Question 1

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 present value of:

Accepted Answer

A)  $10,000 in 5 years plus the present value of $700 a year for 5 years.
B)  $700 paid once a year for 5 years.
C)  $10,000 to be paid in 5 years.
D)  $10,000 in 5 years minus the present value of $700 a year for 5 years.E) All of the above
F) A) and D)

Question 2

At the beginning of the quarter,your company borrows $20,000 using a four-year promissory note that states an annual interest rate of 8% plus principal repayments of $5,000 each year.Interest is paid at the end of the second and fourth quarter,whereas principal payments are due at the end of each year.How does this new promissory note affect the amounts of current and non-current liabilities reported on the balance sheet at the end of the first quarter?

Accepted Answer

A)  Current liabilities increase $400; Non-current liabilities increase $20,000
B)  Current liabilities increase $1,600; Non-current liabilities increase $20,000
C)  Current liabilities increase $5,400; Non-current liabilities increase $20,000
D)  Current liabilities increase $5,400; Non-current liabilities increase $15,000 E) B) and D)
F) B) and C)

Question 3

On October 1,2018,you borrow $200,000 at 6% interest and record the promissory note.In April and again in October of the following year,you are required to pay half the annual interest to your creditors.On December 31,2018,your journal entry for the quarter should:

Accepted Answer

A)  debit Interest Expense for $3,000 and credit Interest Payable for $3,000.
B)  debit Cash for $3,000 and credit Accrued Interest for $3,000.
C)  debit Interest Expense for $6,000 and credit Cash for $6,000.
D)  debit Interest Expense for $6,000 and credit Notes Payable for $6,000. E) B) and D)
F) B) and C)

Question 4

The market interest rate on a bond is also known as the effective interest rate or yield.

Accepted Answer

A) True 
 B)False

Question 5

A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during this accounting period that has not yet been accrued on the books.The journal entry for the interest payment should:

Accepted Answer

A)  debit Interest Expense $9,000 and credit Cash $9,000.
B)  debit Cash $9,000 and credit Interest Payable $9,000.
C)  debit Interest Expense $3,000,debit Interest Payable $6,000,and credit Cash $9,000.
D)  debit Interest Payable $6,000,debit Accrued Interest $3,000,and credit Cash $9,000.E) All of the above
F) A) and D)

Question 6

When the times interest earned ratio is less than 1.0,a company is generating enough income to cover its interest expense.

Accepted Answer

A) True 
 B)False

Question 7

Your company issued bonds at a discount.Which of the following statements is not true?

Accepted Answer

A)  The contra liability account,discount on bonds payable,is amortized each year by shifting part of its balance to interest expense.
B)  As the current date approaches the maturity date,the carrying value of the bond approaches the face value of the bond.
C)  At the date of issuance,the market interest rate was higher than the stated interest rate on the bond.
D)  At the date of issuance,the market interest rate was lower than the stated interest rate on the bond.E) A) and C)
F) A) and B)

Question 8

Warranty payable is considered a current liability.

Accepted Answer

A) True 
 B)False

Question 9

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15,2019.Interest rates rise in the economy so that similar financial investments pay 9%.IBM will:

Accepted Answer

A)  not be able to issue the bonds because no one will buy them.
B)  receive a higher issue price to compensate buyers for the lower stated interest rate.
C)  have to accept a lower issue price to attract buyers.
D)  have to reprint the bond certificates to change the stated interest rate to 9%.E) All of the above
F) B) and D)

Question 10

Which of the following methods of amortizing bond premium or discount is required by IFRS:

Accepted Answer

A)  Straight line method of amortization only.
B)  Effective interest method of amortization only.
C)  Either the straight line method of amortization or effective interest method of amortization.
D)  Both methods must be used.E) A) and B)
F) None of the above

Question 11

Some bonds mature in instalments.Bonds containing such feature are called:

Accepted Answer

A)  Secured Bonds
B)  Callable Bonds
C)  Serial Bonds
D)  Convertible BondsE) C) and D)
F) B) and D)

Question 12

A company issued $400,000,10-year,10 percent bonds at 104.What is the total amount of interest expense that will be recorded over the life of these bonds?

Accepted Answer

A)  $416,000
B)  $400,000
C)  $384,000
D)  $360,000 E) B) and C)
F) None of the above

Question 13

Using straight-line amortization,when a bond is sold at a premium:

Accepted Answer

A)  the amortized premium is added to the interest payable to calculate interest expense.
B)  bonds payable rises by a constant amount each year.
C)  interest expense is calculated by subtracting the amortized premium from the interest payment that is to be made.
D)  interest expense rises each year.E) A) and C)
F) All of the above

Question 14

Areeana Company has a debt-to-assets ratio of 0.60.Which of the following,if it occurred on the last day of the accounting period,would increase Areeana's debt-to-assets ratio?

Accepted Answer

A)  Borrowing with a short-term promissory note.
B)  Paying off some accounts payable.
C)  Lending money to employees on a promissory note.
D)  None of the answers are acceptable.E) A) and B)
F) A) and C)

Question 15

When bonds are issued at a discount,the bond issuer receives less cash on the maturity date than it repays on the issue date.

Accepted Answer

A) True 
 B)False

Question 16

Your company sells $50,000 of bonds for an issue price of $52,000.Which of the following statements is correct?

Accepted Answer

A)  The bond sold at a price of 52,implying a premium of $2,000.
B)  The bond sold at a price of 104,implying a discount of $2,000.
C)  The bond sold at a price of 52,implying a discount of $2,000.
D)  The bond sold at a price of 104,implying a premium of $2,000. E) B) and C)
F) None of the above

Question 17

When bonds are issued at a discount,all of the following occurs,except

Accepted Answer

A)  the cash account records a debit at less than face value.
B)  there is a debit to a contra-liability account.
C)  there is an adjustment made to terms of the issue.
D)  bonds payable is recorded at face value.E) None of the above
F) C) and D)

Question 18

On maturity,the carrying value of a bond will be equal to the face value.

Accepted Answer

A) True 
 B)False

Question 19

A premium on a bond increases the interest expense of the loan to the issuer.

Accepted Answer

A) True 
 B)False

Question 20

A secured loan means that the borrower has a pre-approved line of credit backing the debt.

Accepted Answer

A) True 
 B)False

Exam 10: Liabilities

Some bonds mature in instalments.Bonds containing such feature are called:

Correct Answer
verified

Which of the following methods of amortizing bond premium or discount is required by IFRS:

Correct Answer
verified

Your company sells $50,000 of bonds for an issue price of $52,000.Which of the following statements is correct?

Correct Answer
verified

Warranty payable is considered a current liability.

Correct Answer
verified

Areeana Company has a debt-to-assets ratio of 0.60.Which of the following,if it occurred on the last day of the accounting period,would increase Areeana's debt-to-assets ratio?

Correct Answer
verified

When the times interest earned ratio is less than 1.0,a company is generating enough income to cover its interest expense.

Correct Answer
verified

Correct Answer
verified

On October 1,2018,you borrow $200,000 at 6% interest and record the promissory note.In April and again in October of the following year,you are required to pay half the annual interest to your creditors.On December 31,2018,your journal entry for the quarter should:

Correct Answer
verified

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 present value of:

Correct Answer
verified

A company issued $400,000,10-year,10 percent bonds at 104.What is the total amount of interest expense that will be recorded over the life of these bonds?

Correct Answer
verified

On maturity,the carrying value of a bond will be equal to the face value.

Correct Answer
verified

When bonds are issued at a discount,the bond issuer receives less cash on the maturity date than it repays on the issue date.

Correct Answer
verified

The market interest rate on a bond is also known as the effective interest rate or yield.

Correct Answer
verified

A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during this accounting period that has not yet been accrued on the books.The journal entry for the interest payment should:

Correct Answer
verified

When bonds are issued at a discount,all of the following occurs,except

Correct Answer
verified

A premium on a bond increases the interest expense of the loan to the issuer.

Correct Answer
verified

Using straight-line amortization,when a bond is sold at a premium:

Correct Answer
verified

Your company issued bonds at a discount.Which of the following statements is not true?

Correct Answer
verified

A secured loan means that the borrower has a pre-approved line of credit backing the debt.

Correct Answer
verified

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15,2019.Interest rates rise in the economy so that similar financial investments pay 9%.IBM will:

Correct Answer
verified

Exam 10: Liabilities

Some bonds mature in instalments.Bonds containing such feature are called:

Correct AnswerverifiedShow Answer

Which of the following methods of amortizing bond premium or discount is required by IFRS:

Correct AnswerverifiedShow Answer

Your company sells $50,000 of bonds for an issue price of $52,000.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Warranty payable is considered a current liability.

Correct AnswerverifiedShow Answer

Areeana Company has a debt-to-assets ratio of 0.60.Which of the following,if it occurred on the last day of the accounting period,would increase Areeana's debt-to-assets ratio?

Correct AnswerverifiedShow Answer

When the times interest earned ratio is less than 1.0,a company is generating enough income to cover its interest expense.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On October 1,2018,you borrow $200,000 at 6% interest and record the promissory note.In April and again in October of the following year,you are required to pay half the annual interest to your creditors.On December 31,2018,your journal entry for the quarter should:

Correct AnswerverifiedShow Answer

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 present value of:

Correct AnswerverifiedShow Answer

A company issued $400,000,10-year,10 percent bonds at 104.What is the total amount of interest expense that will be recorded over the life of these bonds?

Correct AnswerverifiedShow Answer

On maturity,the carrying value of a bond will be equal to the face value.

Correct AnswerverifiedShow Answer

When bonds are issued at a discount,the bond issuer receives less cash on the maturity date than it repays on the issue date.

Correct AnswerverifiedShow Answer

The market interest rate on a bond is also known as the effective interest rate or yield.

Correct AnswerverifiedShow Answer

A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during this accounting period that has not yet been accrued on the books.The journal entry for the interest payment should:

Correct AnswerverifiedShow Answer

When bonds are issued at a discount,all of the following occurs,except

Correct AnswerverifiedShow Answer

A premium on a bond increases the interest expense of the loan to the issuer.

Correct AnswerverifiedShow Answer

Using straight-line amortization,when a bond is sold at a premium:

Correct AnswerverifiedShow Answer

Your company issued bonds at a discount.Which of the following statements is not true?

Correct AnswerverifiedShow Answer

A secured loan means that the borrower has a pre-approved line of credit backing the debt.

Correct AnswerverifiedShow Answer

IBM is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15,2019.Interest rates rise in the economy so that similar financial investments pay 9%.IBM will:

Correct AnswerverifiedShow Answer

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