Question 1

The principal amount of a bond is:

Accepted Answer

A)  The total future interest charges. 
B)  The unpaid balance exclusive of any interest charges. 
C)  The unpaid balance plus any future interest charges. 
D)  The maturity value less any currently unpaid balances. 
A)  The total future interest charges. 
B)  The unpaid balance exclusive of any interest charges. 
C)  The unpaid balance plus any future interest charges. 
D)  The maturity value less any currently unpaid balances.

Question 2

The company's annual payroll-related expenses amount to approximately:

Accepted Answer

A)  $1,137,200. 
B)  $1,076,000. 
C)  $980,000. 
D)  $800,000. 
A)  $1,137,200. 
B)  $1,076,000. 
C)  $980,000. 
D)  $800,000.

Question 3

How much must Noble pay South Bank on May 1, Year 2, when the note matures?

Accepted Answer

A)  $80,000. 
B)  $89,600. 
C)  $84,800. 
D)  $82,400. 
A)  $80,000. 
B)  $89,600. 
C)  $84,800. 
D)  $82,400.

Question 4

Fully amortizing installment note payable
On October 31, 2011 Ronald signed a 2-year installment note in the amount of $50,000 in conjunction with the purchase of equipment. This note is payable in equal monthly installments of $2,354, which include interest computed at an annual rate of 12%. The first monthly payment is made on November 30, 2011. This note is fully amortizing over 24 months.
Complete the amortization table for the first two payments by entering the correct dollar amounts in the blank spaces provided. In addition, answer the questions that follow.
 
(a) With respect to this note, Ronald's 2011 income statement includes interest expense of $_______________, and Ronald's balance sheet at December 31, 2011, includes a total liability for this note payable of _______________. (Do not separate into current and long-term portions.)
(b) The aggregate monthly cash payments Ronald will make over the 2-year life of the note payable amount to $_______________.
(c) Over the 2-year life of the note, the amount Ronald will pay for interest amounts to $_______________.

Accepted Answer

@#IMG-DLM&
(a) With respect to this note, Ronald's

Question 5

What is the amount of interest expense Central Food's recognizes on this note in 2011?

Accepted Answer

A)  $700. 
B)  $8,400. 
C)  $7,700. 
D)  $1,400. 
A)  $700. 
B)  $8,400. 
C)  $7,700. 
D)  $1,400.

Question 6

There is a tax advantage for a company to issue bonds in lieu of stocks.

Accepted Answer

A) True 
 B)False

Question 7

The amount of bond interest expense recognized by Webster Company in 2012 with respect to these bonds is:

Accepted Answer

A)  $60,000. 
B)  $63,000. 
C)  $120,000. 
D)  $66,000. 
A)  $60,000. 
B)  $63,000. 
C)  $120,000. 
D)  $66,000.

Question 8

Employees' annual "take-home-pay," totals approximately:

Accepted Answer

A)  $642.800. 
B)  $760,000. 
C)  $681,200. 
D)  $658,800. 
A)  $642.800. 
B)  $760,000. 
C)  $681,200. 
D)  $658,800.

Question 9

Prepayments and owners' equity are both sources of financing.

Accepted Answer

A) True 
 B)False

Question 10

Each of the following must be disclosed in the financial statements, except:

Accepted Answer

A)  The total amounts of long-term debt maturing in each of the next five years. 
B)  The company's debt ratio and interest coverage ratio for the current year. 
C)  Loss contingencies, when a reasonable possibility exists that a material loss has been incurred. 
D)  The fair value of long-term liabilities, when this value is significantly different from the amount shown in the balance sheet. 
A)  The total amounts of long-term debt maturing in each of the next five years. 
B)  The company's debt ratio and interest coverage ratio for the current year. 
C)  Loss contingencies, when a reasonable possibility exists that a material loss has been incurred. 
D)  The fair value of long-term liabilities, when this value is significantly different from the amount shown in the balance sheet.

Question 11

At December 31, Year 1, Noble Co.'s overall liability for this loan amounts to:

Accepted Answer

A)  $80,000. 
B)  $81,600. 
C)  $83,200. 
D)  $84,800. 
A)  $80,000. 
B)  $81,600. 
C)  $83,200. 
D)  $84,800.

Question 12

Identify those types of information that can readily be determined from an amortization table for an installment loan. (More than one answer may be correct.)

Accepted Answer

A)  Interest expense on this liability for the current year. 
B)  The present value of the future payments under current market conditions. 
C)  The unpaid balance remaining after each payment. 
D)  The portion of the unpaid balance that is a current liability. 
A)  Interest expense on this liability for the current year. 
B)  The present value of the future payments under current market conditions. 
C)  The unpaid balance remaining after each payment. 
D)  The portion of the unpaid balance that is a current liability.

Question 13

Special purpose entities (SPEs) are established by corporations to accomplish specific purposes such as borrowing money.

Accepted Answer

A) True 
 B)False

Question 14

One advantage of issuing bonds instead of stock is that:

Accepted Answer

A)  Interest is tax deductible, whereas dividends are not. 
B)  Bonds have a longer maturity date. 
C)  Interest rates are lower than dividend rates. 
D)  The issuance of bonds does not affect earnings per share. 
A)  Interest is tax deductible, whereas dividends are not. 
B)  Bonds have a longer maturity date. 
C)  Interest rates are lower than dividend rates. 
D)  The issuance of bonds does not affect earnings per share.

Question 15

Ultimate Company is a defendant in a lawsuit alleging damages of $3 billion. The litigation is expected to continue for several years, and no reasonable estimate can be made at this time of Ultimate Company's ultimate financial responsibility. This situation is an example of:

Accepted Answer

A)  Off-balance-sheet financing. 
B)  A loss contingency which should be disclosed in notes to Ultimate Company's financial statements. 
C)  An estimated liability which must appear in Ultimate Company's balance sheet. 
D)  A loss in purchasing power caused by inflation. 
A)  Off-balance-sheet financing. 
B)  A loss contingency which should be disclosed in notes to Ultimate Company's financial statements. 
C)  An estimated liability which must appear in Ultimate Company's balance sheet. 
D)  A loss in purchasing power caused by inflation.

Question 16

When bonds are issued at a discount, the borrower must pay more at maturity than the amount originally received.

Accepted Answer

A) True 
 B)False

Question 17

Assume that the federal government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents. Stone will pay this tax instead of purchasing group health insurance. This will cause Stone's total annual payroll-related expenses to:

Accepted Answer

A)  Decrease by $15,000. 
B)  Increase by $15,000. 
C)  Decrease by $32,500. 
D)  No change, because payroll taxes are withheld from employees' pay. 
A)  Decrease by $15,000. 
B)  Increase by $15,000. 
C)  Decrease by $32,500. 
D)  No change, because payroll taxes are withheld from employees' pay.

Question 18

When a company sells bonds, the bondholders are permitted to vote for the board of directors.

Accepted Answer

A) True 
 B)False

Question 19

The FICA tax paid by an employer is:

Accepted Answer

A)  Greater than the amount paid by the employee. 
B)  Less than the amount paid by the employee. 
C)  Equal to the amount paid by the employee. 
D)  The employer does not pay FICA tax, only the employee pays the tax. 
A)  Greater than the amount paid by the employee. 
B)  Less than the amount paid by the employee. 
C)  Equal to the amount paid by the employee. 
D)  The employer does not pay FICA tax, only the employee pays the tax.

Question 20

When money is borrowed by issuing a note payable, the borrower records a liability equal to the maturity value of the note.

Accepted Answer

A) True 
 B)False

Exam 10: Liabilities

The principal amount of a bond is:

The company's annual payroll-related expenses amount to approximately:

How much must Noble pay South Bank on May 1, Year 2, when the note matures?

What is the amount of interest expense Central Food's recognizes on this note in 2011?

There is a tax advantage for a company to issue bonds in lieu of stocks.

The amount of bond interest expense recognized by Webster Company in 2012 with respect to these bonds is:

Employees' annual "take-home-pay," totals approximately:

Prepayments and owners' equity are both sources of financing.

Each of the following must be disclosed in the financial statements, except:

At December 31, Year 1, Noble Co.'s overall liability for this loan amounts to:

Identify those types of information that can readily be determined from an amortization table for an installment loan. (More than one answer may be correct.)

Special purpose entities (SPEs) are established by corporations to accomplish specific purposes such as borrowing money.

One advantage of issuing bonds instead of stock is that:

Ultimate Company is a defendant in a lawsuit alleging damages of $3 billion. The litigation is expected to continue for several years, and no reasonable estimate can be made at this time of Ultimate Company's ultimate financial responsibility. This situation is an example of:

When bonds are issued at a discount, the borrower must pay more at maturity than the amount originally received.

Assume that the federal government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents. Stone will pay this tax instead of purchasing group health insurance. This will cause Stone's total annual payroll-related expenses to:

When a company sells bonds, the bondholders are permitted to vote for the board of directors.

The FICA tax paid by an employer is:

When money is borrowed by issuing a note payable, the borrower records a liability equal to the maturity value of the note.

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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