Question 1

Issuing bonds between interest payment dates will have the effect of decreasing a bond issuance discount or increasing a bond issuance premium.

Accepted Answer

A) True 
 B)False

Question 2

On January 1,20x5,Ed Bradley Co.issued five-year term bonds with a face value of $700,000.Interest is payable annually on December 31.The bonds were issued for $727,300.The effective interest method of amortization is used.Ed Bradley reported Bond Interest Expense of $65,457 on its income statement for the year ended December 31,20x5.Calculate the effective interest rate for these bonds.

Accepted Answer

9 percent

Question 3

Bonds that contain a provision that allows the holders to exchange the bonds for other securities of the issuing corporation are called

Accepted Answer

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

Question 4

Notes payable

Accepted Answer

A) are promissory. 
B) involve debt to many creditors. 
C) are secured by real property. 
D) All of these choices. 
A) are promissory. 
B) involve debt to many creditors. 
C) are secured by real property. 
D) All of these choices.

Question 5

The amount of cash received on issuance of a 9 percent,$10,000 bond dated February 1 and issued June 1 at 96 is

Accepted Answer

A) $9,300. 
B) $9,975. 
C) $9,600. 
D) $9,900. 
A) $9,300. 
B) $9,975. 
C) $9,600. 
D) $9,900.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Baylor Enterprises has bonds outstanding with a face value of $200,000 and a carrying value of $206,000 on December 31,20x5.If the company calls in and retires these bonds on December 31,20x5,for $210,000,the entry to record the retirement will include a

Accepted Answer

A) debit to Bonds Payable for $206,000. 
B) credit to Cash for $206,000. 
C) debit to Loss on Retirement of Bonds for $6,000. 
D) debit to Loss on Retirement of Bonds for $4,000. 
A) debit to Bonds Payable for $206,000. 
B) credit to Cash for $206,000. 
C) debit to Loss on Retirement of Bonds for $6,000. 
D) debit to Loss on Retirement of Bonds for $4,000.

Question 8

Long-term notes and bonds have similar effects on the financial statements.

Accepted Answer

A) True 
 B)False

Question 9

Lassen Corporation issued ten-year term bonds on January 1,20x5,with a face value of $800,000.The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $690,960 to yield an effective annual rate of 8 percent.The effective interest method of amortization is to be used.The entry to be recorded on December 31,20x5,for the payment of interest (rounded to the nearest dollar)and the amortization of discount is:

Accepted Answer

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

Question 10

On January 2,20x5,McGowan Corporation issued 20-year bonds payable with a face value of $300,000 and a face interest rate of 8 percent.The bonds were issued to yield a market interest rate of 9 percent.Interest is payable annually on January 2.In calculating the present value of the bond issue of January 2,20x5,the

Accepted Answer

A) 9 percent rate will be used to calculate the present value of the face amount and the 8 percent rate will be used to calculate the present value of the periodic interest payments. 
B) 9 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. 
C) 8 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. 
D) 8 percent rate will be used to calculate the present value of the face amount and the 9 percent rate will be used to calculate the present value of the periodic interest payments. 
A) 9 percent rate will be used to calculate the present value of the face amount and the 8 percent rate will be used to calculate the present value of the periodic interest payments. 
B) 9 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. 
C) 8 percent rate will be used to calculate the present value of the face amount and the present value of the periodic interest payments. 
D) 8 percent rate will be used to calculate the present value of the face amount and the 9 percent rate will be used to calculate the present value of the periodic interest payments.

Question 11

Suffolk Corporation issued $92,000 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.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 12

The advantages of financial leverage accrue primarily to

Accepted Answer

A) management. 
B) stockholders. 
C) the government. 
D) creditors. 
A) management. 
B) stockholders. 
C) the government. 
D) creditors.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Under a capital lease,the lessee,not the lessor,should record depreciation.

Accepted Answer

A) True 
 B)False

Question 15

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 16

When bonds are converted to stock,no gain or loss is recognized.

Accepted Answer

A) True 
 B)False

Question 17

Comment on the change in both the carrying value and the balance of the Unamortized Bond Discount account over the life of a bond issue.

Accepted Answer

The carrying value starts out lower than

Question 18

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.What is the total interest cost of the bonds?

Accepted Answer

A) $240,000 
B) $244,000 
C) $236,000 
D) $235,000 
A) $240,000 
B) $244,000 
C) $236,000 
D) $235,000

Question 19

Bondholders share voting rights with stockholders.

Accepted Answer

A) True 
 B)False

Question 20

The interest coverage ratio equals

Accepted Answer

A) income before income taxes minus interest expense divided by income before income taxes. 
B) income before income taxes minus interest expense divided by interest expense. 
C) income before income taxes plus interest expense divided by interest expense. 
D) income before income taxes plus interest expense divided by total assets. 
A) income before income taxes minus interest expense divided by income before income taxes. 
B) income before income taxes minus interest expense divided by interest expense. 
C) income before income taxes plus interest expense divided by interest expense. 
D) income before income taxes plus interest expense divided by total assets.

Exam 14: Long Term Liabilities

Issuing bonds between interest payment dates will have the effect of decreasing a bond issuance discount or increasing a bond issuance premium.

Bonds that contain a provision that allows the holders to exchange the bonds for other securities of the issuing corporation are called

Notes payable

The amount of cash received on issuance of a 9 percent,$10,000 bond dated February 1 and issued June 1 at 96 is

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

Baylor Enterprises has bonds outstanding with a face value of $200,000 and a carrying value of $206,000 on December 31,20x5.If the company calls in and retires these bonds on December 31,20x5,for $210,000,the entry to record the retirement will include a

Long-term notes and bonds have similar effects on the financial statements.

Suffolk Corporation issued $92,000 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.The entry to record the bond interest expense on the next interest payment date is: .

The advantages of financial leverage accrue primarily to

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

Under a capital lease,the lessee,not the lessor,should record depreciation.

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

When bonds are converted to stock,no gain or loss is recognized.

Comment on the change in both the carrying value and the balance of the Unamortized Bond Discount account over the life of a bond issue.

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.What is the total interest cost of the bonds?

Bondholders share voting rights with stockholders.

The interest coverage ratio equals

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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