Question 1

Amortizing a discount on bonds payable:

Accepted Answer

A)  Increases interest expense. 
B)  Increases periodic cash payments to bondholders. 
C)  Decreases interest expense. 
D)  Decreases periodic cash payments to bondholders. 
A)  Increases interest expense. 
B)  Increases periodic cash payments to bondholders. 
C)  Decreases interest expense. 
D)  Decreases periodic cash payments to bondholders.

Question 2

The amount of Austin's interest expense on this bond issue during Year 2 amounts to:

Accepted Answer

A)  $400,000. 
B)  $450,000. 
C)  $360,000. 
D)  $600,000. 
A)  $400,000. 
B)  $450,000. 
C)  $360,000. 
D)  $600,000.

Question 3

On March 1, 2011, five-year bonds are sold for $508,026 that have a face value of $500,000 and an interest rate of 10%. Interest is paid semi-annually on March 1 and September 1. Using the straight-line amortization method, prepare the borrower's journal entries on:
March 1, 2011; September 1, 2011; December 31, 2011; and March 1, 2012.

Accepted Answer

The answer of On March 1, 2011, five-year bonds are...

Question 4

In a statement of cash flows, most interest payments are classified as:

Accepted Answer

A)  Operating activities. 
B)  Non-operating activities. 
C)  Financing activities. 
D)  Current liabilities. 
A)  Operating activities. 
B)  Non-operating activities. 
C)  Financing activities. 
D)  Current liabilities.

Question 5

A bond that is not secured is also known as:

Accepted Answer

A)  A sinking fund. 
B)  A mortgage. 
C)  A debenture. 
D)  A junk bond. 
A)  A sinking fund. 
B)  A mortgage. 
C)  A debenture. 
D)  A junk bond.

Question 6

Which of the following statements is (are) correct? (More than one statement may be correct.)

Accepted Answer

A)  A bond issue is a technique for subdividing a very large loan into a great many small, transferable units. 
B)  Bond interest payments are contractual obligations, whereas the board of directors determines whether or not dividends will be paid. 
C)  As interest rates rise, the market prices of bonds fall; as interest rates fall, bond prices tend to rise. 
D)  Bond interest payments are deductible in determining income subject to income taxes, whereas dividends paid to stockholders are not deductible. 
A)  A bond issue is a technique for subdividing a very large loan into a great many small, transferable units. 
B)  Bond interest payments are contractual obligations, whereas the board of directors determines whether or not dividends will be paid. 
C)  As interest rates rise, the market prices of bonds fall; as interest rates fall, bond prices tend to rise. 
D)  Bond interest payments are deductible in determining income subject to income taxes, whereas dividends paid to stockholders are not deductible.

Question 7

Over the 15-year life of the mortgage, the total amount Bradley will pay for interest charges is:

Accepted Answer

A)  $232,000. 
B)  $360,000. 
C)  $200,000. 
D)  $432,060. 
A)  $232,000. 
B)  $360,000. 
C)  $200,000. 
D)  $432,060.

Question 8

Which of the following payroll taxes do not stop once an employee reaches a certain level of income?

Accepted Answer

A)  Medicare taxes. 
B)  Social security taxes. 
C)  Unemployment taxes. 
D)  Medicare, Social security, and unemployment taxes all have a cap on salaries where the tax ends. 
A)  Medicare taxes. 
B)  Social security taxes. 
C)  Unemployment taxes. 
D)  Medicare, Social security, and unemployment taxes all have a cap on salaries where the tax ends.

Question 9

If a long-term debt is to be paid off in monthly installments over a 5-year period, the entire principal should be classified as a long-term debt.

Accepted Answer

A) True 
 B)False

Question 10

The combination of liabilities and owners' equity used in financing the assets of a business is called the company's capital structure.

Accepted Answer

A) True 
 B)False

Question 11

In estimating annual pension expense, which of the following factors would not be taken into consideration?

Accepted Answer

A)  Current financial condition of the company. 
B)  Expected rate of return to be earned on pension fund assets. 
C)  Employee turnover rates. 
D)  Compensation levels and estimated rate of pay increases. 
A)  Current financial condition of the company. 
B)  Expected rate of return to be earned on pension fund assets. 
C)  Employee turnover rates. 
D)  Compensation levels and estimated rate of pay increases.

Question 12

On February 28, 2011, $5,000,000 of 6%, 10-year bonds payable, dated December 31, 2010, are issued. Interest on the bonds is payable semiannually each June 30 and December 31. If the total amount received (including accrued interest) by the issuing corporation is $5,060,000, which of the following is correct?

Accepted Answer

A)  The bonds were issued at a premium. 
B)  The amount of cash paid to bondholders on the next interest date, June 30, 2011, is $300,000. 
C)  The amount of cash paid to bondholders on the next interest date, June 30, 2011, is $50,000. 
D)  The bonds were issued at a discount. 
A)  The bonds were issued at a premium. 
B)  The amount of cash paid to bondholders on the next interest date, June 30, 2011, is $300,000. 
C)  The amount of cash paid to bondholders on the next interest date, June 30, 2011, is $50,000. 
D)  The bonds were issued at a discount.

Question 13

A company issues $50 million of bonds at par on January 1, 2009. The bonds pay 10% interest semi-annually on 12/31 and 6/30 and mature in 20 years. The journal entry when the bonds are sold is:

Accepted Answer

A)  $\begin{array}{|c|c|c|}
\hline \text { Cash } & 50,000,000 & \
\hline \text { Bonds Payable } && 50,000,000 \
\hline
\end{array}$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 50,000,000 & \
\hline \text { Interest Expense } & 2,500,000 & \
\hline \text { Bonds Payable } & & 50,000,000 \
\hline \text { Interest Payable } & & 2,500,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 50,000,000 & \
\hline \text { Interest Expense } & 5,000,000 & \
\hline \text { Bonds Payable } & & 50,000,000 \
\hline \text { Interest Payable } & & 5,000,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 50,000,000 & \
\hline \text { Interest Expense } & 500,000 & \
\hline \text { Bonds Payable } & & 50,000,000 \
\hline \text { Interest Payable } & & 500,000 \
\hline
\end{array}$$ 
A)  $\begin{array}{|c|c|c|}
\hline \text { Cash } & 50,000,000 & \
\hline \text { Bonds Payable } && 50,000,000 \
\hline
\end{array}$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 50,000,000 & \
\hline \text { Interest Expense } & 2,500,000 & \
\hline \text { Bonds Payable } & & 50,000,000 \
\hline \text { Interest Payable } & & 2,500,000 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 50,000,000 & \
\hline \text { Interest Expense } & 5,000,000 & \
\hline \text { Bonds Payable } & & 50,000,000 \
\hline \text { Interest Payable } & & 5,000,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | c | r | r | } 
\hline \text { Cash } & 50,000,000 & \
\hline \text { Interest Expense } & 500,000 & \
\hline \text { Bonds Payable } & & 50,000,000 \
\hline \text { Interest Payable } & & 500,000 \
\hline
\end{array}$$

Question 14

In relation to a bond issue, the role of the underwriter is to:

Accepted Answer

A)  Guarantee payment to bondholders of both the periodic interest payments and the maturity value. 
B)  Purchase the entire bond issue from the issuing corporation and then sell the bonds to the public. 
C)  Represent the interests of the bondholders and, if necessary, to take legal action on their behalf. 
D)  Maintain a subsidiary ledger of individual bondholders and mail out the periodic interest checks. 
A)  Guarantee payment to bondholders of both the periodic interest payments and the maturity value. 
B)  Purchase the entire bond issue from the issuing corporation and then sell the bonds to the public. 
C)  Represent the interests of the bondholders and, if necessary, to take legal action on their behalf. 
D)  Maintain a subsidiary ledger of individual bondholders and mail out the periodic interest checks.

Question 15

Over the 30-year life of the mortgage, the total amount Fisher will pay for interest charges is
$________

Accepted Answer

$1,081,760 [$1,481,7

Question 16

Bonds, with the same face value, issued at a premium, will have a higher maturity value than bonds issued at a discount.

Accepted Answer

A) True 
 B)False

Question 17

The annual "take-home-pay" of Rose' employees is:

Accepted Answer

A)  $2,520,000. 
B)  $2,250,000. 
C)  $1,930,000. 
D)  $2,750,000. 
A)  $2,520,000. 
B)  $2,250,000. 
C)  $1,930,000. 
D)  $2,750,000.

Question 18

Convertible bonds can be exchanged for common stock at the option of the company.

Accepted Answer

A) True 
 B)False

Question 19

The present value of an amount is:

Accepted Answer

A)  Always greater than the future value. 
B)  Always less than the future value. 
C)  Always equal to the future value. 
D)  Greater than, less than, or equal to the future value depending upon interest rates and the time period involved. 
A)  Always greater than the future value. 
B)  Always less than the future value. 
C)  Always equal to the future value. 
D)  Greater than, less than, or equal to the future value depending upon interest rates and the time period involved.

Question 20

An employer's total payroll-related costs always exceed the wages and salaries earned by employees by:

Accepted Answer

A)  Amounts withheld from employees' pay. 
B)  Payroll taxes and mandated programs such as workers' compensation insurance. 
C)  50%. 
D)  Employers' payroll-related costs actually are less than the gross wages and salaries earned by employees, because of amounts withheld from employees' checks. 
A)  Amounts withheld from employees' pay. 
B)  Payroll taxes and mandated programs such as workers' compensation insurance. 
C)  50%. 
D)  Employers' payroll-related costs actually are less than the gross wages and salaries earned by employees, because of amounts withheld from employees' checks.

Exam 10: Liabilities

Amortizing a discount on bonds payable:

The amount of Austin's interest expense on this bond issue during Year 2 amounts to:

In a statement of cash flows, most interest payments are classified as:

A bond that is not secured is also known as:

Which of the following statements is (are) correct? (More than one statement may be correct.)

Over the 15-year life of the mortgage, the total amount Bradley will pay for interest charges is:

Which of the following payroll taxes do not stop once an employee reaches a certain level of income?

If a long-term debt is to be paid off in monthly installments over a 5-year period, the entire principal should be classified as a long-term debt.

The combination of liabilities and owners' equity used in financing the assets of a business is called the company's capital structure.

In estimating annual pension expense, which of the following factors would not be taken into consideration?

A company issues $50 million of bonds at par on January 1, 2009. The bonds pay 10% interest semi-annually on 12/31 and 6/30 and mature in 20 years. The journal entry when the bonds are sold is:

In relation to a bond issue, the role of the underwriter is to:

Over the 30-year life of the mortgage, the total amount Fisher will pay for interest charges is $________

Bonds, with the same face value, issued at a premium, will have a higher maturity value than bonds issued at a discount.

The annual "take-home-pay" of Rose' employees is:

Convertible bonds can be exchanged for common stock at the option of the company.

The present value of an amount is:

An employer's total payroll-related costs always exceed the wages and salaries earned by employees by:

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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