Question 1

Most bonds issued today are coupon bonds rather than registered bonds.

Accepted Answer

A) True 
 B)False

Question 2

Regardless of whether the straight-line method or the effective interest method is used,the carrying value of a term bond issued at a discount will decrease continually over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 3

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 entry to record the mortgage will include a

Accepted Answer

A)  debit to the Mortgage Payable account for $1,200,000. 
B)  credit to the Cash account for $1,200,000. 
C)  debit to the Cash account for $1,200,000. 
D)  credit to the Mortgage Payable account for $1,200,000.

Question 4

The effective interest method of amortization of bond premiums and discounts is superior to the straight-line method because it results in a(n)

Accepted Answer

A)  more variable interest rate. 
B)  uniform rate of interest. 
C)  interest rate that increases or decreases slightly over time. 
D)  interest rate that is close to the market interest rate.

Question 5

Accounting for a defined benefit pension plan is more complex than accounting for a defined contribution plan.

Accepted Answer

A) True 
 B)False

Question 6

Interest on bonds usually is paid annually.

Accepted Answer

A) True 
 B)False

Question 7

On July 1,2013,Owsley Corporation issued bonds with a face value of $1,200,000.The bonds carry a face interest rate of 8 percent that is payable each July 1 and January 1.
a.Prepare an entry in journal form without explanations to record the issuance assuming the bonds are issued at 100.
b.Prepare an entry in journal form without explanations to record the issuance assuming the bonds are issued at 97.
c.Prepare an entry in journal form without explanations to record the issuance assuming the bonds are issued at 103.

Accepted Answer

The answer of On July 1,2013,Owsley Corporation issued bonds with...

Question 8

All of the following are operating leases except a

Accepted Answer

A)  monthly lease on a building that can be canceled with 60 days' notice. 
B)  Seven-year lease on a new building. 
C)  Four-year lease on a truck with an option to renew for two more years. 
D)  Ten-year lease of a computer with an option to buy for a small amount at the end of the lease.

Question 9

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.

Question 10

Term bonds are bonds that

Accepted Answer

A)  are also called serial bonds. 
B)  may be called in and redeemed by the issuing corporation prior to their scheduled maturity date. 
C)  are secured by specific assets of the issuing corporation. 
D)  mature in one lump sum at a single maturity date.

Question 11

A notice appeared in the Grant Street Times stating that Dollar Savings Association of Texas was issuing $2.9 billion in zero coupon bonds."The Bonds do not pay interest periodically.The only scheduled payment to the holder of a Bond will be the amount at maturity," the ad read.The details of two components of the issue were as follows: $500,000,000 Bonds due December 12,2017,at 3.254; $500,000,000 Bonds due December 12,2027,at 1.380; plus accrued amortization,if any,of the original issue discount from December 12,1987,to date of delivery.
a.Assuming all the bonds were issued on December 12,1987,prepare entries in journal form to record each component shown above.
  
b.Determine the approximate market interest rate on each of the two components of the bond issue.Assume that interest is compounded annually.Use Table 3 in the appendix on future value and present value tables.
c.Prepare entries in journal form to record bond interest expense for each of the first two years (December 12,1988 and 1989)on the component of the bond due in 2017 (ignore effects of fiscal year ends).What advantages or disadvantages are there to Dollar in issuing zero coupon bonds?

Accepted Answer

The answer of A notice appeared in the Grant Street...

Question 12

The entry to record the issuance of bonds at a discount on an interest payment date should include a

Accepted Answer

A)  debit to Cash for the face amount of the bonds. 
B)  debit to Cash for the face amount of the bonds plus the amount of discount. 
C)  debit to Cash for the face amount of the bonds minus the amount of discount. 
D)  credit to Cash for the face amount of the bonds.

Question 13

When fixed mortgage payments are made,in what way does the interest portion change each month,and why?

Accepted Answer

The answer of When fixed mortgage payments are made,in what...

Question 14

Bond issue costs

Accepted Answer

A)  must be expensed when incurred. 
B)  must be amortized over the life of the bonds. 
C)  are recorded in an asset account and not amortized. 
D)  appear on the balance sheet as a liability.

Question 15

Issuing bonds at a discount has the effect of decreasing interest expense below the face amount of interest.

Accepted Answer

A) True 
 B)False

Question 16

When bonds are issued at a premium,the total interest cost of the bonds over the life of the bonds is equal to the amount of

Accepted Answer

A)  interest payments made over the life of the bonds minus the amount of issuance premium. 
B)  issuance premium. 
C)  interest payments made over the life of the bonds plus the amount of issuance premium. 
D)  interest payments made over the life of the bonds.

Question 17

Bonds that contain a provision that allows the holders to exchange the bonds for other securities of the issuing corporation are called

Accepted Answer

A)  registered bonds 
B)  unsecured bonds 
C)  callable bonds. 
D)  convertible bonds.

Question 18

Leases of short-term assets are capital leases,and leases of long-term assets are operating leases.

Accepted Answer

A) True 
 B)False

Question 19

Bonds Payable should be classified as a long-term liability on a balance sheet unless the issue is

Accepted Answer

A)  not maturing within one year of the balance sheet date. 
B)  maturing within one year of the balance sheet date and is to be paid by segregated assets that are classified as long-term assets. 
C)  maturing within one year of the balance sheet date and is to be retired by the use of current assets. 
D)  maturing within one year of the balance sheet date and is to be replaced by another bond issue.

Question 20

A corporation probably does not know who owns its coupon bonds.

Accepted Answer

A) True 
 B)False

Exam 11: Long-Term Liabilities

Most bonds issued today are coupon bonds rather than registered bonds.

Regardless of whether the straight-line method or the effective interest method is used,the carrying value of a term bond issued at a discount will decrease continually over the life of the bond.

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 entry to record the mortgage will include a

The effective interest method of amortization of bond premiums and discounts is superior to the straight-line method because it results in a(n)

Accounting for a defined benefit pension plan is more complex than accounting for a defined contribution plan.

Interest on bonds usually is paid annually.

All of the following are operating leases except a

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

Term bonds are bonds that

The entry to record the issuance of bonds at a discount on an interest payment date should include a

When fixed mortgage payments are made,in what way does the interest portion change each month,and why?

Bond issue costs

Issuing bonds at a discount has the effect of decreasing interest expense below the face amount of interest.

When bonds are issued at a premium,the total interest cost of the bonds over the life of the bonds is equal to the amount of

Bonds that contain a provision that allows the holders to exchange the bonds for other securities of the issuing corporation are called

Leases of short-term assets are capital leases,and leases of long-term assets are operating leases.

Bonds Payable should be classified as a long-term liability on a balance sheet unless the issue is

A corporation probably does not know who owns its coupon bonds.