Question 1

What is the total cash (including interest) paid for the building purchased by Able?

Accepted Answer

A)  $800,000. 
B)  $836,000. 
C)  $854,000. 
D)  $816,000. 
A)  $800,000. 
B)  $836,000. 
C)  $854,000. 
D)  $816,000. C

Question 2

Deferred income taxes eventually come due.

Accepted Answer

A) True 
 B)False  True

Question 3

Webster's entry at June 30, 2012, to record the first semiannual payment of interest and amortization of discount on the bonds includes a:

Accepted Answer

A)  Debit to Bond Interest Expense of $30,000. 
B)  Credit to Cash of $33,000. 
C)  Debit to Discount on Bonds Payable of $3,000. 
D)  Debit to Bond Interest Expense of $33,000. 
A)  Debit to Bond Interest Expense of $30,000. 
B)  Credit to Cash of $33,000. 
C)  Debit to Discount on Bonds Payable of $3,000. 
D)  Debit to Bond Interest Expense of $33,000. D

Question 4

Bonds issued at par - basic concepts
On March 1, Year 1, Hubbard Co. issued at a price of 100 $20 million of 8%, 25-year bonds payable. Interest is payable semiannually each March 1 and September 1.
(a) What is the amount of cash paid to bondholders for interest during Year 1?
$_______________
(b) Give the adjusting entry necessary at December 31, year 1 (if any), regarding this bond issue.
(c) Interest expense on this bond issue reported in Hubbard's Year 1 income statement is:
$_______________
(d) With respect to this bond issue, Hubbard's balance sheet at December 31, Year 1, includes bonds payable of $_______________ and interest payable of $_______________. (indicate $0 or "none" if the item is not reported.)
(e) Give the journal entry made by Hubbard on March 1, Year 2, to record the semiannual payment of interest to bondholders.

Accepted Answer

(a) $800,000 ($20,000,000 x 8%

Question 5

In Year 2, Greenway's income statement will report interest expense arising from this bond issue of:

Accepted Answer

A)  $1,000,000. 
B)  $2,000,000. 
C)  $500,000. 
D)  $1,500,000. 
A)  $1,000,000. 
B)  $2,000,000. 
C)  $500,000. 
D)  $1,500,000.

Question 6

A commitment, such as a contract to pay a baseball player $5,000,000 a year for five years, should be listed as a long-term liability.

Accepted Answer

A) True 
 B)False

Question 7

Choose the statement that correctly summarizes the tax advantage of raising money by issuing bonds instead of common stock:

Accepted Answer

A)  The amount paid by the corporation to redeem bonds at maturity date is deductible in computing income subject to corporate income tax. 
B)  Interest payments are deductible in determining income subject to corporate income tax; dividends are not deductible. 
C)  A corporation must pay tax on the sales price of stock issued, but is not taxed on the amount received when bonds are issued. 
D)  Both interest and dividends paid are deductible in computing taxable income, but since interest must be paid annually, the corporation usually gets a larger tax deduction over the life of the bonds payable. 
A)  The amount paid by the corporation to redeem bonds at maturity date is deductible in computing income subject to corporate income tax. 
B)  Interest payments are deductible in determining income subject to corporate income tax; dividends are not deductible. 
C)  A corporation must pay tax on the sales price of stock issued, but is not taxed on the amount received when bonds are issued. 
D)  Both interest and dividends paid are deductible in computing taxable income, but since interest must be paid annually, the corporation usually gets a larger tax deduction over the life of the bonds payable.

Question 8

The carrying value of this liability in Webster Company's December 31, 2012, balance sheet is:

Accepted Answer

A)  $1,000,000. 
B)  $970,000. 
C)  $976,000. 
D)  $967,000. 
A)  $1,000,000. 
B)  $970,000. 
C)  $976,000. 
D)  $967,000.

Question 9

On November 1 of the current year, Garcia Company borrowed $50,000 by issuing a 9%, six-month note payable, all due at maturity date. Interest expense on this note to be recognized during the current year amounts to:

Accepted Answer

A)  $500. 
B)  $750. 
C)  $1,500. 
D)  $4,500. 
A)  $500. 
B)  $750. 
C)  $1,500. 
D)  $4,500.

Question 10

The quick ratio is a more stringent measure of solvency than the current ratio.

Accepted Answer

A) True 
 B)False

Question 11

The amortization of discount on bonds payable reduces the amount of interest expense recognized during the period.

Accepted Answer

A) True 
 B)False

Question 12

Identify all correct statements concerning payrolls and related payroll costs:

Accepted Answer

A)  Both employers and employees pay Social Security and Medicare taxes. 
B)  Workers' compensation premiums are withheld from employees' wages. 
C)  An employer's total payroll costs usually exceed total wages expense by about 7 1/2%. 
D)  Under current law, employers are required to pay Social Security taxes on employees' earnings, but are not required to pay for health insurance. 
A)  Both employers and employees pay Social Security and Medicare taxes. 
B)  Workers' compensation premiums are withheld from employees' wages. 
C)  An employer's total payroll costs usually exceed total wages expense by about 7 1/2%. 
D)  Under current law, employers are required to pay Social Security taxes on employees' earnings, but are not required to pay for health insurance.

Question 13

The pension expense of the current period is equal to:

Accepted Answer

A)  Amounts paid to retired workers during the current period. 
B)  The estimated future pension benefits earned by today's workers during the current period. 
C)  The present value of the estimated future pension benefits earned by today's workers during the current period. 
D)  Cash payments made during the period to the trustee of the pension plan. 
A)  Amounts paid to retired workers during the current period. 
B)  The estimated future pension benefits earned by today's workers during the current period. 
C)  The present value of the estimated future pension benefits earned by today's workers during the current period. 
D)  Cash payments made during the period to the trustee of the pension plan.

Question 14

Sinking funds make a bond issue less attractive to the investor.

Accepted Answer

A) True 
 B)False

Question 15

Employers are required to pay all of the following on the wages paid to each employee except:

Accepted Answer

A)  Social security taxes. 
B)  Worker's compensation insurance. 
C)  Medicare taxes. 
D)  Health insurance benefits. 
A)  Social security taxes. 
B)  Worker's compensation insurance. 
C)  Medicare taxes. 
D)  Health insurance benefits.

Question 16

If a bond is callable, the call price is usually lower than the face value of the bond.

Accepted Answer

A) True 
 B)False

Question 17

How much must Central Food pay the lender upon maturity of this note?

Accepted Answer

A)  $140,700. 
B)  $140,000. 
C)  $147,700. 
D)  $148,400. 
A)  $140,700. 
B)  $140,000. 
C)  $147,700. 
D)  $148,400.

Question 18

The total amount of the current liability (including interest payable) for this loan that appears in Select Company's balance sheet at December 31, 2011, is:

Accepted Answer

A)  $600,000. 
B)  $624,000. 
C)  $636,000. 
D)  $672,000. 
A)  $600,000. 
B)  $624,000. 
C)  $636,000. 
D)  $672,000.

Question 19

When a company has a fully funded pension plan, they only need to record the present value of pension payments as a current liability.

Accepted Answer

A) True 
 B)False

Question 20

Bonds payable are a means of dividing a very large, long-term liability among many creditors, some of whom may participate in the loan only for a short period of time.

Accepted Answer

A) True 
 B)False

Exam 10: Liabilities

What is the total cash (including interest) paid for the building purchased by Able?

Deferred income taxes eventually come due.

Webster's entry at June 30, 2012, to record the first semiannual payment of interest and amortization of discount on the bonds includes a:

In Year 2, Greenway's income statement will report interest expense arising from this bond issue of:

A commitment, such as a contract to pay a baseball player $5,000,000 a year for five years, should be listed as a long-term liability.

Choose the statement that correctly summarizes the tax advantage of raising money by issuing bonds instead of common stock:

The carrying value of this liability in Webster Company's December 31, 2012, balance sheet is:

On November 1 of the current year, Garcia Company borrowed $50,000 by issuing a 9%, six-month note payable, all due at maturity date. Interest expense on this note to be recognized during the current year amounts to:

The quick ratio is a more stringent measure of solvency than the current ratio.

The amortization of discount on bonds payable reduces the amount of interest expense recognized during the period.

Identify all correct statements concerning payrolls and related payroll costs:

The pension expense of the current period is equal to:

Sinking funds make a bond issue less attractive to the investor.

Employers are required to pay all of the following on the wages paid to each employee except:

If a bond is callable, the call price is usually lower than the face value of the bond.

How much must Central Food pay the lender upon maturity of this note?

The total amount of the current liability (including interest payable) for this loan that appears in Select Company's balance sheet at December 31, 2011, is:

When a company has a fully funded pension plan, they only need to record the present value of pension payments as a current liability.

Bonds payable are a means of dividing a very large, long-term liability among many creditors, some of whom may participate in the loan only for a short period of time.

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

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