Question 1

Which of the following is not descriptive of a defined benefit 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 accounting for annual pension expense is simple. 
D)  The annual contribution is based on estimated future benefits.

Question 2

Which of the following is not needed in calculating the value of a bond?

Accepted Answer

A)  Face interest rate 
B)  Market interest rate 
C)  Present value of periodic interest payments 
D)  Future value of face (maturity)amount

Question 3

The interest coverage ratio is expressed in times.

Accepted Answer

A) True 
 B)False

Question 4

Adair Corporation purchased a building on January 2 by signing a long-term $1,200,000 mortgage with monthly payments of $11,000.The mortgage carries an interest rate of 10 percent.The amount owed on the mortgage at the end of the first month will be

Accepted Answer

A)  $1,200,000. 
B)  $1,199,000. 
C)  $1,190,000. 
D)  $1,189,000.

Question 5

A $200,000 bond issue with a carrying value of $194,000 is called at 101 and retired.The entry to record the retirement of bonds would be:

Accepted Answer

A)  Bonds Payable 200,000
Gain on Retirement of Bonds 6,000
Cash 194,000 
B)  Bonds Payable 200,000
Cash 200,000 
C)  Bonds Payable 200,000
Loss on Retirement of Bonds 8,000
Unamortized Bond Discount 6,000
Cash 202,000 
D)  Bonds Payable 194,000
Loss on Retirement of Bonds 8,000
Cash 202,000

Question 6

The debt to equity ratio is a measure of financial leverage.

Accepted Answer

A) True 
 B)False

Question 7

When the effective interest method of amortization is used,the amount of bond interest expense for a given period is calculated by multiplying the market interest rate by the bond's carrying value at the beginning of the given period.

Accepted Answer

A) True 
 B)False

Question 8

Suffolk Corporation issued $100,000 of 20-year,6 percent bonds at 98 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?

Accepted Answer

A)  $120,000 
B)  $122,000 
C)  $118,000 
D)  $117,500

Question 9

It is the bondholder rather than the issuer who may exercise the call feature of a callable bond.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

The answer of When a bond sells at a discount,what...

Question 11

As the interest coverage ratio increases,the risk for creditors decreases.

Accepted Answer

A) True 
 B)False

Question 12

If bonds are issued at a premium,the face interest rate is

Accepted Answer

A)  lower than the market rate of interest. 
B)  higher than the market rate of interest. 
C)  too low to attract investors. 
D)  adjusted to a higher effective rate of interest.

Question 13

When determining the value of a bond using present value,what are the two components used in the calculation?

Accepted Answer

The answer of When determining the value of a bond...

Question 14

Which of the following is not an advantage of issuing long-term debt?

Accepted Answer

A)  The stockholders do not relinquish any control. 
B)  The interest is tax-deductible. 
C)  The risk of becoming bankrupt is reduced. 
D)  Increased earnings accrue to the stockholders.

Question 15

The callable feature of a bond can be exercised by the issuer.

Accepted Answer

A) True 
 B)False

Question 16

The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that

Accepted Answer

A)  exceeds the amount of cash to be paid for interest for the period. 
B)  is less than the amount of cash to be paid for interest for the period. 
C)  has no predictable relationship with the amount of cash to be paid for interest for the period. 
D)  equals the amount of cash to be paid for interest for the period.

Question 17

Costs of postretirement benefits other than pension plans should be expensed when paid to the retired employee.

Accepted Answer

A) True 
 B)False

Exam 11: Long-Term Liabilities

Which of the following is not descriptive of a defined benefit plan?

Which of the following is not needed in calculating the value of a bond?

The interest coverage ratio is expressed in times.

Adair Corporation purchased a building on January 2 by signing a long-term $1,200,000 mortgage with monthly payments of $11,000.The mortgage carries an interest rate of 10 percent.The amount owed on the mortgage at the end of the first month will be

A $200,000 bond issue with a carrying value of $194,000 is called at 101 and retired.The entry to record the retirement of bonds would be:

The debt to equity ratio is a measure of financial leverage.

When the effective interest method of amortization is used,the amount of bond interest expense for a given period is calculated by multiplying the market interest rate by the bond's carrying value at the beginning of the given period.

Suffolk Corporation issued $100,000 of 20-year,6 percent bonds at 98 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?

It is the bondholder rather than the issuer who may exercise the call feature of a callable bond.

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

As the interest coverage ratio increases,the risk for creditors decreases.

If bonds are issued at a premium,the face interest rate is

When determining the value of a bond using present value,what are the two components used in the calculation?

Which of the following is not an advantage of issuing long-term debt?

The callable feature of a bond can be exercised by the issuer.

The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that

Costs of postretirement benefits other than pension plans should be expensed when paid to the retired employee.