Question 1

Aire Corporation retires its bonds at 106 on January 1, following the payment of annual interest. The face value of the bonds is $800,000. The carrying value of the bonds at the redemption date is $842,000. The entry to record the redemption will include a

Accepted Answer

A)   credit of $42,000 to Loss on Bond Redemption.
B)   debit of $48,000 to Premium on Bonds Payable.
C)   credit of $7,000 to Gain on Bond Redemption.
D)   debit of $42,000 to Premium on Bonds Payable. D

Question 2

Notes payable usually require the borrower to pay interest.

Accepted Answer

A) True 
 B)False  True

Question 3

The times interest earned is computed by dividing

Accepted Answer

A)   net income by interest expense.
B)   income before income taxes by interest expense.
C)   income before interest expense by interest expense.
D)   income before income taxes and interest expense by interest expense. D

Question 4

On January 1, 2018, Sunrise Corporation issued $4,000,000, 8%, 5-year bonds dated January 1, 2018, at 95. The bonds pay annual interest on January 1. The company uses the straight-line method of amortization and has a calendar year end. Instructions Prepare all the journal entries that Sunrise Corporation would make related to this bond issue through January 1, 2019. Be sure to indicate the date on which the entries would be made.

Accepted Answer

The answer of On January 1, 2018, Sunrise Corporation...

Question 5

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called

Accepted Answer

A)   callable bonds.
B)   early retirement bonds.
C)   options.
D)   debentures.

Question 6

If $150,000 face value bonds are issued at 103, the proceeds received will be $103,000.

Accepted Answer

A) True 
 B)False

Question 7

Each payment on a mortgage note payable consists of interest on the original balance of the loan and a reduction of the loan principal.

Accepted Answer

A) True 
 B)False

Question 8

Adams Corporation issues a $9,000,000, 5%, 20-year mortgage note payable on December 31, 2018, to obtain needed financing for the construction of a building addition. The terms provide for annual installment payments of $722,183 on December 31.
Instructions
(a) Prepare the journal entries to record the mortgage loan on December 31, 2018, and the first installment payment.
(b) Will the amount of principal reduction in the second installment payment be more or less than with the first installment payment?

Accepted Answer

The answer of Adams Corporation issues a $9,000,000, 5%, 20-year...

Question 9

Most companies pay current liabilities

Accepted Answer

A)   out of current assets.
B)   by issuing interest-bearing notes payable.
C)   by issuing stock.
D)   by creating long-term liabilities.

Question 10

Under IFRS, liabilities

Accepted Answer

A)   must be legally enforceable by a contract.
B)   must be legally enforceable by law.
C)   may be legally enforceable by a contract or law but need not be.
D)   are defined differently than under GAAP.IFRS.

Question 11

When an interest-bearing note matures, the balance in the Notes Payable account is

Accepted Answer

A)   less than the total amount repaid by the borrower.
B)   the difference between the maturity value of the note and the face value of the note.
C)   equal to the total amount repaid by the borrower.
D)   greater than the total amount repaid by the borrower.

Question 12

Sophia Company is considering two alternatives to finance its purchase of a new $4,000,000 office building.
(a) Issue 400,000 shares of common stock at $10 per share.
(b) Issue 7%, 10-year bonds at par ($4,000,000).
Income before interest and taxes is expected to be $3,500,000. The company has a 30% tax rate and has 600,000 shares of common stock outstanding prior to the new financing.
Instructions
Calculate each of the following for each alternative:
(1) Net income.
(2) Earnings per share.

Accepted Answer

The answer of Sophia Company is considering two alternatives to...

Question 13

200. Presented here is a partial amortization schedule for Roseland Company who sold $300,000, five year 10% bonds on January 1, 2017 for $312,000 and uses annual straight-line amortization.  Which of the following amounts should be shown in cell (v)?

Accepted Answer

A)   $314,400
B)   $313,200
C)   $309,600
D)   $310,800

Question 14

Crawford Company has total proceeds (before segregation of sales taxes) from sales of $7,155. If the sales tax is 6%, the amount to be credited to the account Sales Revenue is:

Accepted Answer

A)   $7,155.
B)   $6,726.
C)   $7,584.
D)   $6,750.

Question 15

209. A corporation issues $500,000, 8%, 10-year bonds on January 1, 2018 for $479,000. Interest is paid annually on January 1. If the corporation uses the straight- line method of amortization of bond discount, the amount of bond interest expense to be recognized on December 31, 2018 is

Accepted Answer

A)   $40,420.
B)   $40,000.
C)   $42,100.
D)   $37,900.

Question 16

Which one of the following payroll taxes does not result in a payroll tax expense for the employer?

Accepted Answer

A)   FICA tax
B)   Federal income tax
C)   Federal unemployment tax
D)   State unemployment tax

Question 17

BE 251
On January 1, 2018, Frog Corporation issued $800,000, 8%, 10-year bonds at face value. Interest is payable annually on January 1. Frog Corporation has a calendar year end.
Instructions
Prepare all entries related to the bond issue for 2018.

Accepted Answer

The answer of BE 251
On January 1, 2018, Frog Corporation...

Question 18

Admire County Bank agrees to lend Givens Brick Company $600,000 on January 1. Givens Brick Company signs a $600,000, 8%, 9-month note. What is the adjusting entry required if Givens Brick Company prepares financial statements on June 30?

Accepted Answer

The answer of Admire County Bank agrees to lend Givens...

Question 19

The current portion of long-term debt should

Accepted Answer

A)   be paid immediately.
B)   be reclassified as a current liability.
C)   be classified as a long-term liability.
D)   not be separated from the long-term portion of debt.

Question 20

Slotkin Health is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are:
1. Issue 60,000 shares of $10 par value common stock at $50 per share.
2. Issue $3,000,000, 8%, 10-year bonds at par.
It is estimated that the company will earn $900,000 before interest and taxes as a result of acquiring the medical equipment. The company has an estimated tax rate of 40% and has 80,000 shares of common stock outstanding prior to the new financing.
Instructions
Determine the effect on net income and earnings per share for these two methods of financing.

Accepted Answer

The answer of Slotkin Health is considering two alternatives for...

Exam 10: Liabilities