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A 6-month note is issued on November 1.If no previous accruals have been made,how many months of interest should be accrued at December 31?


A) Six
B) Two
C) Four
D) None

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

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


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

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The entry to record the initial borrowing of cash by issuing a promissory note will include a debit to ______ and a credit to ______:


A) Cash; Notes Payable
B) Notes Payable; Cash
C) Interest Expense; Cash
D) Cash; Interest Expense

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

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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) A) and C)

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In October,you sign a note for $50,000 in order to buy new equipment.The note is due in five years,at 8% annual interest.Semiannual interest payments are due each March and September.Assuming no other long-term debt,what is the initial balance in the related long-term debt account?


A) $46,000
B) $50,000
C) $52,000
D) $54,000

E) B) and D)
F) None of the above

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At the beginning of the year,your company borrows $20,000 by signing 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 quarters,whereas principal payments are due at the end of each year.How does this new promissory note affect the current and non-current liability amounts reported on the classified balance sheet prepared at the end of the first quarter?


A) Increase current liabilities by $400; increase non-current liabilities by $20,000
B) Increase current liabilities by $1,600; increase non-current liabilities by $20,000
C) Increase current liabilities by $5,400; increase non-current liabilities by $20,000
D) Increase current liabilities by $5,400; increase non-current liabilities by $15,000

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

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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?


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) None of the above
F) All of the above

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Which of the following accounts could have a non-zero balance on a post-closing trial balance?


A) Salaries and Wages Expense
B) Premium on Bonds Payable
C) Income Tax Expense
D) Interest Expense

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

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Which of the following statements about bonds payable net of a discount or premium is not correct?


A) If a company records a discount or premium with the bonds payable in a single account called Bonds Payable, Net, it is using simplified effective-interest amortization.
B) When bonds payable are accounted for net of a discount, the initial amount recorded in the Bonds Payable, Net account is the issue price of the bond.
C) When simplified effective-interest amortization is used, the balance in the Bonds Payable, Net account will increase as the bond approaches the maturity date.
D) If a company issued bonds at their face value, the balance of Bonds Payable, Net account will always be equal to the face value of the bonds as long as the bonds are outstanding.

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

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Choose the appropriate letter to match the term and the definition.Not all definitions will be used. Term: 1._____ Convertible 2._____ Carrying value 3._____ Discount 4._____ Callable 5._____ Maturity 6._____ Market interest rate 7._____ Stated interest rate 8._____ Premium Definition: A.A bond feature that changes the interest rate on the bond with market conditions. B.When a bond is issued for a price less than its face value. C.Also known as the face value or par value of a bond. D.A bond with the feature that allows creditors to exchange the bond for company stock. E.The interest rate printed on the bond certificate. F.A bond with the feature that lets creditors examine financial data and demand new loan conditions. G.The amount a company receives when it sells a bond; also known as issue price. H.When a bond is issued for a price greater than its face value. I.A bond with the feature that allows the borrowing company to pay off a bond whenever it wishes. J.Rate of interest that investors demand from a bond. K.The time at which the face value of a bond must be paid to the lender. L.Is multiplied by the market interest rate to calculate the (effective)interest expense on a bond.

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1.D
2.L
3....

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Unearned revenues are liabilities because:


A) no cash has changed hands.
B) goods or services have been paid for, but not yet provided to the customer.
C) the company is transferring them to another period for tax reasons.
D) the customer may someday return items purchased for a refund.

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

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On November 1,2015,ABC Corp.borrowed $100,000 cash on a 1year note payable with a 6% annual rate that requires ABC to pay all the interest as well as the principal on October 31,2016.Assuming the November 1 transaction was properly recorded,how would the December 31,2015,year-end adjusting entry affect the accounting equation?


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) A) and B)
F) B) 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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When preparing the balance sheet for AAA,Inc.for December 31,2015,which item would not be classified as a current liability?


A) Note payable due March 1, 2017
B) Accounts payable
C) Income taxes due on September 15, 2016
D) The current portion of a 30-year mortgage

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

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Use the information above to answer the following question.What is the total amount of interest expense that will be recorded over the life of these bonds?


A) $300,000
B) $285,000
C) $315,000
D) $330,000

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

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Which of the following would not be considered a contingent liability?


A) Products sold with a warranty
B) Pending lawsuits
C) Frequent flyer miles earned by passengers
D) Cash received from advance ticket sales

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

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On January 1,ABC,Inc.,issued $100,000 of 10%,5year bonds on January 1,2015,for $92,280.Interest is due semiannually.When ABC records the first interest payment,which will be greater the debit to Interest Expense or the credit to Cash?


A) The debit to Interest Expense will be greater because the market rate is greater than the stated interest rate.
B) The debit to Interest Expense will be less because the market rate is greater than the stated interest rate.
C) The debit to Interest Expense will be greater because the market rate is less than the stated interest rate.
D) The debit to Interest Expense will be lower because the market rate is less than the stated interest rate.

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

Correct Answer

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

A) True
B) False

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The times interest earned ratio for Bodhaine's Orchard was 8.52 in 2014,6.63 in 2015,and 2.74 in 2016.What is the most likely interpretation of this ratio?


A) The ability to cover interest costs with resources from operations is decreasing.
B) The amount of debt has been decreasing each year.
C) Current liabilities are growing faster than current assets.
D) Income taxes have reduced an increasing amount of operating income.

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

Correct Answer

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


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) B) and C)
F) None of the above

Correct Answer

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Showing 201 - 220 of 235

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