Question 1

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

Accepted Answer

A) True 
 B)False

Question 2

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137.13. The present value of the note is:

Accepted Answer

A)  $75,137.13. 
B)  $94,013.13. 
C)  $300,000.00. 
D)  $375,137.13. 
E)  $197,810.00. 
A)  $75,137.13. 
B)  $94,013.13. 
C)  $300,000.00. 
D)  $375,137.13. 
E)  $197,810.00.

Question 3

Debentures always have specific assets of the issuing company pledged as collateral.

Accepted Answer

A) True 
 B)False

Question 4

A company previously issued $2,000,000, 10% bonds, receiving a $120,000 premium. On the current year's interest date, after the bond interest was paid and after 40% of the total premium had been amortized, the company purchased the entire bond issue on the open market at 98 and retired it. Prepare the journal entry to record the retirement of these bonds.

Accepted Answer

The answer of A company previously issued $2,000,000, 10% bonds,...

Question 5

The carrying amount (book value) of a bond at the time when it is issued is always equal to its par value.

Accepted Answer

A) True 
 B)False

Question 6

When applying equal total payments to a note, with each payment the amount applied to the note principal _______________ while the interest expense for the note ______________.

Accepted Answer

increases,

Question 7

On January 1, a company issues bonds with a par value of $300,000. The bonds mature in 5 years, and pay 8% annual interest, payable each June 30 and December 31. On the issue date, the market rate of interest for the bonds is 10%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:

Accepted Answer

Present value of principal $30

Question 8

On January 1, Year 1 a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 annual year-end payments of $21,607, the first of which is due on December 31, Year 1.
(a) Prepare the company's journal entry to record the note's issuance.
(b) Prepare the journal entries to record the first and second installment payments.

Accepted Answer

The answer of On January 1, Year 1 a company...

Question 9

The present value of an annuity factor for 6 years at 10% is 4.3553. This implies that an annuity of six $2,000 payments at 10% would equal $8,710.60.

Accepted Answer

A) True 
 B)False

Question 10

Bonds issued in the names and addresses of their holders are ____________________ bonds.

Accepted Answer

The answer of Bonds issued in the names and addresses...

Question 11

How are bond issue prices determined?

Accepted Answer

The issue price of bonds is found by com

Question 12

The rate of interest that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level is the ____________________ of interest.

Accepted Answer

The answer of The rate of interest that borrowers are...

Question 13

Explain the amortization of a bond premium. Identify and describe the amortization method.

Accepted Answer

A bond premium occurs when bonds are sol

Question 14

An advantage of bond financing is:

Accepted Answer

A)  Bonds do not affect owners' control. 
B)  Interest on bonds is tax deductible. 
C)  Bonds can increase return on equity. 
D)  It allows firms to trade on the equity. 
E)  All of these. 
A)  Bonds do not affect owners' control. 
B)  Interest on bonds is tax deductible. 
C)  Bonds can increase return on equity. 
D)  It allows firms to trade on the equity. 
E)  All of these.

Question 15

An ________________________________ is an obligation requiring a series of payments to the lender.

Accepted Answer

The answer of An ________________________________ is an obligation requiring a...

Question 16

Martin Corporation issued $3,000,000 of 8%, 20-year bonds payable at par value on January 1. Interest is payable each June 30 and December 31.
(a) Prepare the general journal entry to record the issuance of the bonds on January 1.
(b) Prepare the general journal entry to record the first interest payment on June 30.

Accepted Answer

The answer of Martin Corporation issued $3,000,000 of 8%, 20-year...

Question 17

____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds at maturity.

Accepted Answer

The answer of ____________________ bonds reduce a bondholder's risk by...

Question 18

A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:

Accepted Answer

A)  $1,000 gain. 
B)  $1,000 loss. 
C)  $2,700 loss. 
D)  $2,700 gain. 
E)  $3,700 gain. 
A)  $1,000 gain. 
B)  $1,000 loss. 
C)  $2,700 loss. 
D)  $2,700 gain. 
E)  $3,700 gain.

Question 19

An advantage of bond financing is that issuing bonds does not affect owner control.

Accepted Answer

A) True 
 B)False

Question 20

A company invests $10,000 at 7% compounded annually. At the end of the second year, the company should have $11,400 in the fund.

Accepted Answer

A) True 
 B)False

Exam 14: Long-Term Liabilities

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137.13. The present value of the note is:

Debentures always have specific assets of the issuing company pledged as collateral.

The carrying amount (book value) of a bond at the time when it is issued is always equal to its par value.

When applying equal total payments to a note, with each payment the amount applied to the note principal _______________ while the interest expense for the note ______________.

The present value of an annuity factor for 6 years at 10% is 4.3553. This implies that an annuity of six $2,000 payments at 10% would equal $8,710.60.

Bonds issued in the names and addresses of their holders are ____________________ bonds.

How are bond issue prices determined?

The rate of interest that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level is the ____________________ of interest.

Explain the amortization of a bond premium. Identify and describe the amortization method.

An advantage of bond financing is:

An ________________________________ is an obligation requiring a series of payments to the lender.

____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds at maturity.

A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:

An advantage of bond financing is that issuing bonds does not affect owner control.

A company invests $10,000 at 7% compounded annually. At the end of the second year, the company should have $11,400 in the fund.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Long-Term Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments and International Operations

Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Filters

When applying equal total payments to a note, with each payment the amount applied to the note principal _ while the interest expense for the note .