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When the effective-interest method of amortization is used,what happens to interest expense as a bond moves toward maturity?


A) Interest expense falls for bonds sold at either a discount or a premium.
B) Interest expense rises for bonds sold at a discount and falls for bonds sold at a premium.
C) Interest expense rises for bonds sold at either a discount or a premium.
D) Interest expense falls for bonds sold at a discount and rises for bonds sold at a premium.

E) A) and B)
F) C) and D)

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Your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond is calculated as the:


A) present value of $10,000 to be received in 5 years plus the present value of $700 per year for 5 years.
B) face value of the bonds,$10,000.
C) amount investors would have to pay to earn 7% interest.
D) amount investors would have to pay to earn an average of the stated interest rate and the market interest rate.

E) B) and D)
F) A) and D)

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Which of the following statements is not correct?


A) An "A" rating is the best credit rating a company can earn.
B) Credit ratings below BB are called "junk."
C) A credit rating agency indicates a company's ability to pay its debts on a timely basis.
D) Standard and Poor's,Fitch,and Moody's are the names of credit rating agencies.

E) B) and D)
F) B) and C)

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Consider the following information: Consider the following information: Required: Part a.Calculate the debt-to-assets ratio. Part b.Describe what the debt-to-assets ratio tells you and how to interpret it. Part c.Calculate the times interest earned. Part d.Comment on the results of your times interest earned analysis. Required: Part a.Calculate the debt-to-assets ratio. Part b.Describe what the debt-to-assets ratio tells you and how to interpret it. Part c.Calculate the times interest earned. Part d.Comment on the results of your times interest earned analysis.

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Part a
Debt-to-assets ratio = Total liab...

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Your company sells $40,000 of one-year,10% bonds for an issue price of $39,000.The journal entry to record this transaction will include a credit to Bonds Payable in the amount of:


A) $39,000.
B) $40,000.
C) $43,000.
D) $44,000.

E) A) and C)
F) B) and C)

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Contingent liabilities arise from past transactions,but depend on future events.

A) True
B) False

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Maxwell Manufacturing issued $750,000,10-year,10% bonds at 105. What is the total amount of interest expense that will be recorded over the life of these bonds?


A) $750,000
B) $712,500
C) $787,500
D) $825,000

E) A) and B)
F) A) and C)

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Your company sells $50,000 of bonds for an issue price of $48,000.Which of the following statements is correct?


A) The bond sold at a price of 96,implying a discount of $4,000.
B) The bond sold at a price of 48,implying a premium of $2,000.
C) The bond sold at a price of 48,implying a premium of $4,000.
D) The bond sold at a price of 96,implying a discount of $2,000.

E) A) and D)
F) All of the above

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Match each term with the appropriate definition.Not all definitions will be used. -Straight-line method of amortization


A) Liquid assets divided by current liabilities.
B) A calculation that determines what some future payments are worth today.
C) The ability to pay current obligations.
D) These are liabilities that have to be paid in one year or less.
E) A bond feature that puts a creditor ahead of other creditors in order of payment.
F) Net income before taxes and interest expense divided by interest expense.
G) Where interest expense is the market interest rate times the bond's carrying value.
H) Current liabilities divided by current assets.
I) These are liabilities that do not have to be paid within the upcoming year.
J) Net income after taxes and interest expense divided by interest expense.
K) Spreads a bond discount or premium evenly over the lifetime of the bond.
L) The amount of all the liabilities currently on the balance sheet at the close of the period.

M) None of the above
N) K) and L)

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On January 1,2018,Diana Industries issues 3-year bonds with a face value of $560,000 and a stated interest rate of 8%.Because the market interest rate is lower than the stated interest rate,the company receives $585,200 for the bond. Required: Fill in the table assuming the company uses the straight-line bond amortization. On January 1,2018,Diana Industries issues 3-year bonds with a face value of $560,000 and a stated interest rate of 8%.Because the market interest rate is lower than the stated interest rate,the company receives $585,200 for the bond. Required: Fill in the table assuming the company uses the straight-line bond amortization.

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A company issued 10-year,7% bonds with a face value of $100,000.The company received $97,947 for the bonds.Using the straight-line method of amortization,the amount of interest expense for the first annual interest period is:


A) $7,000.00
B) $7,205.30
C) $6,794.70
D) $2,053.00

E) A) and D)
F) B) and C)

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Debentures are:


A) unsecured bonds.
B) secured bonds.
C) serial bonds.
D) callable bonds.

E) A) and D)
F) A) and C)

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The straight-line method of amortization allocates the amount of bond premium or discount over each period of a bond's life in amounts corresponding to the bond's carrying value.

A) True
B) False

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A 10-year bond that pays interest annually was issued at a $5,000 premium.The entry to record the payment of interest using straight-line amortization will include a ________ to Premium on Bonds Payable for ________ each period.


A) credit;$500
B) debit;$500
C) debit;a greater amount each period
D) credit;a lower amount each period

E) A) and C)
F) C) and D)

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If ABC Company issues 100 of its $1,000 bonds at a price of 110,the journal entry to record the transaction includes a:


A) debit to Cash of $100,000.
B) credit to Premium on Bonds Payable of $10,000.
C) debit to Cash of $90,000.
D) debit to Discount on Bonds Payable of $10,000.

E) C) and D)
F) A) and D)

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Which of the following misstatements would cause the debt-to-assets ratio to be overstated?


A) Capitalizing costs that should have been expensed as assets.
B) Failing to adjust for depreciation in the current period.
C) Failing to accrue income taxes of the current period.
D) Failing to accrue interest earned of the current period.

E) B) and D)
F) B) and C)

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Gross earnings for the pay period are $100,000.Required payroll deductions are: Social Security $6,700;Medicare $1,450;Federal Income tax $18,000 and State income tax $3,850.The journal entry to record wages paid includes a:


A) $100,000 credit to Salaries and Wages Payable.
B) $6,700 debit to FICA Payable.
C) $100,000 debit to Salaries and Wages Expense.
D) $70,000 debit to Salaries and Wages Expense.

E) None of the above
F) All of the above

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On October 1,2018,Teton Industries negotiates with its bank to borrow $20,000 cash on a one-year note.The bank charges 5% interest.Interest payments are to be made in two installments,on March 31 and September 30.The principal is to be repaid on September 30,2019,the maturity date.What journal entry needs to be recorded as of March 31,2019?


A) Debit Interest Payable $250,debit Interest Expense $250,and credit Cash $500.
B) Debit Interest Expense $500 and credit Cash $500.
C) Debit Interest Expense $500 and credit Interest Payable for $500.
D) Debit Interest Expense $250 and credit Cash for $250.

E) None of the above
F) A) and C)

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The stated rate:


A) remains the same throughout the life of the bonds.
B) fluctuates depending on the perceived risk of the bonds.
C) equals the present value of the future interest payments.
D) depends on the price at which the bonds are issued.

E) A) and B)
F) B) and C)

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Burlingame Co.is purchasing a new forklift to be used in its warehousing operations.Burlingame borrowed $120,000 from its bank in return for an installment note with 8% interest.Burlingame will make 6 equal annual payments of $25,958.Interest expense for the second period equals:


A) $17,667.
B) $9,600.
C) $8,291.36.
D) $25,958.

E) B) and D)
F) A) and C)

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