Question 1

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:

Accepted Answer

A)  equal the interest rate on the note times the carrying amount of the note at the beginning of the period. 
B)  remain constant over the term of the note. 
C)  equal the interest rate on the note times the face amount. 
D)  increase over the term of the note. 
A)  equal the interest rate on the note times the carrying amount of the note at the beginning of the period. 
B)  remain constant over the term of the note. 
C)  equal the interest rate on the note times the face amount. 
D)  increase over the term of the note.

Question 2

On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:

Accepted Answer

A)  $26,000 
B)  $27,635 
C)  $21,642 
D)  $28,402 
A)  $26,000 
B)  $27,635 
C)  $21,642 
D)  $28,402

Question 3

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

Accepted Answer

A) True 
 B)False

Question 4

On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually, were sold for $2,125,000. Present entries to record the following transactions for the current fiscal year:

Accepted Answer

The answer of On the first day of the current...

Question 5

One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.

Accepted Answer

A) True 
 B)False

Question 6

Bondholders are creditors of the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 7

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

Accepted Answer

A)  investments 
B)  long-term liabilities 
C)  current assets 
D)  intangible assets 
A)  investments 
B)  long-term liabilities 
C)  current assets 
D)  intangible assets

Question 8

The market interest rate related to a bond is also called the

Accepted Answer

A)  stated interest rate 
B)  effective interest rate 
C)  contract interest rate 
D)  straight-line rate 
A)  stated interest rate 
B)  effective interest rate 
C)  contract interest rate 
D)  straight-line rate

Question 9

Sinking Fund Cash would be classified on the balance sheet as

Accepted Answer

A)  a current asset 
B)  a fixed asset 
C)  an intangible asset 
D)  an investment 
A)  a current asset 
B)  a fixed asset 
C)  an intangible asset 
D)  an investment

Question 10

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. The journal entry to record the amoritization of the bond premium (by straight-line method) for the year by Orange Inc. includes a credit to:

Accepted Answer

A)  Interest Revenue for $5,000 
B)  Interest Revenue for $2,500 
C)  Investment in Lisbon Co. Bonds $5,000 
D)  Investment in Lisbon Co. Bonds $2,500 
A)  Interest Revenue for $5,000 
B)  Interest Revenue for $2,500 
C)  Investment in Lisbon Co. Bonds $5,000 
D)  Investment in Lisbon Co. Bonds $2,500

Question 11

If $2,000,000 of 10% bonds are issued at 95, the amount of cash received from the sale is

Accepted Answer

A)  $2,200,000 
B)  $2,000,000 
C)  $2,100,000 
D)  $1,900,000 
A)  $2,200,000 
B)  $2,000,000 
C)  $2,100,000 
D)  $1,900,000

Question 12

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

Accepted Answer

A) True 
 B)False

Question 13

The adjusting entry to record the amortization of a discount on bonds payable is

Accepted Answer

A)  debit Discount on Bonds Payable, credit Interest Expense 
B)  debit Interest Expense, credit Discount on Bonds Payable 
C)  debit Interest Expense, credit Cash 
D)  debit Bonds Payable, credit Interest Expense 
A)  debit Discount on Bonds Payable, credit Interest Expense 
B)  debit Interest Expense, credit Discount on Bonds Payable 
C)  debit Interest Expense, credit Cash 
D)  debit Bonds Payable, credit Interest Expense

Question 14

Present entries to record the selected transactions described below:

Accepted Answer

The answer of Present entries to record the selected transactions...

Question 15

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

Accepted Answer

A) True 
 B)False

Question 16

When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be written off.

Accepted Answer

A) True 
 B)False

Question 17

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Accepted Answer

A)  debit Bonds Payable, credit Cash 
B)  debit Cash and Discount on Bonds Payable, credit Bonds Payable 
C)  debit Cash, credit Premium on Bonds Payable and Bonds Payable 
D)  debit Cash, credit Bonds Payable 
A)  debit Bonds Payable, credit Cash 
B)  debit Cash and Discount on Bonds Payable, credit Bonds Payable 
C)  debit Cash, credit Premium on Bonds Payable and Bonds Payable 
D)  debit Cash, credit Bonds Payable

Question 18

Two companies are financed as follows:
   Income tax is estimated at 40% of income.
Determine for each company the earnings per share of common stock, assuming that the income before bond interest and income taxes is $2,280,000 each.

Accepted Answer

The answer of Two companies are financed as follows:
 ...

Question 19

The amortization of a premium on bonds payable decreases bond interest expense.

Accepted Answer

A) True 
 B)False

Question 20

Sinking Fund Investments would be classified on the balance sheet as

Accepted Answer

A)  a current asset 
B)  a fixed asset 
C)  an investment 
D)  a deferred debit 
A)  a current asset 
B)  a fixed asset 
C)  an investment 
D)  a deferred debit

Exam 12: Long-Term Liabilities: Bonds and Notes

If a company borrows money from a bank as an installment note, the interest portion of each annual payment will:

On January 1, 2011, Zero Company obtained a $52,000, four-year, 6.5% installment note from Regional Bank. The note requires annual payments of $15,179, beginning on December 31, 2011. The December 31, 2012 carrying amount in the amortization table for this installment note will be equal to:

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

On the first day of the current fiscal year, $2,000,000 of 10-year, 7% bonds, with interest payable annually, were sold for $2,125,000. Present entries to record the following transactions for the current fiscal year:

One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.

Bondholders are creditors of the issuing corporation.

The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled

The market interest rate related to a bond is also called the

Sinking Fund Cash would be classified on the balance sheet as

If $2,000,000 of 10% bonds are issued at 95, the amount of cash received from the sale is

When the market rate of interest is less than the contract rate for a bond, the bond will sell for a premium.

The adjusting entry to record the amortization of a discount on bonds payable is

Present entries to record the selected transactions described below:

There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.

When a portion of a bond issue is redeemed, a related proportion of the unamortized premium or discount must be written off.

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Two companies are financed as follows: Income tax is estimated at 40% of income. Determine for each company the earnings per share of common stock, assuming that the income before bond interest and income taxes is $2,280,000 each.

The amortization of a premium on bonds payable decreases bond interest expense.

Sinking Fund Investments would be classified on the balance sheet as

Introduction to Accounting and Business

Analyzing Transactions

The Adjusting Process

Completing the Accounting Cycle

Accounting for Merchandising Businesses

Inventories

Sarbanes-Oxley, Internal Control, and Cash

Receivables

Fixed Assets and Intangible Assets

Current Liabilities and Payroll

Corporations: Organization, Stock Transactions, and Dividends

Investments and Fair Value Accounting

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting Concepts and Principles

Job Order Costing

Process Cost Systems

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing for Management Analysis

Budgeting

Performance Evaluation Using Variances From Standard Costs

Performance Evaluation for Decentralized Operations

Differential Analysis and Product Pricing

Capital Investment Analysis

Cost Allocation and Activity-Based Costing

Cost Management for Just-In-Time Environments

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