Question 1

If a bond is callable,the call price is usually lower than the face value of the bond.

Accepted Answer

A) True 
 B)False

Question 2

Bonds payable are a means of dividing a very large,long-term liability among many creditors,some of whom may participate in the loan only for a short period of time.

Accepted Answer

A) True 
 B)False

Question 3

If a bond is selling at 103,it is selling at:

Accepted Answer

A) Maturity value and yields a 2% interest rate. 
B) A discount. 
C) A premium. 
D) $103 per bond. 
A) Maturity value and yields a 2% interest rate. 
B) A discount. 
C) A premium. 
D) $103 per bond.

Question 4

On November 1 of the current year,Garcia Company borrowed $50,000 by issuing a 9%,six-month note payable,all due at maturity date.Interest expense on this note to be recognized during the current year amounts to:

Accepted Answer

A) $500. 
B) $750. 
C) $1,500. 
D) $4,500. 
A) $500. 
B) $750. 
C) $1,500. 
D) $4,500.

Question 5

An amortization table for a note payable shows decreasing amounts of interest and an increasing amount of unpaid balance each period.

Accepted Answer

A) True 
 B)False

Question 6

A liability that is known to exist but the precise dollar amount is not known is called a possible liability.

Accepted Answer

A) True 
 B)False

Question 7

[The following information applies to the questions displayed below.]
Austin Corporation issues $6,000,000 of 10%,10-year bonds,dated December 31,Year 1.The bonds are issued on April 30,Year 2,at 100 plus accrued interest.Interest on the bonds is payable semiannually each June 30 and December 31.
-The total amount of cash received by Austin Corporation upon issuance of the bonds on April 30,Year 2,is:

Accepted Answer

A) $6,000,000. 
B) $6,200,000. 
C) $6,150,000. 
D) $6,300,000. 
A) $6,000,000. 
B) $6,200,000. 
C) $6,150,000. 
D) $6,300,000.

Question 8

Deferred taxes are classified as:

Accepted Answer

A) Only a liability. 
B) Only an asset. 
C) Either an asset or liability,depending upon the situation. 
D) A non-operating expense. 
A) Only a liability. 
B) Only an asset. 
C) Either an asset or liability,depending upon the situation. 
D) A non-operating expense.

Question 9

The total liability related to this mortgage reported in Bradley's balance sheet at December 31,Year 1,is:

Accepted Answer

A) $432,100. 
B) $199,600. 
C) $194,923. 
D) $200,000. 
A) $432,100. 
B) $199,600. 
C) $194,923. 
D) $200,000.

Question 10

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 11

A high interest coverage ratio is a sign of creditworthiness.

Accepted Answer

A) True 
 B)False

Question 12

Sand,Inc.has outstanding $5,000,000,10%,20-year bonds.The bonds are callable at 104 on any interest date.The bonds were issued at par and mature in 10 years.Recently,interest rates have declined to 5% and the market price of the bonds has increased to 107.If the company exercises the call provision,the company will record:

Accepted Answer

A) A credit to cash of $5,350,000. 
B) A loss of $200,000 on its income statement in the year the bonds are called. 
C) A loss of $20,000 in the year the bonds are called and a $20,000 loss for the next 9 years. 
D) A gain of $150,000 in the year the bonds are called. 
A) A credit to cash of $5,350,000. 
B) A loss of $200,000 on its income statement in the year the bonds are called. 
C) A loss of $20,000 in the year the bonds are called and a $20,000 loss for the next 9 years. 
D) A gain of $150,000 in the year the bonds are called.

Question 13

Dividends paid by a corporation to its stockholders are tax deductible by the corporation,but interest paid on bonds is not tax deductible.

Accepted Answer

A) True 
 B)False

Question 14

When money is borrowed by issuing a note payable,the borrower records a liability equal to the maturity value of the note.

Accepted Answer

A) True 
 B)False

Question 15

Accounts payable are often subdivided into the categories of trade accounts payable and notes payable.

Accepted Answer

A) True 
 B)False

Question 16

Effects of transactions upon financial measurements
Five events relating to liabilities are described below:
(a)Recorded a bi-weekly payroll,including the issuance of paychecks to employees.Amounts withheld from employees' pay and payroll taxes will be forwarded to appropriate agencies in the near future.(Ignore post-retirement costs. )
(b)Made a monthly payment on a 12-month installment note payable,including interest and a partial repayment of the principal amount.
(c)Shortly before the maturity date of a six-month bank loan,made arrangements with the bank to refinance the loan on a long-term basis.
(d)Made an adjusting entry to record accrued interest payable on a 2-year bank loan.(Interest is paid quarterly. )
(e)Made a year-end adjusting entry to amortize a portion of the discount on long-term bonds payable.
Indicate the immediate effects of each transaction or adjusting entry upon the financial measurements in the five column headings listed below.Use the code letters,I for increase,D for decrease,and NE for no effect.

Accepted Answer

The answer of Effects of transactions upon financial measurements
Five events...

Question 17

The portion of the second monthly payment (made on January 31,Year 2)that represents repayment of principal is:

Accepted Answer

A) $400. 
B) $404. 
C) $2,400. 
D) $1,996. 
A) $400. 
B) $404. 
C) $2,400. 
D) $1,996.

Exam 10: Liabilities

If a bond is callable,the call price is usually lower than the face value of the bond.

Bonds payable are a means of dividing a very large,long-term liability among many creditors,some of whom may participate in the loan only for a short period of time.

If a bond is selling at 103,it is selling at:

On November 1 of the current year,Garcia Company borrowed $50,000 by issuing a 9%,six-month note payable,all due at maturity date.Interest expense on this note to be recognized during the current year amounts to:

An amortization table for a note payable shows decreasing amounts of interest and an increasing amount of unpaid balance each period.

A liability that is known to exist but the precise dollar amount is not known is called a possible liability.

Deferred taxes are classified as:

The total liability related to this mortgage reported in Bradley's balance sheet at December 31,Year 1,is:

Amortizing a discount on bonds payable:

A high interest coverage ratio is a sign of creditworthiness.

Dividends paid by a corporation to its stockholders are tax deductible by the corporation,but interest paid on bonds is not tax deductible.

When money is borrowed by issuing a note payable,the borrower records a liability equal to the maturity value of the note.

Accounts payable are often subdivided into the categories of trade accounts payable and notes payable.

The portion of the second monthly payment (made on January 31,Year 2)that represents repayment of principal is:

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

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

the Time Value of Money: Future Amounts and Present Values

Forms of Business Organization

Filters