Question 1

Long-term notes and bonds have similar effects on the financial statements.

Accepted Answer

A) True 
 B)False

Question 2

A bond discount is a component of interest cost because it represents the amount in excess of the issue price that a corporation must pay on the maturity date.

Accepted Answer

A) True 
 B)False

Question 3

When bonds payable are converted into stock,the carrying value of the bonds should be

Accepted Answer

A) credited to Retained Earnings. 
B) credited to contributed capital accounts. 
C) debited to Retained Earnings. 
D) debited to Loss on Conversion of Bonds. 
A) credited to Retained Earnings. 
B) credited to contributed capital accounts. 
C) debited to Retained Earnings. 
D) debited to Loss on Conversion of Bonds.

Question 4

Financial leverage is also known as trading on the equity.

Accepted Answer

A) True 
 B)False

Question 5

When the terms of a lease require that the lessee record an asset and a liability,the two accounts are recorded at the present value of the total lease payments required.

Accepted Answer

A) True 
 B)False

Question 6

If a 20-year bond pays interest of 8 percent semiannually,the present value of the bond is calculated based upon (1)4 percent and 40 periods for the interest,and (2)8 percent and 20 periods for the face amount of the bond.

Accepted Answer

A) True 
 B)False

Question 7

The call price of bonds is usually above face value.

Accepted Answer

A) True 
 B)False

Question 8

The distinction between current and long-term liabilities affects the evaluation of a company's solvency.

Accepted Answer

A) True 
 B)False

Question 9

The carrying value of a bond is also referred to as its present value.

Accepted Answer

A) True 
 B)False

Question 10

Accounting for capital leases can be thought of as similar to accounting for mortgage payments.

Accepted Answer

A) True 
 B)False

Question 11

As the interest coverage ratio declines,the risk for creditors also declines.

Accepted Answer

A) True 
 B)False

Question 12

If the market interest rate at the date of issuance of a bond exceeds the face interest rate,the present value of the face value plus the present value of all the future interest payments will equal an amount less than the face value of the bond.

Accepted Answer

A) True 
 B)False

Question 13

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,and sells them on the same date for their face value.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the first interest payment includes

Accepted Answer

A) a credit to Cash for $28,000. 
B) a debit to Interest Expense for $14,000. 
C) a debit to Unamortized Discount on Bonds Payable for $14,000. 
D) All of these choices. 
A) a credit to Cash for $28,000. 
B) a debit to Interest Expense for $14,000. 
C) a debit to Unamortized Discount on Bonds Payable for $14,000. 
D) All of these choices.

Question 14

When all the bonds of an issue mature at the same time,they are called term bonds.

Accepted Answer

A) True 
 B)False

Question 15

When a bond sells at a premium,what is probably true about the market interest rate versus the face interest rate? Discuss.

Accepted Answer

For someone to pay a premium for the pur

Question 16

The amount of cash received on issuance of a 9 percent,$10,000 bond dated February 1 and issued June 1 at 102 1/2 is

Accepted Answer

A) $10,300. 
B) $11,100. 
C) $10,200. 
D) $10,550. 
A) $10,300. 
B) $11,100. 
C) $10,200. 
D) $10,550.

Question 17

The effective interest method produces a constant dollar amount of bond interest expense to be reported each interest period.

Accepted Answer

A) True 
 B)False

Question 18

Under a defined benefit pension plan,

Accepted Answer

A) the pension expense account must be determined by actuarial calculations. 
B) the employer guarantees the employee certain benefits upon retirement. 
C) the annual contribution is based on estimated future benefits. 
D) All of these choices. 
A) the pension expense account must be determined by actuarial calculations. 
B) the employer guarantees the employee certain benefits upon retirement. 
C) the annual contribution is based on estimated future benefits. 
D) All of these choices.

Question 19

When bonds are converted to common stock,what is the basis for recording (valuing)the stock issued?

Accepted Answer

The value assigned to the stoc

Question 20

Parson Company issues $500,000 of 30-year,8 percent bonds at 106.Interest is paid semiannually,and the effective interest method is used for amortization.Assume that the market interest rate for similar investments is 7 percent and that the bonds are issued on an interest date.
a.What amount was received for the bonds?
b.How much interest is paid each interest period?
c.How much bond interest expense is recorded on the first interest date (after the issue date)?
d.What is the carrying value of the bonds after the first interest date (after the issue date)?

Accepted Answer

a.$530,000 ($500,000 × 1.06) b

Long-term notes and bonds have similar effects on the financial statements.

A bond discount is a component of interest cost because it represents the amount in excess of the issue price that a corporation must pay on the maturity date.

When bonds payable are converted into stock,the carrying value of the bonds should be

Financial leverage is also known as trading on the equity.

When the terms of a lease require that the lessee record an asset and a liability,the two accounts are recorded at the present value of the total lease payments required.

If a 20-year bond pays interest of 8 percent semiannually,the present value of the bond is calculated based upon (1)4 percent and 40 periods for the interest,and (2)8 percent and 20 periods for the face amount of the bond.

The call price of bonds is usually above face value.

The distinction between current and long-term liabilities affects the evaluation of a company's solvency.

The carrying value of a bond is also referred to as its present value.

Accounting for capital leases can be thought of as similar to accounting for mortgage payments.

As the interest coverage ratio declines,the risk for creditors also declines.

If the market interest rate at the date of issuance of a bond exceeds the face interest rate,the present value of the face value plus the present value of all the future interest payments will equal an amount less than the face value of the bond.

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,and sells them on the same date for their face value.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the first interest payment includes

When all the bonds of an issue mature at the same time,they are called term bonds.

When a bond sells at a premium,what is probably true about the market interest rate versus the face interest rate? Discuss.

The amount of cash received on issuance of a 9 percent,$10,000 bond dated February 1 and issued June 1 at 102 1/2 is

The effective interest method produces a constant dollar amount of bond interest expense to be reported each interest period.

Under a defined benefit pension plan,

When bonds are converted to common stock,what is the basis for recording (valuing)the stock issued?

Accounting Principles and the Financial Statements

Analyzing and Recording Business Transactions

Adjusting the Accounts

Completing the Accounting Cycle

Foundations of Financial Reporting and the Classified Balance Sheet

Accounting for Merchandising Operations

Supplement: Accounting for Merchandising Operations

Inventories

Cash and Internal Control

Receivables

Long -Term Assets

Current Liabilities and Fair Value Accounting

Accounting for Partnerships

Accounting for Corporations

The Statement of Cash Flows

Supplement: the Statement of Cash Flows

Financial Statement Analysis

Accounting for Investments

Filters

Exam 14: Long Term Liabilities

Long-term notes and bonds have similar effects on the financial statements.

A bond discount is a component of interest cost because it represents the amount in excess of the issue price that a corporation must pay on the maturity date.

When bonds payable are converted into stock,the carrying value of the bonds should be

Financial leverage is also known as trading on the equity.

When the terms of a lease require that the lessee record an asset and a liability,the two accounts are recorded at the present value of the total lease payments required.

If a 20-year bond pays interest of 8 percent semiannually,the present value of the bond is calculated based upon (1)4 percent and 40 periods for the interest,and (2)8 percent and 20 periods for the face amount of the bond.

The call price of bonds is usually above face value.

The distinction between current and long-term liabilities affects the evaluation of a company's solvency.

The carrying value of a bond is also referred to as its present value.

Accounting for capital leases can be thought of as similar to accounting for mortgage payments.

As the interest coverage ratio declines,the risk for creditors also declines.

If the market interest rate at the date of issuance of a bond exceeds the face interest rate,the present value of the face value plus the present value of all the future interest payments will equal an amount less than the face value of the bond.

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,and sells them on the same date for their face value.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the first interest payment includes

When all the bonds of an issue mature at the same time,they are called term bonds.

When a bond sells at a premium,what is probably true about the market interest rate versus the face interest rate? Discuss.

The amount of cash received on issuance of a 9 percent,$10,000 bond dated February 1 and issued June 1 at 102 1/2 is

The effective interest method produces a constant dollar amount of bond interest expense to be reported each interest period.

Under a defined benefit pension plan,

When bonds are converted to common stock,what is the basis for recording (valuing)the stock issued?

Accounting Principles and the Financial Statements

Analyzing and Recording Business Transactions

Adjusting the Accounts

Completing the Accounting Cycle

Foundations of Financial Reporting and the Classified Balance Sheet

Accounting for Merchandising Operations

Supplement: Accounting for Merchandising Operations

Inventories

Cash and Internal Control

Receivables

Long -Term Assets

Current Liabilities and Fair Value Accounting

Accounting for Partnerships

Accounting for Corporations

The Statement of Cash Flows

Supplement: the Statement of Cash Flows

Financial Statement Analysis

Accounting for Investments

Filters