Question 1

An operating lease:

Accepted Answer

A) Creates an asset and a liability on the balance sheet. 
B) Is a form of off-balance sheet financing. 
C) Is always preferable to a capital lease. 
D) Transfers title to the asset being leased. 
A) Creates an asset and a liability on the balance sheet. 
B) Is a form of off-balance sheet financing. 
C) Is always preferable to a capital lease. 
D) Transfers title to the asset being leased.

Question 2

Bonds issued at par - basic concepts
On March 1,Year 1,Hubbard Co.issued at a price of 100 $20 million of 8%,25-year bonds payable.Interest is payable semiannually each March 1 and September 1.
(a)What is the amount of cash paid to bondholders for interest during Year 1?
$________
(b)Give the adjusting entry necessary at December 31,year 1 (if any),regarding this bond issue.
(c)Interest expense on this bond issue reported in Hubbard's Year 1 income statement is:
$________
(d)With respect to this bond issue,Hubbard 's balance sheet at December 31,Year 1,includes bonds payable of $________ and interest payable of $________.(Indicate $0 or "none" if the item is not reported. )
(e)Give the journal entry made by Hubbard on March 1,Year 2,to record the semiannual payment of interest to bondholders.

Accepted Answer

(a)$800,000 ($20,000,000 × 8%

Question 3

The adjustment necessary at December 31,Year 1 (if any),related to this bond issue involves:

Accepted Answer

A) Recognition of interest expense of $3,600,000. 
B) Recognition of interest expense of $1,800,000. 
C) Payment of cash of $1,800,000. 
D) There is no adjustment necessary. 
A) Recognition of interest expense of $3,600,000. 
B) Recognition of interest expense of $1,800,000. 
C) Payment of cash of $1,800,000. 
D) There is no adjustment necessary.

Question 4

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

Accepted Answer

A) Interest coverage ratio. 
B) Debt ratio. 
C) Return on assets. 
D) Return on equity. 
A) Interest coverage ratio. 
B) Debt ratio. 
C) Return on assets. 
D) Return on equity.

Question 5

Fully amortizing installment notes
When Sue Meadow purchased a home,she signed a $150,000,12%,fully amortizing mortgage note,payable at $1,543 per month.After making the first monthly payment,Meadow received a notice from the bank stating that $1,500 of the payment had applied to interest,and only $43 reduced the principal amount of the loan.Meadow does not understand how this loan is fully amortizing over a period of 30 years.She computes that at $43 per month,it will take approximately 3,488 months (or 290 years)to repay this loan.Evaluate Meadow's analysis.

Accepted Answer

Meadow's analysis is incorrect,because t

Question 6

Which of the following is not an accurate statement regarding the distinction between debt and equity?

Accepted Answer

A) Only equity is considered a source of financing for operations of the business,since debt must be repaid at a specified maturity date. 
B) If a business ceases operations and liquidates,claims of all creditors have legal priority over claims of the stockholders. 
C) Most debt requires the borrower to pay interest;equity financing does not obligate the company to make a specified payment. 
D) The providers of equity are owners of the business;the providers of borrowed funds are creditors. 
A) Only equity is considered a source of financing for operations of the business,since debt must be repaid at a specified maturity date. 
B) If a business ceases operations and liquidates,claims of all creditors have legal priority over claims of the stockholders. 
C) Most debt requires the borrower to pay interest;equity financing does not obligate the company to make a specified payment. 
D) The providers of equity are owners of the business;the providers of borrowed funds are creditors.

Question 7

At December 31,Year 1,the adjusting entry with respect to this note includes a:

Accepted Answer

A) Credit to Interest Payable for $1,600. 
B) Credit to Notes Payable for $1,600. 
C) Debit to Interest Expense for $3,200. 
D) Credit to Cash for $3,200. 
A) Credit to Interest Payable for $1,600. 
B) Credit to Notes Payable for $1,600. 
C) Debit to Interest Expense for $3,200. 
D) Credit to Cash for $3,200.

Question 8

A bond that is not secured is also known as:

Accepted Answer

A) A sinking fund. 
B) A mortgage. 
C) A debenture. 
D) A junk bond. 
A) A sinking fund. 
B) A mortgage. 
C) A debenture. 
D) A junk bond.

Question 9

The current portion of long-term debt should be reported:

Accepted Answer

A) Separately in the long-term liabilities section of the balance sheet. 
B) In the long-term liabilities section of the balance sheet,along with the other long-term debt. 
C) In the current liabilities section of the balance sheet. 
D) In a separate section of the balance sheet,between long-term liabilities and shareholders' equity. 
A) Separately in the long-term liabilities section of the balance sheet. 
B) In the long-term liabilities section of the balance sheet,along with the other long-term debt. 
C) In the current liabilities section of the balance sheet. 
D) In a separate section of the balance sheet,between long-term liabilities and shareholders' equity.

Question 10

The LBB Company recently took a mortgage on a property for $100,000.The interest is 12% and the monthly payment is $1,020.Prepare the first four months of the amortization table.

Accepted Answer

The answer of The LBB Company recently took a mortgage...

Question 11

Trego 's entry at June 30,2019,to record the first semiannual payment of interest and amortization of discount/premium on the bonds includes a:

Accepted Answer

A) Debit to Bond Interest Expense of $20,000. 
B) Credit to Cash of $22,000. 
C) Credit to Premium on Bonds Payable of $2,000. 
D) Debit to Bond Interest Expense of $18,000. 
A) Debit to Bond Interest Expense of $20,000. 
B) Credit to Cash of $22,000. 
C) Credit to Premium on Bonds Payable of $2,000. 
D) Debit to Bond Interest Expense of $18,000.

Question 12

Temple Corporation purchased a piece of real estate,paying $400,000 cash and financing $700,000 of the purchase price with a 10-year,15% installment note.The note calls for equal monthly payments that will result in the debt being completely repaid by the end of the tenth year.In this situation:

Accepted Answer

A) The aggregate amount of the monthly payments is $700,000. 
B) Each monthly payment is greater than the amount of interest accruing each month. 
C) The portion of each payment representing interest expense will increase over the 10-year period,since principal is being paid off,yet the payment amount does not decrease. 
D) The portion of each monthly payment representing repayment of principal remains the same throughout the 10-year period. 
A) The aggregate amount of the monthly payments is $700,000. 
B) Each monthly payment is greater than the amount of interest accruing each month. 
C) The portion of each payment representing interest expense will increase over the 10-year period,since principal is being paid off,yet the payment amount does not decrease. 
D) The portion of each monthly payment representing repayment of principal remains the same throughout the 10-year period.

Question 13

Deferred income taxes
At the end of its first year of operations,Harding Construction,Inc. ,included in its balance sheet a long-term liability entitled "Deferred Income Taxes."
(a)Briefly explain what deferred income taxes represents,including how this liability came into existence and whether such an item is generally perceived as favorable or unfavorable from company management's point of view.
(b)If Harding Construction,Inc. ,is a successful,growing business,would you expect the liability for deferred income taxes to increase or decrease over the next few years? Explain.

Accepted Answer

(a)For Harding Construction,Inc. ,deferr

Question 14

Pension expense is:

Accepted Answer

A) The present value of the estimated future pension benefits earned by employees as a result of their services during the period. 
B) The amount funded to the pension in a given year. 
C) The future value of rights granted to employees as a result of their services during the period. 
D) The amount withdrawn from the pension fund to pay retirees during the period. 
A) The present value of the estimated future pension benefits earned by employees as a result of their services during the period. 
B) The amount funded to the pension in a given year. 
C) The future value of rights granted to employees as a result of their services during the period. 
D) The amount withdrawn from the pension fund to pay retirees during the period.

Question 15

The account Discount on Bonds Payable actually represents interest expense and will be amortized over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 16

A liability for deferred income taxes represents:

Accepted Answer

A) Income taxes on earnings already reported in the income statement,but that will be taxed in future periods. 
B) Income taxes already paid on earnings that have not yet been reported in the company's income statement. 
C) Income tax obligations being disputed with the Internal Revenue Service. 
D) Income taxes levied in prior years that are now past due. 
A) Income taxes on earnings already reported in the income statement,but that will be taxed in future periods. 
B) Income taxes already paid on earnings that have not yet been reported in the company's income statement. 
C) Income tax obligations being disputed with the Internal Revenue Service. 
D) Income taxes levied in prior years that are now past due.

Question 17

Current liabilities are obligations that must be repaid within the shorter of one year or the operating cycle.

Accepted Answer

A) True 
 B)False

Question 18

The future value will always be less than the present value.

Accepted Answer

A) True 
 B)False

Question 19

How much of the first payment made on December 31,Year 1,represents interest expense?

Accepted Answer

A) $2,400 
B) $ 400 
C) $2,304 
D) $2,000 
A) $2,400 
B) $ 400 
C) $2,304 
D) $2,000

Question 20

Bond prices after issuance
Several years ago,Clear-Air Systems issued $100 million of 30-year,8% bonds payable at a small premium.Since the bonds were issued,Clear-Air's financial strength and credit rating have actually improved,but today the bonds are trading among investors at a price of 98.
(a)Explain the most probable reason why the market price of these bonds has declined,even though Clear-Air's credit rating has improved.
(b)How will the drop in the market value of these bonds be reported (if at all)in Clear-Air's income statements and balance sheets? Explain.

Accepted Answer

(a)The interest rates available to inves

Exam 10: Liabilities

An operating lease:

The adjustment necessary at December 31,Year 1 (if any),related to this bond issue involves:

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

Which of the following is not an accurate statement regarding the distinction between debt and equity?

At December 31,Year 1,the adjusting entry with respect to this note includes a:

A bond that is not secured is also known as:

The current portion of long-term debt should be reported:

The LBB Company recently took a mortgage on a property for $100,000.The interest is 12% and the monthly payment is $1,020.Prepare the first four months of the amortization table.

Trego 's entry at June 30,2019,to record the first semiannual payment of interest and amortization of discount/premium on the bonds includes a:

Temple Corporation purchased a piece of real estate,paying $400,000 cash and financing $700,000 of the purchase price with a 10-year,15% installment note.The note calls for equal monthly payments that will result in the debt being completely repaid by the end of the tenth year.In this situation:

Pension expense is:

The account Discount on Bonds Payable actually represents interest expense and will be amortized over the life of the bond.

A liability for deferred income taxes represents:

Current liabilities are obligations that must be repaid within the shorter of one year or the operating cycle.

The future value will always be less than the present value.

How much of the first payment made on December 31,Year 1,represents interest expense?

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