Question 1

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 2

Bond issue costs have the effect of

Accepted Answer

A) decreasing a bond discount. 
B) increasing a bond premium. 
C) decreasing the effective interest rate. 
D) decreasing a bond premium. 
A) decreasing a bond discount. 
B) increasing a bond premium. 
C) decreasing the effective interest rate. 
D) decreasing a bond premium.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

A company with income before income taxes of $194,000,and $20,000 in interest expense,has an interest coverage ratio of

Accepted Answer

A) 10.7 times. 
B) 8.7 times. 
C) 9.7 times. 
D) 1.1 times. 
A) 10.7 times. 
B) 8.7 times. 
C) 9.7 times. 
D) 1.1 times.

Question 5

A corporation's bondholders are the primary recipients of financial leverage.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Under a defined benefit pension plan,

Accepted Answer

A) the pension expense account must be determined by actuarial calculations. 
B) the employer guarantees the employee certain benefits upon retirement. 
C) the annual contribution is based on estimated future benefits. 
D) All of these choices. 
A) the pension expense account must be determined by actuarial calculations. 
B) the employer guarantees the employee certain benefits upon retirement. 
C) the annual contribution is based on estimated future benefits. 
D) All of these choices.

Question 8

The interest coverage ratio measures the degree of protection a company has from default on interest payments.

Accepted Answer

A) True 
 B)False

Question 9

Promises to pay employees pensions after they retire are difficult to identify and value and therefore need not be recognized in the financial statements until cash payment is made.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is not true about trading on the equity?

Accepted Answer

A) It can become a disadvantage to a corporation. 
B) It is another phrase for financial leverage. 
C) It will increase the number of shares of stock owned. 
D) It will increase the interest a corporation must pay. 
A) It can become a disadvantage to a corporation. 
B) It is another phrase for financial leverage. 
C) It will increase the number of shares of stock owned. 
D) It will increase the interest a corporation must pay.

Question 11

The amount of cash received on issuance of a 9 percent,$10,000 bond dated February 1 and issued June 1 at 102 1/2 is

Accepted Answer

A) $10,300. 
B) $11,100. 
C) $10,200. 
D) $10,550. 
A) $10,300. 
B) $11,100. 
C) $10,200. 
D) $10,550.

Question 12

Term 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 13

The present value of a bond is determined by subtracting the discounted value of the payment at maturity from the discounted value of a series of fixed interest payments.

Accepted Answer

A) True 
 B)False

Question 14

The carrying value of a bond issued at a premium is calculated at any given point in time by adding the balance of the unamortized premium to the bond's face value.

Accepted Answer

A) True 
 B)False

Question 15

Unamortized Bond Discount is a contra-liability account.

Accepted Answer

A) True 
 B)False

Question 16

A company has $450,000 in bonds payable with an unamortized discount of $10,500.If two-thirds of the bonds are converted to common stock,the carrying value of the bonds payable will decrease by

Accepted Answer

A) $146,500. 
B) $293,000. 
C) $307,000. 
D) $314,000. 
A) $146,500. 
B) $293,000. 
C) $307,000. 
D) $314,000.

Question 17

If Rex Corporation issued ten $1,000 bonds issued at 99.75 on the interest date,the entry to record this transaction is :

Accepted Answer

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

Question 18

A bond discount is a component of interest cost because it represents the amount in excess of the issue price that a corporation must pay on the maturity date.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

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 14: Long Term Liabilities

Managers need to understand how long-term liabilities are

Bond issue costs have the effect of

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

A company with income before income taxes of $194,000,and $20,000 in interest expense,has an interest coverage ratio of

A corporation's bondholders are the primary recipients of financial leverage.

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

Under a defined benefit pension plan,

The interest coverage ratio measures the degree of protection a company has from default on interest payments.

Promises to pay employees pensions after they retire are difficult to identify and value and therefore need not be recognized in the financial statements until cash payment is made.

Which of the following statements is not true about trading on the equity?

The amount of cash received on issuance of a 9 percent,$10,000 bond dated February 1 and issued June 1 at 102 1/2 is

Term bonds are

The present value of a bond is determined by subtracting the discounted value of the payment at maturity from the discounted value of a series of fixed interest payments.

The carrying value of a bond issued at a premium is calculated at any given point in time by adding the balance of the unamortized premium to the bond's face value.

Unamortized Bond Discount is a contra-liability account.

A company has $450,000 in bonds payable with an unamortized discount of $10,500.If two-thirds of the bonds are converted to common stock,the carrying value of the bonds payable will decrease by

If Rex Corporation issued ten $1,000 bonds issued at 99.75 on the interest date,the entry to record this transaction is :

A bond discount is a component of interest cost because it represents the amount in excess of the issue price that a corporation must pay on the maturity date.

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

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?

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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