Question 1

Which of the following ratios and rates that measure debt-paying ability focuses on the long-term position of a company?

Accepted Answer

A)  Quick ratio. 
B)  Inventory turnover. 
C)  Current ratio. 
D)  Debt ratio. 
A)  Quick ratio. 
B)  Inventory turnover. 
C)  Current ratio. 
D)  Debt ratio.

Question 2

The amount of the present value of a future cash receipt will depend upon:

Accepted Answer

A)  The length of time until the money is received. 
B)  The amount of money to be received. 
C)  The required rate of return. 
D)  The amount of money to be received, the length of time until the money is received, and the required rate of return. 
A)  The length of time until the money is received. 
B)  The amount of money to be received. 
C)  The required rate of return. 
D)  The amount of money to be received, the length of time until the money is received, and the required rate of return.

Question 3

Interest payable on a loan becomes a liability:

Accepted Answer

A)  When the note payable is issued. 
B)  As it accrues. 
C)  At the maturity date. 
D)  When the borrowed money is received. 
A)  When the note payable is issued. 
B)  As it accrues. 
C)  At the maturity date. 
D)  When the borrowed money is received.

Question 4

How much of the first payment made on December 31, 2009, is allocated to repayment of principal? $________

Accepted Answer

$116 [$4,116-$4,000

Question 5

What will be the effect on Gamma's debt ratio if Gamma's owner invests an additional $5 million to finance its expansion?

Accepted Answer

A)  The debt ratio will decrease from .1 (3/30) to .0857 (3/35) after the additional investment. 
B)  The debt ratio will decrease from 3/27 before to 3/32 after the additional investment. 
C)  The debt ratio will increase from 30 before to 35 after the additional investment. 
D)  Additional investment by owner will have no effect on the debt ratio. 
A)  The debt ratio will decrease from .1 (3/30) to .0857 (3/35) after the additional investment. 
B)  The debt ratio will decrease from 3/27 before to 3/32 after the additional investment. 
C)  The debt ratio will increase from 30 before to 35 after the additional investment. 
D)  Additional investment by owner will have no effect on the debt ratio.

Question 6

When a company sells bonds between interest dates they will pay which of the following at the first interest payment date?

Accepted Answer

A)  An amount less than the stated interest rate times the principal. 
B)  An amount more than the stated interest rate times the principal. 
C)  An amount equal to the stated interest rate times the principal. 
D)  The company may skip the first interest payment date since the appropriate time has not passed. 
A)  An amount less than the stated interest rate times the principal. 
B)  An amount more than the stated interest rate times the principal. 
C)  An amount equal to the stated interest rate times the principal. 
D)  The company may skip the first interest payment date since the appropriate time has not passed.

Question 7

What is the approximate maximum amount Apex can borrow and not exceed a debt ratio of .3?

Accepted Answer

A)  $4,000,000. 
B)  $5,500,000. 
C)  $5,000,000. 
D)  $600,000. 
A)  $4,000,000. 
B)  $5,500,000. 
C)  $5,000,000. 
D)  $600,000.

Question 8

Sinking funds usually appear on the balance sheet as:

Accepted Answer

A)  Current asset. 
B)  Long-term investment. 
C)  Current liability. 
D)  Appropriation of retained earnings. 
A)  Current asset. 
B)  Long-term investment. 
C)  Current liability. 
D)  Appropriation of retained earnings.

Question 9

The amounts that a business withholds as taxes from an employee's earnings:

Accepted Answer

A)  Represent payroll taxes expense to the employer. 
B)  Are deposited in an interest-bearing account until the employee is terminated. 
C)  Represent miscellaneous revenue to the employer. 
D)  Represent current liabilities to the employer. 
A)  Represent payroll taxes expense to the employer. 
B)  Are deposited in an interest-bearing account until the employee is terminated. 
C)  Represent miscellaneous revenue to the employer. 
D)  Represent current liabilities to the employer.

Question 10

The interest coverage ratio is computed by dividing:

Accepted Answer

A)  Net income by interest expense. 
B)  Operating income by interest expense. 
C)  Interest expense by net income. 
D)  Interest expense by operating income. 
A)  Net income by interest expense. 
B)  Operating income by interest expense. 
C)  Interest expense by net income. 
D)  Interest expense by operating income.

Question 11

What is the amount of the interest expense Able will recognize on this note in 2010?

Accepted Answer

A)  $18,000. 
B)  $31,500. 
C)  $36,000. 
D)  $54,000. 
A)  $18,000. 
B)  $31,500. 
C)  $36,000. 
D)  $54,000.

Question 12

If Salem Co. retires $10 million of these bonds by purchasing them from bondholders at current market price, the company will report:

Accepted Answer

A)  A $600,000 cash receipt from operating activities. 
B)  A $9.4 million cash payment for operating activities. 
C)  A $600,000 cash receipt from financing activities. 
D)  A $9.4 million cash payment for financing activities. 
A)  A $600,000 cash receipt from operating activities. 
B)  A $9.4 million cash payment for operating activities. 
C)  A $600,000 cash receipt from financing activities. 
D)  A $9.4 million cash payment for financing activities.

Question 13

Silverado maintains a fully funded pension plan. During 2011, $1 million was paid to retired workers, and workers currently employed by the company earned a portion of the right to receive pension payments expected to total $6 million over their lifetimes. Silverado's pension expense for 2011 amounts to:

Accepted Answer

A)  $1 million. 
B)  $6 million. 
C)  $7 million. 
D)  Some other amount. 
A)  $1 million. 
B)  $6 million. 
C)  $7 million. 
D)  Some other amount.

Question 14

Commitments, such as contracts for future transactions:

Accepted Answer

A)  Are classified as liabilities. 
B)  Are classified as assets. 
C)  Are footnoted in financial statements, if material. 
D)  Are only disclosed if negative due to the principle of conservatism. 
A)  Are classified as liabilities. 
B)  Are classified as assets. 
C)  Are footnoted in financial statements, if material. 
D)  Are only disclosed if negative due to the principle of conservatism.

Question 15

The amortization of bond discount by the issuing company decreases the carrying value of its bonds payable.

Accepted Answer

A) True 
 B)False

Question 16

If Salem Co. calls $10 million of these bonds it will report:

Accepted Answer

A)  A $700,000 gain. 
B)  A $400,000 loss. 
C)  An unrealized gain. 
D)  Neither gains nor losses are recognized on early retirements of debt. 
A)  A $700,000 gain. 
B)  A $400,000 loss. 
C)  An unrealized gain. 
D)  Neither gains nor losses are recognized on early retirements of debt.

Question 17

On April 1, Year 1, the journal entry to record issuance of the bonds will include:

Accepted Answer

A)  A credit to Interest Payable of $1,000,000. 
B)  A debit to Cash of $20,000,000. 
C)  A credit to Bonds Payable of $2,100,000. 
D)  A debit to Cash of $21,000,000. 
A)  A credit to Interest Payable of $1,000,000. 
B)  A debit to Cash of $20,000,000. 
C)  A credit to Bonds Payable of $2,100,000. 
D)  A debit to Cash of $21,000,000.

Question 18

With respect to this bond issue, Greenway's balance sheet at December 31, Year 1, will include:

Accepted Answer

A)  Bonds payable of $20,500,000. 
B)  Bonds payable of $19,500,000. 
C)  Bonds payable of $20 million, as well as interest payable of $1,500,000. 
D)  Bonds payable of $20 million, as well as interest payable of $500,000. 
A)  Bonds payable of $20,500,000. 
B)  Bonds payable of $19,500,000. 
C)  Bonds payable of $20 million, as well as interest payable of $1,500,000. 
D)  Bonds payable of $20 million, as well as interest payable of $500,000.

Question 19

A loss contingency is recorded in the accounting records when it is probable that a loss has been incurred and the amount of the loss is known.

Accepted Answer

A) True 
 B)False

Question 20

Bonds payable-issued between interest dates
Barney Corporation received authorization on December 31, Year 1, to issue $2,500,000 of 6%, 10-year bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at a price of 100, plus accrued interest, on February 28, Year 2, two months after the authorization of the bond issue.
 
(d) Prepare the journal entry at February 28, Year 2, to record the issuance of the bonds.
(e) Prepare the journal entry at June 30, Year 2 to record the first semiannual interest payment on the bonds.

Accepted Answer

(a) $2,525,000
(b) $

Exam 10: Liabilities

Which of the following ratios and rates that measure debt-paying ability focuses on the long-term position of a company?

The amount of the present value of a future cash receipt will depend upon:

Interest payable on a loan becomes a liability:

How much of the first payment made on December 31, 2009, is allocated to repayment of principal? $________

What will be the effect on Gamma's debt ratio if Gamma's owner invests an additional $5 million to finance its expansion?

When a company sells bonds between interest dates they will pay which of the following at the first interest payment date?

What is the approximate maximum amount Apex can borrow and not exceed a debt ratio of .3?

Sinking funds usually appear on the balance sheet as:

The amounts that a business withholds as taxes from an employee's earnings:

The interest coverage ratio is computed by dividing:

What is the amount of the interest expense Able will recognize on this note in 2010?

If Salem Co. retires $10 million of these bonds by purchasing them from bondholders at current market price, the company will report:

Commitments, such as contracts for future transactions:

The amortization of bond discount by the issuing company decreases the carrying value of its bonds payable.

If Salem Co. calls $10 million of these bonds it will report:

On April 1, Year 1, the journal entry to record issuance of the bonds will include:

With respect to this bond issue, Greenway's balance sheet at December 31, Year 1, will include:

A loss contingency is recorded in the accounting records when it is probable that a loss has been incurred and the amount of the loss is known.

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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