Question 1

The call price of bonds is usually above face value.

Accepted Answer

A) True 
 B)False

Question 2

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 minus the amount of discount that was amortized during the period.

Accepted Answer

A) True 
 B)False

Question 3

On January 2,20x5,Fresh Inc.issued 20-year bonds payable with a face value of $1,000,000 and a face interest rate of 10 percent.The bonds were issued to yield a market interest rate of 9 percent.Interest is payable semi-annually on January 1 and July 1.In calculating the present value of the bond issue of January 2,20x5,the factor used to calculate the present value of the $1,000,000 is

Accepted Answer

A) 10%,20 periods 
B) 5%,40 periods 
C) 9%,20 periods 
D) 4.5%,40 periods 
A) 10%,20 periods 
B) 5%,40 periods 
C) 9%,20 periods 
D) 4.5%,40 periods

Question 4

Financial leverage refers to the issuance of stock to raise cash.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not an advantage of issuing long-term debt?

Accepted Answer

A) The stockholders do not relinquish any control. 
B) The interest is tax-deductible. 
C) The risk of becoming bankrupt is reduced. 
D) Increased earnings accrue to the stockholders. 
A) The stockholders do not relinquish any control. 
B) The interest is tax-deductible. 
C) The risk of becoming bankrupt is reduced. 
D) Increased earnings accrue to the stockholders.

Question 6

An $80,000 bond issue priced at 97 is sold for $77,600.

Accepted Answer

A) True 
 B)False

Question 7

Under an operating lease,the lessee records which of the following?

Accepted Answer

A) Rent expense 
B) Capital lease obligations 
C) Depreciation on the leased asset 
D) Capital lease assets 
A) Rent expense 
B) Capital lease obligations 
C) Depreciation on the leased asset 
D) Capital lease assets

Question 8

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,when the market rate of interest is 8 percent.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 debit to Bonds Payable. 
C) a debit to Unamortized Bond Discount. 
D) All of these choices. 
A) a credit to Cash. 
B) a debit to Bonds Payable. 
C) a debit to Unamortized Bond Discount. 
D) All of these choices.

Question 9

The carrying value of a bond is also referred to as its present value.

Accepted Answer

A) True 
 B)False

Question 10

When bonds are issued at a discount,the total interest cost of the bonds over the life of the bonds is equal to the amount of

Accepted Answer

A) interest payments made over the life of the bonds minus the amount of issuance discount. 
B) issuance discount. 
C) interest payments made over the life of the bonds plus the amount of issuance discount. 
D) interest payments made over the life of the bonds. 
A) interest payments made over the life of the bonds minus the amount of issuance discount. 
B) issuance discount. 
C) interest payments made over the life of the bonds plus the amount of issuance discount. 
D) interest payments made over the life of the bonds.

Question 11

Mortgages payable

Accepted Answer

A) are usually paid in monthly installments. 
B) have payments that include both interest on the debt and reduction in the debt. 
C) are secured by real property. 
D) All of these choices. 
A) are usually paid in monthly installments. 
B) have payments that include both interest on the debt and reduction in the debt. 
C) are secured by real property. 
D) All of these choices.

Question 12

Serial bonds are bonds that

Accepted Answer

A) mature on several different dates. 
B) all have the same maturity date. 
C) must be secured. 
D) are also called term bonds. 
A) mature on several different dates. 
B) all have the same maturity date. 
C) must be secured. 
D) are also called term bonds.

Question 13

Knollwood Corporation issued $286,000 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.The entry to record the bond interest expense on the next interest payment date is:

Accepted Answer

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

Question 14

In 20x5,Horwitz Corporation issued ten-year,9 percent bonds when the market interest rate was 11 percent.Interest is payable annually.During 20x8,the market rate of interest for similar bonds was 12 percent.Using the effective interest method of amortization,what interest rate will be used to calculate interest expense for 20x8?

Accepted Answer

A) 12 percent 
B) 9 percent 
C) 6 percent 
D) 11 percent 
A) 12 percent 
B) 9 percent 
C) 6 percent 
D) 11 percent

Question 15

Pelican Company issued $200,000 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) $196,700 
B) $197,400 
C) $198,600 
D) $199,300 
A) $196,700 
B) $197,400 
C) $198,600 
D) $199,300

Question 16

Which of the following is not needed in calculating the value of a bond?

Accepted Answer

A) Face interest rate 
B) Market interest rate 
C) Dollar amount periodic interest payments 
D) Future value of face (maturity)amount 
A) Face interest rate 
B) Market interest rate 
C) Dollar amount periodic interest payments 
D) Future value of face (maturity)amount

Question 17

When bonds are called for retirement,any excess of the bonds' call price over the bonds' carrying value is reported as a gain on the income statement.

Accepted Answer

A) True 
 B)False

Question 18

When a bond issue is converted into common stock,total contributed capital is increased by the fair market value of the bonds converted.

Accepted Answer

A) True 
 B)False

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

Accounting for a defined contribution pension plan is simpler than accounting for a defined benefit plan.

Accepted Answer

A) True 
 B)False

Exam 14: Long Term Liabilities

The call price of bonds is usually above face value.

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 minus the amount of discount that was amortized during the period.

Financial leverage refers to the issuance of stock to raise cash.

Which of the following is not an advantage of issuing long-term debt?

An $80,000 bond issue priced at 97 is sold for $77,600.

Under an operating lease,the lessee records which of the following?

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,when the market rate of interest is 8 percent.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

The carrying value of a bond is also referred to as its present value.

When bonds are issued at a discount,the total interest cost of the bonds over the life of the bonds is equal to the amount of

Mortgages payable

Serial bonds are bonds that

Knollwood Corporation issued $286,000 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.The entry to record the bond interest expense on the next interest payment date is:

Pelican Company issued $200,000 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?

Which of the following is not needed in calculating the value of a bond?

When bonds are called for retirement,any excess of the bonds' call price over the bonds' carrying value is reported as a gain on the income statement.

When a bond issue is converted into common stock,total contributed capital is increased by the fair market value of the bonds converted.

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

Accounting for a defined contribution pension plan is simpler than accounting for a defined benefit plan.

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

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