Question 1

How should bond issue costs be accounted for on the books of the issuing corporation?

Accepted Answer

Bond issue costs include the cost of leg

Question 2

What is the interest expense on the bonds in 2017?

Accepted Answer

A) $800,000. 
B) $680,759. 
C) $342,971. 
D) $119,241. 
A) $800,000. 
B) $680,759. 
C) $342,971. 
D) $119,241.

Question 3

Bonds are issued on June 1 that have interest payment dates of April 1 and October 1.Bond interest expense for the year ended December 31,2016,is for a period of:

Accepted Answer

A) Three months. 
B) Four months. 
C) Six months. 
D) Seven months. 
A) Three months. 
B) Four months. 
C) Six months. 
D) Seven months.

Question 4

Assuming that Auerbach issued the bonds for $255,369,000,what interest expense would it recognize in its 2016 income statement?

Accepted Answer

A) $0. 
B) $3,830,535. 
C) $5,107,380. 
D) $7,661,070. 
A) $0. 
B) $3,830,535. 
C) $5,107,380. 
D) $7,661,070.

Question 5

The rate of return on assets indicates:

Accepted Answer

A) The margin of safety provided to creditors. 
B) The extent of "trading on the equity" or financial leverage. 
C) Profitability without regard to how resources are financed . 
D) The effectiveness of employing resources provided by owners. 
A) The margin of safety provided to creditors. 
B) The extent of "trading on the equity" or financial leverage. 
C) Profitability without regard to how resources are financed . 
D) The effectiveness of employing resources provided by owners.

Question 6

When bonds are sold at a premium and the effective interest method is used,at each interest payment date,the interest expense:

Accepted Answer

A) Remains constant. 
B) Is equal to the change in book value. 
C) Increases. 
D) Decreases. 
A) Remains constant. 
B) Is equal to the change in book value. 
C) Increases. 
D) Decreases.

Question 7

Required: How much interest will Morton Sales Co.pay on these bonds in 2016?

Accepted Answer

None.Zero-coupon bon

Question 8

A zero-coupon bond pays no interest.Explain.

Accepted Answer

In a strict sense,zero-coupon bonds do n

Question 9

An implicit or imputed rate of interest must be used when long-term notes are issued at a stated rate of interest that is materially different from the market rate of interest.

Accepted Answer

A) True 
 B)False

Question 10

The rate of interest that actually is incurred on a bond payable is called the:

Accepted Answer

A) Face rate. 
B) Contract rate. 
C) Effective rate. 
D) Stated rate. 
A) Face rate. 
B) Contract rate. 
C) Effective rate. 
D) Stated rate.

Question 11

How much cash interest does Auerbach pay on March 31,2017?

Accepted Answer

A) $ 6.0 million 
B) $12.0 million 
C) $ 9.0 million 
D) $18.0 million 
A) $ 6.0 million 
B) $12.0 million 
C) $ 9.0 million 
D) $18.0 million

Question 12

On January 1,2016,an investor paid $291,000 for bonds with a face amount of $300,000.The contract rate of interest is 8% while the current market rate of interest is 10%.Using the effective interest method,how much interest income is recognized by the investor in 2017 (assume annual interest payments and amortization)?

Accepted Answer

A) $23,280. 
B) $25,140. 
C) $29,100. 
D) $29,610. 
A) $23,280. 
B) $25,140. 
C) $29,100. 
D) $29,610.

Question 13

When an equipment dealer receives a long-term note in exchange for equipment,and the stated rate of interest is indicative of the market rate of interest at the time of the transaction,the present value of the future cash flows received on the notes:

Accepted Answer

A) Is treated as a current liability at the exchange date. 
B) Is recorded as interest revenue at the exchange date. 
C) Is recorded as interest receivable at the exchange date. 
D) Is credited to sales revenue at the exchange date. 
A) Is treated as a current liability at the exchange date. 
B) Is recorded as interest revenue at the exchange date. 
C) Is recorded as interest receivable at the exchange date. 
D) Is credited to sales revenue at the exchange date.

Question 14

AMC issues a note with no stated interest rate in exchange for a machine.In accounting for the transaction:

Accepted Answer

A) The machine should be depreciated over the note's term to maturity. 
B) If fair values of the note and machine are unavailable,the note should be recorded at its present value,discounted at the market rate of interest. 
C) Both the note and machine are recorded at the face amount of the note or the fair value of the machine,whichever is more clearly determinable. 
D) The note is recorded at its face amount unless the fair value of the machine is readily available. 
A) The machine should be depreciated over the note's term to maturity. 
B) If fair values of the note and machine are unavailable,the note should be recorded at its present value,discounted at the market rate of interest. 
C) Both the note and machine are recorded at the face amount of the note or the fair value of the machine,whichever is more clearly determinable. 
D) The note is recorded at its face amount unless the fair value of the machine is readily available.

Question 15

Bond X and bond Y both are issued by the same company.Each of the bonds has a maturity value of $100,000 and each pays interest at 8%.The current market rate of interest is 8% for each.Bond X matures in 7 years while bond Y matures in 10 years.Which of the following is correct?

Accepted Answer

A) Both bonds sell for the same amount. 
B) Both bonds sell for more than $100,000. 
C) Bond X sells for more than bond Y. 
D) Bond Y sells for more than bond X. 
A) Both bonds sell for the same amount. 
B) Both bonds sell for more than $100,000. 
C) Bond X sells for more than bond Y. 
D) Bond Y sells for more than bond X.

Question 16

Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period.

Accepted Answer

A) True 
 B)False

Question 17

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

Accepted Answer

The answer of Listed below are 5 terms followed by...

Question 18

How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to accounting for convertible debt?

Accepted Answer

Under IFRS,convertible debt is

Question 19

On January 1,2011,F Corp.issued 2,000 of its 10%,$1,000 bonds for $2,080,000.These bonds were to mature on January 1,2021,but were callable at 101 any time after December 31,2014.Interest was payable semiannually on July 1 and January 1.On July 1,2016,F called all of the bonds and retired them.The bond premium was amortized on a straight-line basis.Before income taxes,F Corp.'s gain or loss in 2016 on this early extinguishment of debt was:

Accepted Answer

A) $16,000 gain. 
B) $20,000 loss. 
C) $24,000 gain. 
D) $60,000 gain. 
A) $16,000 gain. 
B) $20,000 loss. 
C) $24,000 gain. 
D) $60,000 gain.

Question 20

What would be the total interest expense recognized for the bond issue over its full term?

Accepted Answer

A) $ 6,512,253. 
B) $ 8,000,000. 
C) $ 9,487,747. 
D) $11,487,747. 
A) $ 6,512,253. 
B) $ 8,000,000. 
C) $ 9,487,747. 
D) $11,487,747.

How should bond issue costs be accounted for on the books of the issuing corporation?

What is the interest expense on the bonds in 2017?

Bonds are issued on June 1 that have interest payment dates of April 1 and October 1.Bond interest expense for the year ended December 31,2016,is for a period of:

Assuming that Auerbach issued the bonds for $255,369,000,what interest expense would it recognize in its 2016 income statement?

The rate of return on assets indicates:

When bonds are sold at a premium and the effective interest method is used,at each interest payment date,the interest expense:

Required: How much interest will Morton Sales Co.pay on these bonds in 2016?

A zero-coupon bond pays no interest.Explain.

An implicit or imputed rate of interest must be used when long-term notes are issued at a stated rate of interest that is materially different from the market rate of interest.

The rate of interest that actually is incurred on a bond payable is called the:

How much cash interest does Auerbach pay on March 31,2017?

When an equipment dealer receives a long-term note in exchange for equipment,and the stated rate of interest is indicative of the market rate of interest at the time of the transaction,the present value of the future cash flows received on the notes:

AMC issues a note with no stated interest rate in exchange for a machine.In accounting for the transaction:

Bond X and bond Y both are issued by the same company.Each of the bonds has a maturity value of $100,000 and each pays interest at 8%.The current market rate of interest is 8% for each.Bond X matures in 7 years while bond Y matures in 10 years.Which of the following is correct?

Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period.

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to accounting for convertible debt?

What would be the total interest expense recognized for the bond issue over its full term?

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, comprehensive Income, and the Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, plant, and Equipment and Intangible Assets: Utilization and Impairment

Investments

Current Liabilities and Contingencies

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes

The Statement of Cash Flows

Filters

Exam 14: Bonds and Long-Term Notes

How should bond issue costs be accounted for on the books of the issuing corporation?

What is the interest expense on the bonds in 2017?

Bonds are issued on June 1 that have interest payment dates of April 1 and October 1.Bond interest expense for the year ended December 31,2016,is for a period of:

Assuming that Auerbach issued the bonds for $255,369,000,what interest expense would it recognize in its 2016 income statement?

The rate of return on assets indicates:

When bonds are sold at a premium and the effective interest method is used,at each interest payment date,the interest expense:

Required: How much interest will Morton Sales Co.pay on these bonds in 2016?

A zero-coupon bond pays no interest.Explain.

An implicit or imputed rate of interest must be used when long-term notes are issued at a stated rate of interest that is materially different from the market rate of interest.

The rate of interest that actually is incurred on a bond payable is called the:

How much cash interest does Auerbach pay on March 31,2017?

When an equipment dealer receives a long-term note in exchange for equipment,and the stated rate of interest is indicative of the market rate of interest at the time of the transaction,the present value of the future cash flows received on the notes:

AMC issues a note with no stated interest rate in exchange for a machine.In accounting for the transaction:

Bond X and bond Y both are issued by the same company.Each of the bonds has a maturity value of $100,000 and each pays interest at 8%.The current market rate of interest is 8% for each.Bond X matures in 7 years while bond Y matures in 10 years.Which of the following is correct?

Periodic interest expense is the stated interest rate times the amount of debt outstanding during the period.

Listed below are 5 terms followed by a list of phrases that describe or characterize each of the terms.Match each phrase with the number for the most correct term.

How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to accounting for convertible debt?

What would be the total interest expense recognized for the bond issue over its full term?

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, comprehensive Income, and the Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, plant, and Equipment and Intangible Assets: Utilization and Impairment

Investments

Current Liabilities and Contingencies

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes

The Statement of Cash Flows

Filters