Question 1

Review the information for Padagonian Company.
REQUIRED:
1 Where will the Deferred Income Taxes account most likely appear on a classified balance sheet?
2 What percent is deferred income taxes of long-term liabilities for the two years? 2016 __________ 2015 ___________
3 What percent is deferred income taxes of total liabilities for the two years? 2016 __________ 2015 ___________

Accepted Answer

The answer of Review the information for Padagonian Company.
REQUIRED:
1 Where...

Question 2

When determining the amount of interest to be paid on a bond, which of the following information is not necessary?

Accepted Answer

A)  The face amount of the bonds 
B)  The selling price of the bonds 
C)  The face rate of interest on the bonds 
D)  The length of the interest period, annually or semiannually

Question 3

Review the consolidated balance sheets of Backkus Metal Company.
REQUIRED:
1 What are the total long-term liabilities for the two years presented?
2 What is the percent increase/decrease of long-term liabilities from 2014 to 2015? Which liability appears to have caused the greatest change?

Accepted Answer

The answer of Review the consolidated balance sheets of Backkus...

Question 4

Carrying value is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

Accepted Answer

A)  Decrease 
B)  Increase 
C)  Remain constant 
D)  Not enough information given to decide.

Question 5

On January 1, 2015, Clark, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. What is the carrying value of the bonds at the end of the ten years?

Accepted Answer

A)  $400,000 
B)  $480,000 
C)  $380,000 
D)  $354,200

Question 6

On January 2, 2015, Garage Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%.The interest expense on the bonds at June 30, 2015 is

Accepted Answer

A)  $ 2,764. 
B)  $17,236. 
C)  $20,000. 
D)  $22,764.

Question 7

The effective interest method amortizes premium or discount in a manner that produces an
rate of interest from period to period.

Accepted Answer

The answer of The effective interest method amortizes premium or...

Question 8

Under the effective interest method of amortization, the interest expense for each period is the carrying value times the ______________________.

Accepted Answer

The answer of Under the effective interest method of amortization,...

Question 9

Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issued

Accepted Answer

A)  at a premium. 
B)  at a discount. 
C)  at the face value. 
D)  with an additional 3 years of interest.

Question 10

Which of the following statements regarding serial bonds is true?

Accepted Answer

A)  They are likely to be issued by food companies. 
B)  They have shorter lives than term bonds. 
C)  They are strongly backed by the issuer's collateral. 
D)  The bonds do not all mature on the same date.

Question 11

The denomination or principal amount of the bond is usually referred to as the .

Accepted Answer

The answer of The denomination or principal amount of the...

Question 12

Wave Corporation is determining its income tax liability. It has one machine that cost $30,000 with a 4-year life and no salvage value. Wave is using an accelerated depreciation method for tax purposes. For accounting purposes, Wave has decided to use the straight-line method. Which of the following statements is true?

Accepted Answer

A)  There will be a temporary difference between accounting income and income for tax purposes. 
B)  There will be a permanent difference between accounting income and income for tax purposes. 
C)  Wave's accounting income and income for tax purposes will be equal. 
D)  Accounting income will be lower than income for tax purposes, especially in the early years of the asset's life.

Question 13

Bonds in the amount of $100,000 and a life of 10 years were issued by the Focus Company. If the face rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds?

Accepted Answer

A)  $ 60,000 
B)  $120,000 
C)  $ 30,000 
D)  $ 6,000

Question 14

Temporary differences occur when an item affects both book and tax calculations but not in the same time period.

Accepted Answer

A) True 
 B)False

Question 15

Churchill Company planned to raise $100,000 by issuing bonds. The bond certificates were printed bearing an interest rate of 8%, which was equal to the market rate of interest. However, before the bonds could be issued, economic conditions forced the market rate up to 9%. If the life of the bonds is 6 years and interest is paid annually on December 31, how much will Churchill receive from the sale of the bonds?

Accepted Answer

A)  Exactly $100,000 because Churchill Company would still pay interest at the face rate of 8%. 
B)  Less than $100,000 because the market rate of interest at 9% was more than the face rate. 
C)  Greater than $100,000 because the face rate of interest at 8% was less than the market rate. 
D)  The bonds would not be sold at all; Churchill Company would have the certificates reprinted bearing the market rate of 9%.

Question 16

On January 2, 2015, Roof Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. At the maturity date, besides an interest payment, Roof Master would repay the bondholders

Accepted Answer

A)  $574,540. 
B)  $520,000. 
C)  $500,000. 
D)  only the last interest payment.

Question 17

Deferred income taxes arise because

Accepted Answer

A)  corporations often make errors in their tax estimations. 
B)  companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders. 
C)  the IRS owes a company a refund from last year. 
D)  large corporations generally have operations in foreign countries whose tax law is quite different from U.S. tax law.

Question 18

The Discount on Bonds Payable account is shown on the balance sheet as

Accepted Answer

A)  an asset. 
B)  an expense. 
C)  a long-term liability. 
D)  a contra long-term liability.

Question 19

Carrying value is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity?

Accepted Answer

A)  Decrease 
B)  Increase 
C)  Remain constant 
D)  Not enough information given to decide.

Question 20

On January 1, 2014, Hart Company purchased an asset for $137,500. For financial accounting purposes, the asset will be depreciated on a straight-line basis over five years with no residual value at the end of that time. For tax purposes, the asset will be depreciated as follows: 2014, $45,000; 2015, $35,000; 2016, $25,000; 2017, $20,000; and 2018, $12,500. Assume that the company is subject to a 35% tax rate.
REQUIRED:
1. What is the amount of deferred tax at December 31, 2014?
2. Does the deferred tax represent an asset or a liability?
3. What is the amount of deferred tax at December 31, 2018?

Accepted Answer

The answer of On January 1, 2014, Hart Company purchased...

Exam 10: Long-Term Liabilities

When determining the amount of interest to be paid on a bond, which of the following information is not necessary?

Review the consolidated balance sheets of Backkus Metal Company. REQUIRED: 1 What are the total long-term liabilities for the two years presented? 2 What is the percent increase/decrease of long-term liabilities from 2014 to 2015? Which liability appears to have caused the greatest change?

Carrying value is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

On January 1, 2015, Clark, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. What is the carrying value of the bonds at the end of the ten years?

On January 2, 2015, Garage Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%.The interest expense on the bonds at June 30, 2015 is

The effective interest method amortizes premium or discount in a manner that produces an rate of interest from period to period.

Under the effective interest method of amortization, the interest expense for each period is the carrying value times the ______________________.

Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issued

Which of the following statements regarding serial bonds is true?

The denomination or principal amount of the bond is usually referred to as the .

Bonds in the amount of $100,000 and a life of 10 years were issued by the Focus Company. If the face rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds?

Temporary differences occur when an item affects both book and tax calculations but not in the same time period.

On January 2, 2015, Roof Master Construction, Inc. issued $500,000, 10-year bonds for $574,540. The bonds pay interest on June 30 and December 31. The face rate is 8% and the market rate is 6%. At the maturity date, besides an interest payment, Roof Master would repay the bondholders

Deferred income taxes arise because

The Discount on Bonds Payable account is shown on the balance sheet as

Carrying value is computed annually when a bond is issued for other than its face value. For a bond issued at a premium, how will this component change as the bond approaches maturity?