Question 1

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage.

Accepted Answer

A) True 
 B)False

Question 2

On October 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The note requires equal payments of principal plus accrued interest be paid at the end of each year on September 30. The present value of an annuity factor for 3 years at 6% is 2.6730. The payment will be:

Accepted Answer

A)  $10,000.00. 
B)  $11,223.34. 
C)  $10,800.00. 
D)  $10,400.00. 
E)  $1,223.34. 
A)  $10,000.00. 
B)  $11,223.34. 
C)  $10,800.00. 
D)  $10,400.00. 
E)  $1,223.34.

Question 3

A company borrowed $50,000 cash from the bank and signed a 6-year note at 7%. The present value of an annuity for 6 years at 7% is 4.7665. The annual annuity payments equal:

Accepted Answer

A)  $10,489.88. 
B)  $11,004.88. 
C)  $50,000.00. 
D)  $52,450.00. 
E)  $238,325.00. 
A)  $10,489.88. 
B)  $11,004.88. 
C)  $50,000.00. 
D)  $52,450.00. 
E)  $238,325.00.

Question 4

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the issuance of the bond is:

Accepted Answer

A)  Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000. 
B)  Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177. 
C)  Debit Bonds Payable $300,000; debit Interest Expense $12,177; credit Cash $312,177. 
D)  Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000. 
E)  Debit Cash $312,177; credit Bonds Payable $312,177. 
A)  Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000. 
B)  Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177. 
C)  Debit Bonds Payable $300,000; debit Interest Expense $12,177; credit Cash $312,177. 
D)  Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000. 
E)  Debit Cash $312,177; credit Bonds Payable $312,177.

Question 5

An annuity is a series of equal payments at equal time intervals.

Accepted Answer

A) True 
 B)False

Question 6

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 each June 30 and December 31. On the issue date, the market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:

Accepted Answer

The answer of On January 1, a company issues bonds...

Question 7

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is:

Accepted Answer

A)  $9,000. 
B)  $5,033. 
C)  $63,000. 
D)  $57,330. 
E)  $45,297. 
A)  $9,000. 
B)  $5,033. 
C)  $63,000. 
D)  $57,330. 
E)  $45,297.

Question 8

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ___________________________________.

Accepted Answer

The answer of The legal document identifying the rights and...

Question 9

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's ordinary shares.

Accepted Answer

A) True 
 B)False

Question 10

A company with a low level of liabilities in relation to shareholders' equity is likely to have a very high debt-to-equity ratio.

Accepted Answer

A) True 
 B)False

Question 11

A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is:

Accepted Answer

A)  $0. 
B)  $10,000 gain. 
C)  $10,000 loss. 
D)  $22,000 gain. 
E)  $22,000 loss. 
A)  $0. 
B)  $10,000 gain. 
C)  $10,000 loss. 
D)  $22,000 gain. 
E)  $22,000 loss.

Question 12

What are the methods that a company may use to retire its bonds?

Accepted Answer

The company can retire the bonds at thei

Question 13

A company may retire bonds by:

Accepted Answer

A)  Exercising a call option. 
B)  The holders converting them to shares. 
C)  Purchasing the bonds on the open market. 
D)  Paying them off at maturity. 
E)  All of these. 
A)  Exercising a call option. 
B)  The holders converting them to shares. 
C)  Purchasing the bonds on the open market. 
D)  Paying them off at maturity. 
E)  All of these.

Question 14

Premium on Bonds Payable is an adjunct or accretion liability account.

Accepted Answer

A) True 
 B)False

Question 15

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

Accepted Answer

A)  Credit to Interest Income. 
B)  Credit to Premium on Bonds Payable. 
C)  Credit to Discount on Bonds Payable. 
D)  Debit to Premium on Bonds Payable. 
E)  Debit to Discount on Bonds Payable. 
A)  Credit to Interest Income. 
B)  Credit to Premium on Bonds Payable. 
C)  Credit to Discount on Bonds Payable. 
D)  Debit to Premium on Bonds Payable. 
E)  Debit to Discount on Bonds Payable.

Question 16

The carrying amount of a long-term note is computed as the present value of all remaining future payments, discounted using the market rate at the time of issuance.

Accepted Answer

A) True 
 B)False

Question 17

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Accepted Answer

A)  Convertible bonds. 
B)  Sinking fund bonds. 
C)  Callable bonds. 
D)  Serial bonds. 
E)  Junk bonds. 
A)  Convertible bonds. 
B)  Sinking fund bonds. 
C)  Callable bonds. 
D)  Serial bonds. 
E)  Junk bonds.

Question 18

Bonds that mature at different dates with the result that the entire principal amount is repaid gradually over a number of periods are known as:

Accepted Answer

A)  Registered bonds. 
B)  Bearer bonds. 
C)  Callable bonds. 
D)  Sinking fund bonds. 
E)  Serial bonds. 
A)  Registered bonds. 
B)  Bearer bonds. 
C)  Callable bonds. 
D)  Sinking fund bonds. 
E)  Serial bonds.

Question 19

On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest each July 1 and January 1. The bonds were sold for $817,860 cash, which provides the holders an annual yield of 8%. Prepare the issuer's journal entry to record the first semiannual interest payment assuming the effective interest method is used.

Accepted Answer

Cash payment: $720,000 x 10% x

Question 20

A discount on bonds payable:

Accepted Answer

A)  Occurs when a company issues bonds with a contract rate less than the market rate. 
B)  Occurs when a company issues bonds with a contract rate more than the market rate. 
C)  Increases the Bond Payable account. 
D)  Decreases the total bond interest expense. 
E)  Is not allowed in many states to protect creditors. 
A)  Occurs when a company issues bonds with a contract rate less than the market rate. 
B)  Occurs when a company issues bonds with a contract rate more than the market rate. 
C)  Increases the Bond Payable account. 
D)  Decreases the total bond interest expense. 
E)  Is not allowed in many states to protect creditors.

Exam 14: Long-Term Liabilities

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage.

On October 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The note requires equal payments of principal plus accrued interest be paid at the end of each year on September 30. The present value of an annuity factor for 3 years at 6% is 2.6730. The payment will be:

A company borrowed $50,000 cash from the bank and signed a 6-year note at 7%. The present value of an annuity for 6 years at 7% is 4.7665. The annual annuity payments equal:

An annuity is a series of equal payments at equal time intervals.

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is:

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ___________________________________.

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's ordinary shares.

A company with a low level of liabilities in relation to shareholders' equity is likely to have a very high debt-to-equity ratio.

What are the methods that a company may use to retire its bonds?

A company may retire bonds by:

Premium on Bonds Payable is an adjunct or accretion liability account.

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

The carrying amount of a long-term note is computed as the present value of all remaining future payments, discounted using the market rate at the time of issuance.

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Bonds that mature at different dates with the result that the entire principal amount is repaid gradually over a number of periods are known as:

A discount on bonds payable:

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

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