Question 1

The contract between the bond issuer and the bondholders,which identifies the rights and obligations of the parties,is called a(n):

Accepted Answer

A)  Bond indenture. 
B)  Debenture. 
C)  Mortgage. 
D)  Installment note. 
E)  Mortgage contract. 
A)  Bond indenture. 
B)  Debenture. 
C)  Mortgage. 
D)  Installment note. 
E)  Mortgage contract.

Question 2

According to IFRS,the lessee must report a leased asset as well as a lease liability if the lease qualifies as a finance lease.

Accepted Answer

A) True 
 B)False

Question 3

The payment pattern for an installment note with accrued interest plus equal amounts of principal includes:

Accepted Answer

A)  Increasing total payments. 
B)  Increasing accrued interest. 
C)  Constant principal payments. 
D)  Constant interest payments. 
E)  Equal periodic payments. 
A)  Increasing total payments. 
B)  Increasing accrued interest. 
C)  Constant principal payments. 
D)  Constant interest payments. 
E)  Equal periodic payments.

Question 4

A disadvantage of bonds is:

Accepted Answer

A)  Bonds require payment of periodic interest. 
B)  Bonds require payment of principal. 
C)  Bonds can decrease return on equity. 
D)  Bonds may not create financial leverage. 
E)  All of these answers are correct. 
A)  Bonds require payment of periodic interest. 
B)  Bonds require payment of principal. 
C)  Bonds can decrease return on equity. 
D)  Bonds may not create financial leverage. 
E)  All of these answers are correct.

Question 5

Computers "R" Us borrowed $40,000 for 2 years at 7%.The face value of the note is $45,600.

Accepted Answer

A) True 
 B)False

Question 6

A common installment note payment pattern is equal interest payments over the life of the loan with the principal of the loan due at maturity.

Accepted Answer

A) True 
 B)False

Question 7

Bonds must be issued on an interest payment date.

Accepted Answer

A) True 
 B)False

Question 8

An operating lease is a lease agreement that transfers the risks and benefits associated with ownership to the lessee.

Accepted Answer

A) True 
 B)False

Question 9

The issue price of a bond is equal to the present value of all future cash payments to be received from the bond.

Accepted Answer

A) True 
 B)False

Question 10

Both interest paid on bonds and dividends paid on shares are tax-deductible.

Accepted Answer

A) True 
 B)False

Question 11

Mortgage notes are backed by the good faith and credit of the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 12

A lease:

Accepted Answer

A)  Is a series of payments to property owners in exchange for use of the property. 
B)  Gives the lessee exclusive control over an asset's usefulness. 
C)  Allows a lessor to earn revenues from a rental property. 
D)  May be operating or finance. 
E)  All of these answers are correct. 
A)  Is a series of payments to property owners in exchange for use of the property. 
B)  Gives the lessee exclusive control over an asset's usefulness. 
C)  Allows a lessor to earn revenues from a rental property. 
D)  May be operating or finance. 
E)  All of these answers are correct.

Question 13

Mike Limited issues $200,000 of its 9% bonds at par on April 1,which is 4 months after the original issue date.How much interest should Mike collect from the buyer?

Accepted Answer

A)  $750. 
B)  $5,250. 
C)  $1,500. 
D)  $3,000. 
E)  $6,000. 
A)  $750. 
B)  $5,250. 
C)  $1,500. 
D)  $3,000. 
E)  $6,000.

Question 14

A corporation can reserve the right to retire bonds early by issuing callable bonds.

Accepted Answer

A) True 
 B)False

Question 15

The XON Oil Corporation plans to invest $1 million in oil exploration.The corporation is considering two plans to raise the money.Under Plan #1,9% bonds would be issued at par.Under Plan #2,additional common shares would be sold at $20 per share.The corporation currently has 300,000 common shares outstanding,and total equity of $3,000,000.The corporation expects to earn $700,000 each year before bond interest and taxes.Calculate net income under each plan (assume a 50% tax rate)and comment on the relative effects of each alternative.

Accepted Answer

@#IMG-DLM& @#IMG-DLM& Plan #1 provides a higher return on eq

Question 16

Levi Corporation issued $500,000,11%,10-year bonds when the market rate was 12%,and received $487,567.50 in proceeds.Using the effective interest method of amortizing bond premium or discount,prepare the journal entry to record the first quarterly interest payment and amortization of the bond premium or discount.Round values to the nearest dollar.

Accepted Answer

@#IMG-DLM& *487,567.

Question 17

Lucie Industrial Inc.retires its bonds (par value $100,000)at 105 on January 1 immediately following the payment of semiannual interest.The carrying value of the bonds at retirement date is $103,745.Lucie's journal entry to record the retirement will include a:

Accepted Answer

A)  Credit to Premium on Bonds. 
B)  Debit to Premium on Bonds. 
C)  Debit to Discount on Bonds. 
D)  Credit to Gain on Retirement of Bonds. 
E)  Credit to Bonds PayablE. 
A)  Credit to Premium on Bonds. 
B)  Debit to Premium on Bonds. 
C)  Debit to Discount on Bonds. 
D)  Credit to Gain on Retirement of Bonds. 
E)  Credit to Bonds PayablE.

Question 18

Compare the advantages and disadvantages of bond financing.

Accepted Answer

Advantages of bond financing include tax

Question 19

An operating lease:

Accepted Answer

A)  Is also called a rent-to-own lease. 
B)  Requires the lessee to record a leased asset and a lease liability. 
C)  Allows the lessee to report rent expense. 
D)  Is the economic equivalent of a purchase with a financing arrangement. 
E)  None of these answers is correct. 
A)  Is also called a rent-to-own lease. 
B)  Requires the lessee to record a leased asset and a lease liability. 
C)  Allows the lessee to report rent expense. 
D)  Is the economic equivalent of a purchase with a financing arrangement. 
E)  None of these answers is correct.

Question 20

Willa Inc issued $110,000,9%,5-year bonds.The current market rate was 9.5%.Willa received $106,000 for the bonds.Using the effective interest method,the amount of interest expense to be recorded for the first semiannual payment was:

Accepted Answer

A)  $3,750.00. 
B)  $3,910.60. 
C)  $5,035.00. 
D)  $6,500,00. 
E)  $7,000.00. 
A)  $3,750.00. 
B)  $3,910.60. 
C)  $5,035.00. 
D)  $6,500,00. 
E)  $7,000.00.

The contract between the bond issuer and the bondholders,which identifies the rights and obligations of the parties,is called a(n):

According to IFRS,the lessee must report a leased asset as well as a lease liability if the lease qualifies as a finance lease.

The payment pattern for an installment note with accrued interest plus equal amounts of principal includes:

A disadvantage of bonds is:

Computers "R" Us borrowed $40,000 for 2 years at 7%.The face value of the note is $45,600.

A common installment note payment pattern is equal interest payments over the life of the loan with the principal of the loan due at maturity.

Bonds must be issued on an interest payment date.

An operating lease is a lease agreement that transfers the risks and benefits associated with ownership to the lessee.

The issue price of a bond is equal to the present value of all future cash payments to be received from the bond.

Both interest paid on bonds and dividends paid on shares are tax-deductible.

Mortgage notes are backed by the good faith and credit of the issuing corporation.

A lease:

Mike Limited issues $200,000 of its 9% bonds at par on April 1,which is 4 months after the original issue date.How much interest should Mike collect from the buyer?

A corporation can reserve the right to retire bonds early by issuing callable bonds.

Lucie Industrial Inc.retires its bonds (par value $100,000)at 105 on January 1 immediately following the payment of semiannual interest.The carrying value of the bonds at retirement date is $103,745.Lucie's journal entry to record the retirement will include a:

Compare the advantages and disadvantages of bond financing.

An operating lease:

Willa Inc issued $110,000,9%,5-year bonds.The current market rate was 9.5%.Willa received $106,000 for the bonds.Using the effective interest method,the amount of interest expense to be recorded for the first semiannual payment was:

Property,plant and Equipment,and Intangibles

Current Liabilities

Partnerships

Organization and Operation of Corporations

Corporate Reporting: Income,earnings Per Share,and Retained Earnings

Accounting for Debt and Share Investments

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

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Exam 15: Bonds and Long-Term Notes Payable

The contract between the bond issuer and the bondholders,which identifies the rights and obligations of the parties,is called a(n):

According to IFRS,the lessee must report a leased asset as well as a lease liability if the lease qualifies as a finance lease.

The payment pattern for an installment note with accrued interest plus equal amounts of principal includes:

A disadvantage of bonds is:

Computers "R" Us borrowed $40,000 for 2 years at 7%.The face value of the note is $45,600.

A common installment note payment pattern is equal interest payments over the life of the loan with the principal of the loan due at maturity.

Bonds must be issued on an interest payment date.

An operating lease is a lease agreement that transfers the risks and benefits associated with ownership to the lessee.

The issue price of a bond is equal to the present value of all future cash payments to be received from the bond.

Both interest paid on bonds and dividends paid on shares are tax-deductible.

Mortgage notes are backed by the good faith and credit of the issuing corporation.

A lease:

Mike Limited issues $200,000 of its 9% bonds at par on April 1,which is 4 months after the original issue date.How much interest should Mike collect from the buyer?

A corporation can reserve the right to retire bonds early by issuing callable bonds.

Lucie Industrial Inc.retires its bonds (par value $100,000)at 105 on January 1 immediately following the payment of semiannual interest.The carrying value of the bonds at retirement date is $103,745.Lucie's journal entry to record the retirement will include a:

Compare the advantages and disadvantages of bond financing.

An operating lease:

Willa Inc issued $110,000,9%,5-year bonds.The current market rate was 9.5%.Willa received $106,000 for the bonds.Using the effective interest method,the amount of interest expense to be recorded for the first semiannual payment was:

Property,plant and Equipment,and Intangibles

Current Liabilities

Partnerships

Organization and Operation of Corporations

Corporate Reporting: Income,earnings Per Share,and Retained Earnings

Accounting for Debt and Share Investments

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Filters