase the carrying value of the bonds. 
B) have no effect on the carrying value of the bonds. 
C) decrease the carrying value of the bonds. 
D) cause the carrying value always to equal the face value of the bonds. 
A) increase the carrying value of the bonds. 
B) have no effect on the carrying value of the bonds. 
C) decrease the carrying value of the bonds. 
D) cause the carrying value always to equal the face value of the bonds.

Question 3

The most common type of long-term debt is a

Accepted Answer

A) note payable. 
B) bond payable. 
C) mortgage payable. 
D) pension. 
A) note payable. 
B) bond payable. 
C) mortgage payable. 
D) pension.

Question 4

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 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 discount.

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

If bonds are issued at a premium,the face interest rate is

Accepted Answer

A) lower than the market rate of interest. 
B) higher than the market rate of interest. 
C) too low to attract investors. 
D) adjusted to a higher effective rate of interest. 
A) lower than the market rate of interest. 
B) higher than the market rate of interest. 
C) too low to attract investors. 
D) adjusted to a higher effective rate of interest.

Question 8

When earnings from the investment exceed the interest payments on an investment,negative financial leverage has occurred.

Accepted Answer

A) True 
 B)False

Question 9

When bonds are sold between the interest payment dates,the issuing corporation pays to investors the interest that has accrued since the last interest payment date.

Accepted Answer

A) True 
 B)False

Question 10

If a 20-year bond pays interest of 8 percent semiannually,the present value of the bond is calculated based upon 4 percent and 20 periods.

Accepted Answer

A) True 
 B)False

Question 11

Bond certificates are issued to creditors of the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 12

Financial leverage is also known as trading on the equity.

Accepted Answer

A) True 
 B)False

Question 13

As the interest coverage ratio declines,the risk for creditors also declines.

Accepted Answer

A) True 
 B)False

Question 14

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.How much bond interest expense (rounded to the nearest dollar)should be reported on the income statement for the year ended December 31,20x5?

Accepted Answer

A) $96,000 
B) $110,844 
C) $110,262 
D) $110,552 
A) $96,000 
B) $110,844 
C) $110,262 
D) $110,552

Question 15

A capital lease is a lease of property,plant,or equipment that is in effect an installment purchase.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Leases of short-term assets are operating leases,and leases of long-term assets are capital leases.

Accepted Answer

A) True 
 B)False

Question 18

When there are material differences between the results of using the straight-line method and using the effective interest method of amortization,the effective interest method should be used.

Accepted Answer

A) True 
 B)False

Question 19

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,and sells them on the same date for their face value.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the issuance includes

Accepted Answer

A) a credit to Cash. 
B) a credit to Bonds Payable. 
C) a credit to Interest Expense. 
D) All of these choices. 
A) a credit to Cash. 
B) a credit to Bonds Payable. 
C) a credit to Interest Expense. 
D) All of these choices.

Question 20

Discuss and define financial risk,financial leverage,and negative financial leverage.

Accepted Answer

Financial riskoccurs when a company has

Exam 14: Long Term Liabilities

When the board of directors decides to issue bonds,it is necessary to make an entry to record the SEC's authorization of the bond issue.

When bonds have been issued at a discount the periodic amortization of the discount will

The most common type of long-term debt is a

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.

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 discount.

A corporation issues bond certificates to

If bonds are issued at a premium,the face interest rate is

When earnings from the investment exceed the interest payments on an investment,negative financial leverage has occurred.

When bonds are sold between the interest payment dates,the issuing corporation pays to investors the interest that has accrued since the last interest payment date.

If a 20-year bond pays interest of 8 percent semiannually,the present value of the bond is calculated based upon 4 percent and 20 periods.

Bond certificates are issued to creditors of the issuing corporation.

Financial leverage is also known as trading on the equity.

As the interest coverage ratio declines,the risk for creditors also declines.

A capital lease is a lease of property,plant,or equipment that is in effect an installment purchase.

Other postretirement benefits should be expensed

Leases of short-term assets are operating leases,and leases of long-term assets are capital leases.

When there are material differences between the results of using the straight-line method and using the effective interest method of amortization,the effective interest method should be used.

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,and sells them on the same date for their face value.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the issuance includes

Discuss and define financial risk,financial leverage,and negative financial leverage.

Accounting Principles and the Financial Statements

Analyzing and Recording Business Transactions

Adjusting the Accounts

Completing the Accounting Cycle

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

Accounting for Partnerships

Accounting for Corporations

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 and Capital Budgeting

Filters