Question 1

Assume Gamma borrows $5 million to finance its expansion.Gamma's debt ratio immediately after the borrowing will be (rounded):

Accepted Answer

A) 0.11. 
B) 0.23. 
C) 0.30. 
D) 0.35. 
A) 0.11. 
B) 0.23. 
C) 0.30. 
D) 0.35.

Question 2

The market value of a convertible bond tends to move inversely to the market value of an equivalent number of shares of common stock.

Accepted Answer

A) True 
 B)False

Question 3

The present value of an amount is:

Accepted Answer

A) Always greater than the future value. 
B) Always less than the future value. 
C) Always equal to the future value. 
D) Greater than,less than,or equal to the future value depending upon interest rates and the time period involved. 
A) Always greater than the future value. 
B) Always less than the future value. 
C) Always equal to the future value. 
D) Greater than,less than,or equal to the future value depending upon interest rates and the time period involved.

Question 4

When bonds are issued at a discount,the borrower must pay more at maturity than the amount originally received.

Accepted Answer

A) True 
 B)False

Question 5

[The following information applies to the questions displayed below.]
Salem Co.has outstanding $100 million of 7% bonds,due in 7 years,and callable at 104.The bonds were issued at par and are selling today at a market price of 94.
-If Salem Co.retires $10 million of these bonds by purchasing them from bondholders at current market price,the company will report:

Accepted Answer

A) A $600,000 gain. 
B) A $500,000 loss. 
C) A $700,000 gain. 
D) Neither gains nor losses are recognized on early retirements of debt. 
A) A $600,000 gain. 
B) A $500,000 loss. 
C) A $700,000 gain. 
D) Neither gains nor losses are recognized on early retirements of debt.

Question 6

The amortization of bond discount by the issuing company decreases the carrying value of its bonds payable.

Accepted Answer

A) True 
 B)False

Question 7

A bond with a $100,000 face value that is issued at a premium will have a higher maturity value than a bond with a $100,000 face value that is issued at a discount.

Accepted Answer

A) True 
 B)False

Question 8

If a bond is issued at a premium,the company receives more money for the bond than it will have to pay back at the end of the bond's life,and as a result the company records no interest expense over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 9

[The following information applies to the questions displayed below.]
The current balance sheet of Apex reports total assets of $20 million,total liabilities of $2 million,and owners' equity of $18 million.Apex is considering several financing possibilities in order to expand operations.Each question based on this data is independent of any others.
-What will be the effect on Apex's debt ratio if Apex's owner invests an additional $2 million to finance its expansion?

Accepted Answer

A) The debt ratio will decrease from 0.1 (2 ÷ 20)to 0.0909 (2 ÷ 22)after the additional investment. 
B) The debt ratio will decrease from 2 ÷ 9 before to 2 ÷ 11 after the additional investment. 
C) The debt ratio will increase from 20 before to 22 after the additional investment. 
D) Additional investment by owner will have no effect on the debt ratio. 
A) The debt ratio will decrease from 0.1 (2 ÷ 20)to 0.0909 (2 ÷ 22)after the additional investment. 
B) The debt ratio will decrease from 2 ÷ 9 before to 2 ÷ 11 after the additional investment. 
C) The debt ratio will increase from 20 before to 22 after the additional investment. 
D) Additional investment by owner will have no effect on the debt ratio.

Question 10

Notes payable
On September 1,2018,George Hanby borrowed $100,000 from The Actors' Credit Union and signed a 6% one-year note payable with all interest and principal due at maturity.The interest on this loan is stated separately.

Accepted Answer

(a)$100,000 + ($100,000 × 0.06

Question 11

The withholding of taxes from an employee's pay is recorded as a liability to the company.

Accepted Answer

A) True 
 B)False

Question 12

The two basic characteristics of estimated liabilities are:

Accepted Answer

A) Probable and reasonably estimated. 
B) Known to exist and amount unable to be determined until a later date. 
C) Probable and non-interest bearing. 
D) Known to exist and interest bearing. 
A) Probable and reasonably estimated. 
B) Known to exist and amount unable to be determined until a later date. 
C) Probable and non-interest bearing. 
D) Known to exist and interest bearing.

Question 13

Assume that the federal government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents.Stone will pay this tax instead of purchasing group health insurance.This will cause Stone 's total annual payroll-related expenses to:

Accepted Answer

A) Decrease by $15,000. 
B) Increase by $15,000. 
C) Decrease by $32,500. 
D) No change,because payroll taxes are withheld from employees' pay. 
A) Decrease by $15,000. 
B) Increase by $15,000. 
C) Decrease by $32,500. 
D) No change,because payroll taxes are withheld from employees' pay.

Question 14

Assume Select made no adjusting entry with respect to this note before preparing the financial statements at December 31,2018.What is the effect of this error on the financial statements for 2018?

Accepted Answer

A) Total liabilities are overstated. 
B) Net income is overstated. 
C) Owners' equity is understated. 
D) Interest Payable is overstated. 
A) Total liabilities are overstated. 
B) Net income is overstated. 
C) Owners' equity is understated. 
D) Interest Payable is overstated.

Question 15

Assume Apex borrows $2 million to finance its expansion.Apex's debt ratio immediately after the borrowing will be:

Accepted Answer

A) 0.10. 
B) 0.20. 
C) 0.33 (rounded). 
D) 0.18 (rounded). 
A) 0.10. 
B) 0.20. 
C) 0.33 (rounded). 
D) 0.18 (rounded).

Question 16

The price at which a bond sells is equal to the:

Accepted Answer

A) Maturity value of the bonds plus the present value to investors of the future interest payments. 
B) Sum of the future interest payments,minus the maturity value of the bonds. 
C) Present value to investors of the future principal and interest payments. 
D) Sum of the future interest payments,plus the maturity value of the bonds. 
A) Maturity value of the bonds plus the present value to investors of the future interest payments. 
B) Sum of the future interest payments,minus the maturity value of the bonds. 
C) Present value to investors of the future principal and interest payments. 
D) Sum of the future interest payments,plus the maturity value of the bonds.

Question 17

Off balance sheet financing may involve:

Accepted Answer

A) An operating lease. 
B) A pension plan. 
C) Deferred income taxes. 
D) A capital lease. 
A) An operating lease. 
B) A pension plan. 
C) Deferred income taxes. 
D) A capital lease.

Question 18

[The following information applies to the questions displayed below.]
On November 1,Year 1,Noble Co.borrowed $80,000 from South Bank and signed a 12%,six-month note payable,all due at maturity.The interest on this loan is stated separately.
-At December 31,Year 1,Noble Co.'s overall liability for this loan amounts to:

Accepted Answer

A) $80,000. 
B) $81,600. 
C) $83,200. 
D) $84,800. 
A) $80,000. 
B) $81,600. 
C) $83,200. 
D) $84,800.

Question 19

The amounts that a business withholds as taxes from an employee's earnings:

Accepted Answer

A) Represent payroll taxes expense to the employer. 
B) Are deposited in an interest-bearing account until the employee is terminated. 
C) Represent miscellaneous revenue to the employer. 
D) Represent current liabilities to the employer. 
A) Represent payroll taxes expense to the employer. 
B) Are deposited in an interest-bearing account until the employee is terminated. 
C) Represent miscellaneous revenue to the employer. 
D) Represent current liabilities to the employer.

Question 20

In preparing an amortization table,it is necessary to include:

Accepted Answer

A) The original amount of the liability,the amount of periodic payments,and the interest rate. 
B) The original amount of the liability,the amount of periodic payments,and the amount of past payments. 
C) The monthly payment,the total amount of past payments,and the original amount of the liability. 
D) The total amount of past payments,the interest rate,and the amount of periodic payments. 
A) The original amount of the liability,the amount of periodic payments,and the interest rate. 
B) The original amount of the liability,the amount of periodic payments,and the amount of past payments. 
C) The monthly payment,the total amount of past payments,and the original amount of the liability. 
D) The total amount of past payments,the interest rate,and the amount of periodic payments.

Exam 10: Liabilities

Assume Gamma borrows $5 million to finance its expansion.Gamma's debt ratio immediately after the borrowing will be (rounded):

The market value of a convertible bond tends to move inversely to the market value of an equivalent number of shares of common stock.

The present value of an amount is:

When bonds are issued at a discount,the borrower must pay more at maturity than the amount originally received.

The amortization of bond discount by the issuing company decreases the carrying value of its bonds payable.

A bond with a $100,000 face value that is issued at a premium will have a higher maturity value than a bond with a $100,000 face value that is issued at a discount.

If a bond is issued at a premium,the company receives more money for the bond than it will have to pay back at the end of the bond's life,and as a result the company records no interest expense over the life of the bond.

Notes payable On September 1,2018,George Hanby borrowed $100,000 from The Actors' Credit Union and signed a 6% one-year note payable with all interest and principal due at maturity.The interest on this loan is stated separately.

The withholding of taxes from an employee's pay is recorded as a liability to the company.

The two basic characteristics of estimated liabilities are:

Assume that the federal government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents.Stone will pay this tax instead of purchasing group health insurance.This will cause Stone 's total annual payroll-related expenses to:

Assume Select made no adjusting entry with respect to this note before preparing the financial statements at December 31,2018.What is the effect of this error on the financial statements for 2018?

Assume Apex borrows $2 million to finance its expansion.Apex's debt ratio immediately after the borrowing will be:

The price at which a bond sells is equal to the:

Off balance sheet financing may involve:

The amounts that a business withholds as taxes from an employee's earnings:

In preparing an amortization table,it is necessary to include:

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