Question 1

Which of the following statements is correct?

Accepted Answer

A)  Bonds are issued at a price that reflects the stated rate of interest on the day the bond is purchased.
B)  If the face rate of interest on a bond is not equal to the market rate of interest,then the company desiring to issue the bonds must reprint its bond certificates.
C)  The actual issue price of a bond represents the present value of all future cash flows related to the bond.
D)  The market rate of interest has no bearing on the selling price of the bonds.E) A) and D)
F) B) and C)

Question 2

Under the effective interest method,the cash paid on each interest payment date will

Accepted Answer

A)  decrease if bonds are issued at a premium.
B)  increase if bonds are issued at a premium.
C)  remain constant regardless of the issuance price.
D)  increase if bonds are issued at a discount.E) A) and B)
F) A) and C)

Question 3

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

Accepted Answer

effective ...

Question 4

On January 2,2012,Dock 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 30,2012 is

Accepted Answer

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

Question 5

[APPENDIX] When a company has a credit balance in its Deferred Tax account,this amount would appear as a(n)

Accepted Answer

A)  contra asset on the balance sheet.
B)  stockholders' equity account on the balance sheet.
C)  expense account on the income statement
D)  liability account on the balance sheet.E) A) and B)
F) All of the above

Question 6

Which of the following statements regarding leases is false?

Accepted Answer

A)  Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash.
B)  Accounting recognizes two types of leases--operating and capital leases.
C)  If a lessor classifies a lease as a capital lease,then the lessee records a lease liability on its balance sheet.
D)  If a lease is classified as an operating lease,the lessee records a lease liability on its balance sheet.E) All of the above
F) A) and B)

Question 7

On January 2,2013,Morrisville Corporation sold $750,000 of bonds for $745,000.The bonds will mature in 10 years and pay interest annually on December 31.Morrisville properly recorded the payment of interest and amortization of the discount using the effective interest method.Which of the following statements is true about the carrying value of the bonds and/or the unamortized discount at the end of 2013?

Accepted Answer

A)  The carrying value will be less than $745,000.
B)  The carrying value will be $745,000.
C)  The carrying value will be greater than $745,000.
D)  The unamortized premium will be less than $5,000.E) All of the above
F) None of the above

Question 8

[APPENDIX] One example of a temporary difference between financial and tax reporting results from

Accepted Answer

A)  rent expense.
B)  tax-exempt interest from municipal bonds.
C)  life insurance proceeds resulting from the death of an executive.
D)  depreciation of long-term assets.E) A) and B)
F) A) and C)

Question 9

A gain on bond redemption

Accepted Answer

A)  is considered unusual and infrequent.
B)  should be treated as part of operating income.
C)  decreases a company's income.
D)  is always included when predicting a company's future income.E) A) and B)
F) A) and C)

Question 10

Tampa Corporation's balance sheet showed the following amounts for their liabilities and stockholders' equity accounts: Current Liabilities,$20,000;Bonds Payable,$60,000;Lease Obligations,$12,000;and Deferred Income Taxes,$2,000.Total stockholders' equity was $42,000.The debt-to-equity ratio is

Accepted Answer

A)  0.45
B)  0.58
C)  1.76
D)  2.24E) B) and D)
F) B) and C)

Question 11

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

Accepted Answer

A) True 
 B)False

Question 12

On January 1,2012,Breaker,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%.The cash payment on June 30,2012 is

Accepted Answer

A)  $20,000.
B)  $21,200.
C)  $24,000.
D)  $17,710.E) All of the above
F) B) and D)

Question 13

The current portion of long-term debt is a balance sheet item for Generic Products Company.How would it most likely be classified on the balance sheet?

Accepted Answer

A)  Current liability
B)  Long-term liability
C)  Current asset
D)  Long.term liabilityE) A) and B)
F) A) and C)

Question 14

In an operating lease,the lessee acquires the right to use an asset for only a limited period of time.

Accepted Answer

A) True 
 B)False

Question 15

Most investors would prefer to see equity rather than debt on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 16

______________________ is either the bond's face value minus any unamortized discount or plus any unamortized premium.

Accepted Answer

The answer of ______________________ is either the bond's face value...

Question 17

Discount on Bonds Payable is classified as a current liability.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following items should not appear in the long-term liability section of the balance sheet?

Accepted Answer

A)  Accrued income taxes
B)  Deferred income taxes
C)  Bonds payable
D)  Pension obligationsE) A) and C)
F) A) and B)

Question 19

If a company's bonds are callable,

Accepted Answer

A)  the investor or buyer of the bonds has the right to retire the bonds.
B)  the issuing company is likely to retire the bonds before maturity if the bonds are paying 9% interest while the market rate of interest is 6%.
C)  the bonds are never allowed to remain outstanding until the maturity date.
D)  the investor never knows what the redemption price will be until the bonds are actually called.E) B) and C)
F) C) and D)

Question 20

Micro Company wishes to issue $400,000 of 5-year,6% bonds,with interest paid annually at the end of the year.The market rate of interest is currently 5%.What information is needed in order to determine the selling price?

Accepted Answer

A)  The market rate of interest,the stated rate of interest,the bond rating,and the bond life.
B)  The face amount of the bonds,the stated rate of interest,the market rate of interest,and the bond life.
C)  The life of the bonds,the market rate of interest,the bond rating,and the face amount of the bonds.
D)  The face amount of the bonds,the market rate of interest,the purpose of the issue,and the bond life.E) B) and C)
F) A) and D)

Exam 10: Long-Term Liabilities

Which of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

On January 2,2012,Dock 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 30,2012 is

Correct Answer
verified

On January 1,2012,Breaker,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%.The cash payment on June 30,2012 is

Correct Answer
verified

The current portion of long-term debt is a balance sheet item for Generic Products Company.How would it most likely be classified on the balance sheet?

Correct Answer
verified

In an operating lease,the lessee acquires the right to use an asset for only a limited period of time.

Correct Answer
verified

Which of the following statements regarding leases is false?

Correct Answer
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Which of the following items should not appear in the long-term liability section of the balance sheet?

Correct Answer
verified

______________________ is either the bond's face value minus any unamortized discount or plus any unamortized premium.

Correct Answer
verified

Micro Company wishes to issue $400,000 of 5-year,6% bonds,with interest paid annually at the end of the year.The market rate of interest is currently 5%.What information is needed in order to determine the selling price?

Correct Answer
verified

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

Correct Answer
verified

Most investors would prefer to see equity rather than debt on the balance sheet.

Correct Answer
verified

A gain on bond redemption

Correct Answer
verified

[APPENDIX] When a company has a credit balance in its Deferred Tax account,this amount would appear as a(n)

Correct Answer
verified

If a company's bonds are callable,

Correct Answer
verified

Tampa Corporation's balance sheet showed the following amounts for their liabilities and stockholders' equity accounts: Current Liabilities,$20,000;Bonds Payable,$60,000;Lease Obligations,$12,000;and Deferred Income Taxes,$2,000.Total stockholders' equity was $42,000.The debt-to-equity ratio is

Correct Answer
verified

Discount on Bonds Payable is classified as a current liability.

Correct Answer
verified

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

Correct Answer
verified
effective ...
View Answer

Under the effective interest method,the cash paid on each interest payment date will

Correct Answer
verified

[APPENDIX] One example of a temporary difference between financial and tax reporting results from

Correct Answer
verified

Exam 10: Long-Term Liabilities

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On January 2,2012,Dock 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 30,2012 is

Correct AnswerverifiedShow Answer

On January 1,2012,Breaker,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%.The cash payment on June 30,2012 is

Correct AnswerverifiedShow Answer

The current portion of long-term debt is a balance sheet item for Generic Products Company.How would it most likely be classified on the balance sheet?

Correct AnswerverifiedShow Answer

In an operating lease,the lessee acquires the right to use an asset for only a limited period of time.

Correct AnswerverifiedShow Answer

Which of the following statements regarding leases is false?

Correct AnswerverifiedShow Answer

Which of the following items should not appear in the long-term liability section of the balance sheet?

Correct AnswerverifiedShow Answer

______________________ is either the bond's face value minus any unamortized discount or plus any unamortized premium.

Correct AnswerverifiedShow Answer

Micro Company wishes to issue $400,000 of 5-year,6% bonds,with interest paid annually at the end of the year.The market rate of interest is currently 5%.What information is needed in order to determine the selling price?

Correct AnswerverifiedShow Answer

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

Correct AnswerverifiedShow Answer

Most investors would prefer to see equity rather than debt on the balance sheet.

Correct AnswerverifiedShow Answer

A gain on bond redemption

Correct AnswerverifiedShow Answer

[APPENDIX] When a company has a credit balance in its Deferred Tax account,this amount would appear as a(n)

Correct AnswerverifiedShow Answer

If a company's bonds are callable,

Correct AnswerverifiedShow Answer

Tampa Corporation's balance sheet showed the following amounts for their liabilities and stockholders' equity accounts: Current Liabilities,$20,000;Bonds Payable,$60,000;Lease Obligations,$12,000;and Deferred Income Taxes,$2,000.Total stockholders' equity was $42,000.The debt-to-equity ratio is

Correct AnswerverifiedShow Answer

Discount on Bonds Payable is classified as a current liability.

Correct AnswerverifiedShow Answer

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

Correct Answerverifiedeffective ...View AnswerShow Answer

Under the effective interest method,the cash paid on each interest payment date will

Correct AnswerverifiedShow Answer

[APPENDIX] One example of a temporary difference between financial and tax reporting results from

Correct AnswerverifiedShow Answer

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effective ...
View Answer

Correct Answer
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Correct Answer
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