Question 1

To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by:

Accepted Answer

A)  Safe deposit boxes. 
B)  Mortgages. 
C)  Equity. 
D)  The IASB. 
E)  Debentures. 
A)  Safe deposit boxes. 
B)  Mortgages. 
C)  Equity. 
D)  The IASB. 
E)  Debentures.

Question 2

When convertible bonds are converted to a company's shares, the carrying amount of the bonds is transferred to equity accounts and no gain or loss is recorded.

Accepted Answer

A) True 
 B)False

Question 3

Match each of the following terms with the appropriate definitions.

Accepted Answer

The answer of Match each of the following terms with...

Question 4

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

Accepted Answer

A)  Debentures. 
B)  Discounted notes. 
C)  Installment notes. 
D)  Indentures. 
E)  Investment notes. 
A)  Debentures. 
B)  Discounted notes. 
C)  Installment notes. 
D)  Indentures. 
E)  Investment notes.

Question 5

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Accepted Answer

A) True 
 B)False

Question 6

When the contract rate is above the market rate, a bond sells at a discount.

Accepted Answer

A) True 
 B)False

Question 7

Adidas issued 10-year, 8% bonds with a par value of $200,000. Interest is paid semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in cash proceeds. Which of the following statements is ?

Accepted Answer

A)  Adidas must pay $200,000 at maturity and no interest payments. 
B)  Adidas must pay $206,948 at maturity and no interest payments. 
C)  Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each. 
D)  Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each. 
E)  Adidas must pay $200,000 at maturity plus 20 interest payments of $7,500 each. 
A)  Adidas must pay $200,000 at maturity and no interest payments. 
B)  Adidas must pay $206,948 at maturity and no interest payments. 
C)  Adidas must pay $200,000 at maturity plus 20 interest payments of $8,000 each. 
D)  Adidas must pay $206,948 at maturity plus 20 interest payments of $8,000 each. 
E)  Adidas must pay $200,000 at maturity plus 20 interest payments of $7,500 each.

Question 8

A company issued 10%, 5-year bonds with a par value of $2,000,000, on January 1. Interest is to be paid semiannually each June 30 and December 31. The bonds were sold at $2,162,290 to yield the buyers an 8% annual return. The company uses the effective interest method of amortization.
(1) Prepare an amortization table for the first two semiannual payment periods using the format shown below.
   (2) Prepare the journal entry to record the first semiannual interest payment.

Accepted Answer

@#IMG-DLM& 6/30
Cash payment: $2,000,000 x 10% x ½

Question 9

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

Accepted Answer

A) True 
 B)False

Question 10

The debt-to-equity ratio:

Accepted Answer

A)  Is calculated by dividing carrying amount of secured liabilities by carrying amount of pledged assets. 
B)  Is a means of assessing the risk of a company's financing structure. 
C)  Is not relevant to secured creditors. 
D)  Can always be calculated from information provided in a company's income statement. 
E)  Must be calculated from the fair market values of assets and liabilities. 
A)  Is calculated by dividing carrying amount of secured liabilities by carrying amount of pledged assets. 
B)  Is a means of assessing the risk of a company's financing structure. 
C)  Is not relevant to secured creditors. 
D)  Can always be calculated from information provided in a company's income statement. 
E)  Must be calculated from the fair market values of assets and liabilities.

Question 11

A basic present value concept is that cash paid or received in the future is worth less than the same amount of cash today.

Accepted Answer

A) True 
 B)False

Question 12

Term bonds are scheduled for maturity on one specified date, whereas serial bonds mature at more than one date.

Accepted Answer

A) True 
 B)False

Question 13

A company issued 9.2%, 10-year bonds with a par value of $100,000. Interest is paid semiannually. The market interest rate on the issue date was 10%, and the issuer received $95,016 cash for the bonds. The issuer uses the effective interest method for amortization. On the first semiannual interest date, what amount of discount should issuer amortize?

Accepted Answer

The answer of A company issued 9.2%, 10-year bonds with...

Question 14

Payments on installment notes normally include accrued interest plus a portion of the principal amount borrowed.

Accepted Answer

A) True 
 B)False

Question 15

A disadvantage of bonds is:

Accepted Answer

A)  Bonds require payment of periodic interest. 
B)  Bonds require payment of par value at maturity. 
C)  Bonds can decrease return on equity. 
D)  Bond payments can be burdensome when income and cash flow are low. 
E)  All of these. 
A)  Bonds require payment of periodic interest. 
B)  Bonds require payment of par value at maturity. 
C)  Bonds can decrease return on equity. 
D)  Bond payments can be burdensome when income and cash flow are low. 
E)  All of these.

Question 16

A bondholder that owns a $1,000, 10%, 10-year bond has:

Accepted Answer

A)  Ownership rights in the issuing company. 
B)  The right to receive $10 per year until maturity. 
C)  The right to receive $1,000 at maturity. 
D)  The right to receive $10,000 at maturity. 
E)  The right to receive dividends of $1,000 per year. 
A)  Ownership rights in the issuing company. 
B)  The right to receive $10 per year until maturity. 
C)  The right to receive $1,000 at maturity. 
D)  The right to receive $10,000 at maturity. 
E)  The right to receive dividends of $1,000 per year.

Question 17

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Accepted Answer

A) True 
 B)False

Question 18

Long-term bonds have relatively higher interest rates because they carry higher risk due to the longer time period.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A bond discount occurs when bonds are so

Question 20

A bond sells at a discount when the:

Accepted Answer

A)  Contract rate is above the market rate. 
B)  Contract rate is equal to the market rate. 
C)  Contract rate is below the market rate. 
D)  Bond has a short-term life. 
E)  Bond pays interest only once a year. 
A)  Contract rate is above the market rate. 
B)  Contract rate is equal to the market rate. 
C)  Contract rate is below the market rate. 
D)  Bond has a short-term life. 
E)  Bond pays interest only once a year.

Exam 14: Long-Term Liabilities

To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by:

When convertible bonds are converted to a company's shares, the carrying amount of the bonds is transferred to equity accounts and no gain or loss is recorded.

Match each of the following terms with the appropriate definitions.

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

When the contract rate is above the market rate, a bond sells at a discount.

Adidas issued 10-year, 8% bonds with a par value of $200,000. Interest is paid semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in cash proceeds. Which of the following statements is ?

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

The debt-to-equity ratio:

A basic present value concept is that cash paid or received in the future is worth less than the same amount of cash today.

Term bonds are scheduled for maturity on one specified date, whereas serial bonds mature at more than one date.

Payments on installment notes normally include accrued interest plus a portion of the principal amount borrowed.

A disadvantage of bonds is:

A bondholder that owns a $1,000, 10%, 10-year bond has:

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Long-term bonds have relatively higher interest rates because they carry higher risk due to the longer time period.

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

A bond sells at a discount when the:

Accounting in Business

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Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

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Long-Term Assets

Current Liabilities and Payroll Accounting

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Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

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Cost Allocation and Performance Measurement

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Flexible Budgets and Standard Costs

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