Question 1

Match each term with the appropriate definition.Not all definitions will be used.
-Issue price

Accepted Answer

A)  The total amount of money that a company owes in debt.
B)  This item is reported as a contra asset account.
C)  A bond feature that allows a creditor to seize assets if debt is not properly repaid.
D)  A prearranged agreement that allows a company to borrow at will up to a limit.
E)  The amount that the lender actually pays for a bond.F) The amount a company must repay creditors when a bond matures.G) When a company borrows money by issuing bonds in the financial markets.H) Debt features that,if violated,allow the lender to revise loan terms.I) The cost of issuing a bond.J) Total liabilities divided by total assets.K) Bond features that allow the issuer to repay the loan early.L) These are liabilities that have been incurred during the period but not yet paid.M) This type of liability is uncertain;it exists only if some other condition occurs.N) B) and F)
O) F) and K)

Question 2

When a company has a contingent liability that is remote in likelihood,the company should:

Accepted Answer

A)  include a description in the notes to the financial statements.
B)  record the amount of the liability times the probability of its occurrence.
C)  record the amount of the liability as a long-term liability on the balance sheet.
D)  exclude the information about the contingent liability from its financial statements and notes.E) None of the above
F) C) and D)

Question 3

Amortizing a bond discount will ________ the discount balance and ________ the carrying value of the bond so that when the bond matures the carrying value will ________ the face value.

Accepted Answer

A)  decrease;increase;equal
B)  decrease;increase;be greater than
C)  increase;decrease;be greater than
D)  decrease;decrease;equalE) A) and B)
F) All of the above

Question 4

The account entitled Premium on Bonds Payable:

Accepted Answer

A)  increases when amortization entries are made.
B)  appears on the balance sheet of the issuer as a deduction from bonds payable.
C)  decreases when amortization entries are made and its balance is equal to zero at the maturity date of the bond.
D)  is a contra account with a normal debit balance.E) None of the above
F) All of the above

Question 5

On September 1,Sky Mountain Co.borrowed $200,000 on a 6%,9-month note payable to Coast National Bank.Given no previous adjusting entries have been recorded,Sky Mountain's adjusting entry four months later at December 31 would include a:

Accepted Answer

A)  debit to Interest Expense of $3,000.
B)  debit to Interest Expense of $4,000.
C)  debit to Interest Expense of $12,000.
D)  debit to Interest Expense of $9,000.E) A) and D)
F) B) and D)

Question 6

In October,the CEO of Saguaro,Inc.signs a note for $90,000 in order to buy new equipment.The note is due in five years,at 8% annual interest.Semiannual interest payments are due each April and October.Assuming no other long-term debt,what is the initial balance in the related long-term debt account?

Accepted Answer

A)  $82,800
B)  $90,000
C)  $93,600
D)  $97,200E) A) and C)
F) B) and C)

Question 7

On January 1,2018,a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%.Because the market interest rate is 9%,the company receives $47,469 for the bond.
Required:
Fill in the table assuming the company uses effective-interest bond amortization.
 $$\begin{array} { | c | c | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Period } \
\text { Ended }
\end{array} & \begin{array} { c } 
\text { Cash } \
\text { Paid }
\end{array} & \begin{array} { c } 
\text { Interest } \
\text { Expense }
\end{array} & \begin{array} { c } 
\text { Amortized } \
\text { Discount }
\end{array} & \begin{array} { c } 
\text { Bonds } \
\text { Payable }
\end{array} & \begin{array} { c } 
\text { Discount on } \
\text { Bonds } \
\text { Payable }
\end{array} & \begin{array} { c } 
\text { Carrying } \
\text { Value }
\end{array} \
\hline 01 / 01 / 18 & & & & & & \
\hline 12 / 31 / 18 & & & & & & \
\hline 12 / 31 / 19 & & & & & & \
\hline 12 / 31 / 20 & & & & & & \
\hline
\end{array}$$

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> * Carryin...

Question 8

ABC Company is in the process of issuing bonds.The bonds have a stated interest rate of 6%,which is 2% above the current market rate.What effect will the two interest rates have on the bond issue price?

Accepted Answer

A)  The issue price will be above the bond's face value.
B)  The issue price will be below the bond's face value.
C)  The issue price will equal the bond's face value.
D)  Cannot determine without knowing the face value.E) B) and C)
F) C) and D)

Question 9

Which of the following statements about bond terminology is correct?

Accepted Answer

A)  The face value of a bond is what it is currently worth in the market.
B)  The stated interest rate is expressed as an annual interest rate even if the bonds pay semiannual interest payments.
C)  The stated rate of interest always presents the amount that investors are willing to pay for the bond on the issue date.
D)  The carrying value of the bond is always equal to the face value of the bond.E) A) and B)
F) All of the above

Question 10

On December 31,2018,a company had assets of $16 billion and stockholders' equity of $8 billion.That same company had assets of $20 billion and stockholders' equity of $9 billion as of December 31,2019.During 2019,the company reported total sales revenue of $9 billion and total expenses of $7 billion.What is the company's debt-to-assets ratio on December 31,2019?

Accepted Answer

A)  0.55
B)  0.45
C)  0.035
D)  0.01E) B) and C)
F) All of the above

Question 11

Accruing a liability always involves ________ expenses and ________ liabilities.

Accepted Answer

A)  increasing;increasing
B)  increasing;decreasing
C)  decreasing;increasing
D)  decreasing;decreasingE) A) and C)
F) A) and D)

Question 12

Match each term with the appropriate definition.Not all definitions will be used.
-Loan covenant

Accepted Answer

A)  The total amount of money that a company owes in debt.
B)  This item is reported as a contra asset account.
C)  A bond feature that allows a creditor to seize assets if debt is not properly repaid.
D)  A prearranged agreement that allows a company to borrow at will up to a limit.
E)  The amount that the lender actually pays for a bond.F) The amount a company must repay creditors when a bond matures.G) When a company borrows money by issuing bonds in the financial markets.H) Debt features that,if violated,allow the lender to revise loan terms.I) The cost of issuing a bond.J) Total liabilities divided by total assets.K) Bond features that allow the issuer to repay the loan early.L) These are liabilities that have been incurred during the period but not yet paid.M) This type of liability is uncertain;it exists only if some other condition occurs.N) G) and J)
O) D) and K)

Question 13

A company would record an entry with a debit to Bonds Payable and a credit to Cash on a bond's:

Accepted Answer

A)  issuance date.
B)  stated date.
C)  market date.
D)  maturity date.E) B) and D)
F) All of the above

Question 14

Match each term with the appropriate definition.Not all definitions will be used.
-Current liabilities

Accepted Answer

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) E) and J)
N) D) and E)

Question 15

A corporate bond with a face value of $1,000 is issued at 107.This means that the bond actually sold for:

Accepted Answer

A)  $107 and the stated interest rate was higher than the market interest rate.
B)  $1,070 and the stated interest rate was higher than the market interest rate.
C)  $107 and the stated interest rate was lower than the market interest rate.
D)  $1,070 and the stated interest rate was lower than the market interest rate.E) All of the above
F) A) and C)

Question 16

A company issued 10-year,8% bonds with a face value of $200,000.Interest is paid annually.The market rate on the issue date was 7.5% and the company received $206,948 in cash proceeds.Which of the following statements is correct?

Accepted Answer

A)  The company must pay $184,000 at maturity plus $16,000 in interest each year for 10 years.
B)  The company must pay $206,948 at maturity plus $15,000 in interest each year for 10 years.
C)  The company must pay $200,000 at maturity plus $16,000 in interest each year for 10 years.
D)  The company must pay $200,000 at maturity plus $15,000 in interest each year for 10 years.E) None of the above
F) B) and C)

Question 17

A typical classified balance sheet provides no information about which of the following items?

Accepted Answer

A)  To whom the company owes money
B)  For what the company owes money
C)  How much the company owes
D)  The proportion of the company's debts that will be paid in the short-termE) A) and B)
F) B) and D)

Question 18

The threshold for recording contingent liabilities under IFRS is higher than that under GAAP.

Accepted Answer

A) True 
 B)False

Question 19

Teton Tax Service collects $440 for preparation of a tax return.The tax return will not be complete until the next accounting period.How does Teton record the $440 collected in advance?

Accepted Answer

A)  A debit to Cash of $440 and a credit to Deferred Revenue of $440.
B)  A debit to Deferred Revenue of $440 and a credit to Cash of $440.
C)  A debit to Cash of $440 and a credit to Revenue of $440.
D)  A debit to Revenue of $440 and a credit to Cash of $440.E) None of the above
F) B) and D)

Question 20

On November 1,2018,Sky Mountain Co.borrowed $200,000 cash on a 1-year note payable with a 6% annual rate that requires Sky Mountain to pay all the interest as well as the principal on October 31,2019.Assuming the November 1 transaction was properly recorded,how would the December 31,2018,year-end adjusting entry affect the accounting equation?

Accepted Answer

A)  Liabilities decrease and stockholders' equity increases.
B)  Both assets and stockholders' equity increase.
C)  Liabilities increase and stockholders' equity decreases.
D)  Liabilities increase and stockholders' equity increases.E) C) and D)
F) All of the above

Exam 10: Liabilities

When a company has a contingent liability that is remote in likelihood,the company should:

Correct Answer
verified

Accruing a liability always involves expenses and liabilities.

Correct Answer
verified

A company would record an entry with a debit to Bonds Payable and a credit to Cash on a bond's:

Correct Answer
verified

Which of the following statements about bond terminology is correct?

Correct Answer
verified

A company issued 10-year,8% bonds with a face value of $200,000.Interest is paid annually.The market rate on the issue date was 7.5% and the company received $206,948 in cash proceeds.Which of the following statements is correct?

Correct Answer
verified

ABC Company is in the process of issuing bonds.The bonds have a stated interest rate of 6%,which is 2% above the current market rate.What effect will the two interest rates have on the bond issue price?

Correct Answer
verified

On September 1,Sky Mountain Co.borrowed $200,000 on a 6%,9-month note payable to Coast National Bank.Given no previous adjusting entries have been recorded,Sky Mountain's adjusting entry four months later at December 31 would include a:

Correct Answer
verified

The threshold for recording contingent liabilities under IFRS is higher than that under GAAP.

Correct Answer
verified

In October,the CEO of Saguaro,Inc.signs a note for $90,000 in order to buy new equipment.The note is due in five years,at 8% annual interest.Semiannual interest payments are due each April and October.Assuming no other long-term debt,what is the initial balance in the related long-term debt account?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
* Carryin...
View Answer

Teton Tax Service collects $440 for preparation of a tax return.The tax return will not be complete until the next accounting period.How does Teton record the $440 collected in advance?

Correct Answer
verified

Match each term with the appropriate definition.Not all definitions will be used. -Issue price

Correct Answer
verified

The account entitled Premium on Bonds Payable:

Correct Answer
verified

A corporate bond with a face value of $1,000 is issued at 107.This means that the bond actually sold for:

Correct Answer
verified

Correct Answer
verified

Amortizing a bond discount will the discount balance and the carrying value of the bond so that when the bond matures the carrying value will the face value.

Correct Answer
verified

Match each term with the appropriate definition.Not all definitions will be used. -Loan covenant

Correct Answer
verified

A typical classified balance sheet provides no information about which of the following items?

Correct Answer
verified

Match each term with the appropriate definition.Not all definitions will be used. -Current liabilities

Correct Answer
verified

Exam 10: Liabilities

When a company has a contingent liability that is remote in likelihood,the company should:

Correct AnswerverifiedShow Answer

Accruing a liability always involves ________ expenses and ________ liabilities.

Correct AnswerverifiedShow Answer

A company would record an entry with a debit to Bonds Payable and a credit to Cash on a bond's:

Correct AnswerverifiedShow Answer

Which of the following statements about bond terminology is correct?

Correct AnswerverifiedShow Answer

A company issued 10-year,8% bonds with a face value of $200,000.Interest is paid annually.The market rate on the issue date was 7.5% and the company received $206,948 in cash proceeds.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

ABC Company is in the process of issuing bonds.The bonds have a stated interest rate of 6%,which is 2% above the current market rate.What effect will the two interest rates have on the bond issue price?

Correct AnswerverifiedShow Answer

On September 1,Sky Mountain Co.borrowed $200,000 on a 6%,9-month note payable to Coast National Bank.Given no previous adjusting entries have been recorded,Sky Mountain's adjusting entry four months later at December 31 would include a:

Correct AnswerverifiedShow Answer

The threshold for recording contingent liabilities under IFRS is higher than that under GAAP.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answerverified * Carryin...View AnswerShow Answer

Teton Tax Service collects $440 for preparation of a tax return.The tax return will not be complete until the next accounting period.How does Teton record the $440 collected in advance?

Correct AnswerverifiedShow Answer

Match each term with the appropriate definition.Not all definitions will be used. -Issue price

Correct AnswerverifiedShow Answer

The account entitled Premium on Bonds Payable:

Correct AnswerverifiedShow Answer

A corporate bond with a face value of $1,000 is issued at 107.This means that the bond actually sold for:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Amortizing a bond discount will ________ the discount balance and ________ the carrying value of the bond so that when the bond matures the carrying value will ________ the face value.

Correct AnswerverifiedShow Answer

Match each term with the appropriate definition.Not all definitions will be used. -Loan covenant

Correct AnswerverifiedShow Answer

A typical classified balance sheet provides no information about which of the following items?

Correct AnswerverifiedShow Answer

Match each term with the appropriate definition.Not all definitions will be used. -Current liabilities

Correct AnswerverifiedShow Answer

Correct Answer
verified

Accruing a liability always involves expenses and liabilities.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
* Carryin...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Amortizing a bond discount will the discount balance and the carrying value of the bond so that when the bond matures the carrying value will the face value.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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