Question 1

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 2

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 3

Suppose investors decided to sell their holdings of capital stock in order to purchase outstanding bonds payable and as a result,the prices of bonds payable increased.What would be the likely impact on market interest rates?

Accepted Answer

A) Market interest rates will be unaffected. 
B) Market interest rates will increase. 
C) Market interest rates will fall. 
D) Although interest rates will change,it is impossible to predict the direction of change. 
A) Market interest rates will be unaffected. 
B) Market interest rates will increase. 
C) Market interest rates will fall. 
D) Although interest rates will change,it is impossible to predict the direction of change.

Question 4

Pension expense is:

Accepted Answer

A) The present value of the estimated future pension benefits earned by employees as a result of their services during the period. 
B) The amount funded to the pension in a given year. 
C) The future value of rights granted to employees as a result of their services during the period. 
D) The amount withdrawn from the pension fund to pay retirees during the period. 
A) The present value of the estimated future pension benefits earned by employees as a result of their services during the period. 
B) The amount funded to the pension in a given year. 
C) The future value of rights granted to employees as a result of their services during the period. 
D) The amount withdrawn from the pension fund to pay retirees during the period.

Question 5

The Music House issues a contract to a new recording artist to produce a number of albums over the next five years at $1 million per album.This situation is an example of:

Accepted Answer

A) A contingent liability which should be recorded in the accounting records. 
B) A contingent liability requiring footnote disclosure. 
C) An estimated liability,since the number of albums to be produced is not yet determined. 
D) A commitment which,if material,may be disclosed in a footnote. 
A) A contingent liability which should be recorded in the accounting records. 
B) A contingent liability requiring footnote disclosure. 
C) An estimated liability,since the number of albums to be produced is not yet determined. 
D) A commitment which,if material,may be disclosed in a footnote.

Question 6

A company issues $50 million of bonds at par on January 1,2015.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)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 7

The two basic characteristics of estimated liabilities are:

Accepted Answer

A) Probable and reasonably estimated. 
B) Known to exist and amount unable to be determined until a later date. 
C) Probable and non-interest bearing. 
D) Known to exist and interest bearing. 
A) Probable and reasonably estimated. 
B) Known to exist and amount unable to be determined until a later date. 
C) Probable and non-interest bearing. 
D) Known to exist and interest bearing.

Question 8

Junk bonds are attractive to investors because they carry a high rate of interest and are convertible into a specified number of shares of capital stock.

Accepted Answer

A) True 
 B)False

Question 9

The Social Security 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 Social Security 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 Social Security tax,only the employee pays the tax.

Question 10

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

Accepted Answer

A) Only the length of time until the money is received. 
B) Only the amount of money to be received. 
C) Only 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) Only the length of time until the money is received. 
B) Only the amount of money to be received. 
C) Only 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 11

Operating and capital leases
Berkeley Corporation wants to expand operations and is considering various leasing arrangements for additional equipment.Berkeley's management has heard the terms capital lease and operating lease mentioned by the accounting department and wants clarification of these terms before signing any lease contracts.
(a)Briefly explain the difference between a capital lease and an operating lease from a lessee's (Berkeley's)point of view.Your answer should include the financial statement impact of each type of lease.
(b)How does a lessee determine whether a specific lease contract is an operating lease or a capital lease? Include at least two of the criteria specified by the FASB in your answer.
(c)Which of the above two types of leases is sometimes

Accepted Answer

(a)A capital lease transfers most of the

Question 12

The debt ratio measures how quickly a company pays off the long-term liabilities it has incurred.

Accepted Answer

A) True 
 B)False

Question 13

Bonds secured by a pledge of specific assets are called debenture bonds.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

Fully amortizing installment notes
When Sue Meadow purchased a home,she signed a $150,000,12%,fully amortizing mortgage note,payable at $1,543 per month.After making the first monthly payment,Meadow received a notice from the bank stating that $1,500 of the payment had applied to interest,and only $43 reduced the principal amount of the loan.Meadow does not understand how this loan is fully amortizing over a period of 30 years.She computes that at $43 per month,it will take approximately 3,488 months (or 290 years)to repay this loan.Evaluate Meadow's analysis.

Accepted Answer

Meadow's analysis is incorrect,because t

Question 17

Which of the following statistics is of more significance to a long-term creditor than to a short-term creditor?

Accepted Answer

A) Interest coverage ratio. 
B) Receivables turnover rate. 
C) Working capital. 
D) Quick ratio. 
A) Interest coverage ratio. 
B) Receivables turnover rate. 
C) Working capital. 
D) Quick ratio.

Question 18

Using different accounting methods on financial statements and tax returns will create:

Accepted Answer

A) No effect upon the balance sheet,only the income statement. 
B) No effect upon the balance sheet nor the income statement. 
C) A deferred tax liability. 
D) An illegal situation. 
A) No effect upon the balance sheet,only the income statement. 
B) No effect upon the balance sheet nor the income statement. 
C) A deferred tax liability. 
D) An illegal situation.

Question 19

On October 1,2015,Master's Co.borrows $500,000 from its bank for five years at an annual interest rate of 10%.According to the terms of the loan,the principal amount will not be due for five years.Interest is to be paid monthly on the first day of each month,beginning November 1,2015.With respect to this borrowing,Master's December 31,2015,balance sheet included only a long-term note payable of $500,000.As a result:

Accepted Answer

A) The December 31,2015,financial statements are accurate. 
B) Liabilities are understated by $12,500 accrued interest payable. 
C) Liabilities are understated by $4,167 accrued interest payable. 
D) Liabilities are understated by the amount of interest for the five-year term of the note that has not yet been paiD.$500,000 × 10% × 1/12 = $4,167 
A) The December 31,2015,financial statements are accurate. 
B) Liabilities are understated by $12,500 accrued interest payable. 
C) Liabilities are understated by $4,167 accrued interest payable. 
D) Liabilities are understated by the amount of interest for the five-year term of the note that has not yet been paiD.$500,000 × 10% × 1/12 = $4,167

Question 20

Amortizing a premium 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.

Exam 10: Liabilities

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

Commitments,such as contracts for future transactions:

Suppose investors decided to sell their holdings of capital stock in order to purchase outstanding bonds payable and as a result,the prices of bonds payable increased.What would be the likely impact on market interest rates?

Pension expense is:

The Music House issues a contract to a new recording artist to produce a number of albums over the next five years at $1 million per album.This situation is an example of:

A company issues $50 million of bonds at par on January 1,2015.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:

The two basic characteristics of estimated liabilities are:

Junk bonds are attractive to investors because they carry a high rate of interest and are convertible into a specified number of shares of capital stock.

The Social Security tax paid by an employer is:

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

The debt ratio measures how quickly a company pays off the long-term liabilities it has incurred.

Bonds secured by a pledge of specific assets are called debenture bonds.

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

Amortizing a discount on bonds payable:

Which of the following statistics is of more significance to a long-term creditor than to a short-term creditor?

Using different accounting methods on financial statements and tax returns will create:

Amortizing a premium on bonds payable:

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

Filters