Question 1

The practice of off-balance-sheet financing is illegal.

Accepted Answer

A) True 
 B)False

Question 2

A company issued $300,000 of 20-year,8 percent bonds at 96.If interest is paid semiannually,the entry to record the amount of bond interest expense recorded (assuming the straight-line method of amortization)on any interest date is:

Accepted Answer

A) 
 
B) 
 
C) 
 
D)

Question 3

All of the following are operating leases except a

Accepted Answer

A) monthly lease on a building that can be canceled with 90 days' notice. 
B) ten-year lease on a new building. 
C) two-year lease on a truck with an option to renew for one more year. 
D) five-year lease of a computer with an option to buy for a small amount at the end of the lease.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A bond issue of $50,000 with a carrying value of $49,000 is converted into $10 par value common stock at the rate of fifty shares for each $1,000 bond.The entry to be recorded on the conversion of bonds is:

Accepted Answer

A) 
 
B) 
 
C) 
 
D)

Question 6

A corporation issues bonds that pay interest each February 1 and August 1.The corporation's December 31 adjusting entry might include a

Accepted Answer

A) debit to Unamortized Bond Premium. 
B) debit to Cash. 
C) debit to Bond Interest Payable. 
D) credit to Bond Interest Income.

Question 7

Neville Co.issued 20-year term bonds at a discount in 20x5.Interest is payable semiannually.Which of the following statements is true,assuming that the effective interest method of amortization is used for the bond discount?

Accepted Answer

A) Interest expense decreases each six-month interest period. 
B) Interest expense as a percentage of the bond's book value changes from period to period. 
C) Interest expense increases each six-month interest period. 
D) Interest expense remains constant in amount for each interest period.

Question 8

Under a defined benefit pension plan,retirement benefits are based entirely on the annual contribution to the fund plus earnings thereon.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is correct regarding the present value calculations associated with bonds?

Accepted Answer

A) The amount of interest a bond pays is fixed over its life. 
B) The market interest rate varies from day to day and is the rate used to determine the bond's present value. 
C) The amount investors are willing to pay for a bond varies because the bond's present value changes as the market interest rate changes. 
D) All of these choices.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

The amount of unamortized discount at the end of an interest period is equal to the amount of the unamortized discount at the beginning of the period minus the amount of discount that was amortized during the period.

Accepted Answer

A) True 
 B)False

Question 13

Issuing bonds at a discount has the effect of increasing interest expense above the face amount of interest.

Accepted Answer

A) True 
 B)False

Question 14

The fewer debt securities a corporation issues,the greater the risk of default.

Accepted Answer

A) True 
 B)False

Question 15

A bond sells at the face value when the face interest rate of the bond is identical to the market interest rate for similar bonds on the date of the issue.

Accepted Answer

A) True 
 B)False

Question 16

The interest coverage ratio is expressed as a percentage.

Accepted Answer

A) True 
 B)False

Question 17

Interest on bonds usually is paid monthly.

Accepted Answer

A) True 
 B)False

Question 18

Lassen Corporation issued ten-year term bonds on January 1,20x5,with a face value of $800,000.The face interest rate is 8 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $690,960 to yield an effective annual rate of 10 percent.The effective interest method of amortization is to be used.The entry on June 30,20x5,to record the payment of interest and amortization of discount is:

Accepted Answer

A) 
 
B) 
 
C) 
 
D)

Question 19

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 increase continually over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 20

Tomkin Company had current liabilities of $400,000,current assets of $650,000,total liabilities of $1,300,000 and total assets of $2,200,000.What is Tomkin's debt to equity ratio,rounded to one decimal place?

Accepted Answer

The answer of Tomkin Company had current liabilities of $400,000,current...

Exam 14: Long Term Liabilities

The practice of off-balance-sheet financing is illegal.

A company issued $300,000 of 20-year,8 percent bonds at 96.If interest is paid semiannually,the entry to record the amount of bond interest expense recorded (assuming the straight-line method of amortization) on any interest date is:

All of the following are operating leases except a

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

A bond issue of $50,000 with a carrying value of $49,000 is converted into $10 par value common stock at the rate of fifty shares for each $1,000 bond.The entry to be recorded on the conversion of bonds is:

A corporation issues bonds that pay interest each February 1 and August 1.The corporation's December 31 adjusting entry might include a

Neville Co.issued 20-year term bonds at a discount in 20x5.Interest is payable semiannually.Which of the following statements is true,assuming that the effective interest method of amortization is used for the bond discount?

Under a defined benefit pension plan,retirement benefits are based entirely on the annual contribution to the fund plus earnings thereon.

Which of the following is correct regarding the present value calculations associated with bonds?

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

Term bonds are bonds that

The amount of unamortized discount at the end of an interest period is equal to the amount of the unamortized discount at the beginning of the period minus the amount of discount that was amortized during the period.

Issuing bonds at a discount has the effect of increasing interest expense above the face amount of interest.

The fewer debt securities a corporation issues,the greater the risk of default.

A bond sells at the face value when the face interest rate of the bond is identical to the market interest rate for similar bonds on the date of the issue.

The interest coverage ratio is expressed as a percentage.

Interest on bonds usually is paid monthly.

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 increase continually over the life of the bond.

Tomkin Company had current liabilities of $400,000,current assets of $650,000,total liabilities of $1,300,000 and total assets of $2,200,000.What is Tomkin's debt to equity ratio,rounded to one decimal place?