Exam 10: Liabilities

Accounting terminology Listed below are nine technical accounting terms introduced in this chapter: Each of the following statements may (or may not)describe one of these technical terms.In the space provided beside each statement,indicate the accounting term described,or answer "None" if the statement does not correctly describe any of the terms. _____ (a)Operating income divided by annual interest expense. _____ (b)The amount paid during the current period to retired employees. _____ (c)A lease agreement that is viewed as equivalent to the lessee purchasing the leased asset. _____ (d)Using borrowed money to finance business operations. _____ (e)The risk of a loss occurring in a future period. _____ (f)A permanent reduction in the amount of income taxes owed which results from the tax deductions for depreciation. _____ (g)The amount that must be paid to settle a liability at the date it becomes due.

Loss contingencies Ocean to Coast Airlines could,at any time,incur a large loss if one of its airplanes were to crash.Is this an example of a loss contingency which should be disclosed in the company's financial statements? Explain.

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

A liability for deferred income taxes represents:

A company with a fully funded pension plan:

On November 1,Metro Corporation borrowed $55,000 from a bank and signed a 12%,90-day note payable in the amount of $55,000.The November 30 adjusting entry will be: (assume 360 days in year)

Estimated liabilities,contingencies,and commitments are usually reported in the long-term liability section of the financial statements.

The amortization of a bond premium:

Sanford Corporation borrowed $90,000 by issuing a 12%,six-month note payable,all due at the maturity date.After one month,the company's total liability for this loan amounts to:

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

A commitment,such as a contract to pay a baseball player $5,000,000 a year for five years,should be listed as a long-term liability.

Which of the following is an example of a contingent liability?

A bond with a $100,000 face value that is issued at a premium will have a higher maturity value than a bond with a $100,000 face value that is issued at a discount.

When interest rates rise,the price of a given bond issue will fall.

The basic measure of the amount of leverage being applied within the capital structure of an organization is the:

Choose the statement that correctly summarizes the tax advantage of raising money by issuing bonds instead of common stock:

After bonds have been issued,their market value can be expected to:

Elm Corporation plans to invest $300 million to earn about 15% before income taxes.The company is considering whether it should raise the $300 million by issuing 10% bonds payable or capital stock.If the company issues the bonds,it will probably report:

The price at which a bond sells is equal to the:

Bonds,with the same face value,issued at a premium will: