Question 1

The entry to record the discount amortization and interest accrual on December 31,2014,would include a

Accepted Answer

A)  debit to Discount on Bonds Payable.
B)  credit to Cash.
C)  credit to Interest Payable.
D)  debit to Bonds Payable.E) A) and B)
F) A) and C) C

Question 2

On October 1,2013,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 creditor.On December 31,2013,your adjusting journal entry for the quarter should:

Accepted Answer

A)  debit Interest Expense for $3,000 and credit Interest Payable for $3,000.
B)  debit Interest Payable for $3,000 and credit Interest Expense 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 Interest Payable for $6,000.E) None of the above
F) All of the above

Question 3

Which of the following statements regarding bonds payable net of a discount or premium is not true?

Accepted Answer

A)  If a company records a discount or premium with the bonds payable in a single account called Bonds Payable,Net,it is using the simplified effective interest method of 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 the Simplified Approach (Effective-interest Method) of 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) All of the above
F) B) and D)

Question 4

When a company issues bonds that do not pay periodic interest,the bonds are called:

Accepted Answer

A)  convertible bonds.
B)  debenture bonds.
C)  serial bonds.
D)  zero-coupon bonds.E) A) and D)
F) B) and C)

Question 5

Which of the following statements regarding loan terminology is true?

Accepted Answer

A)  Loan covenants are the collateral provided by a borrower to a lender as security on a loan.
B)  A secured loan means that the borrower has a pre-approved line of credit backing the debt.
C)  Lenders can revise loan terms if a borrower violates a loan covenant.
D)  All companies are able to establish lines of credit which will allow them to borrow money as needed,up to a prearranged limit.E) None of the above
F) C) and D) C

Question 6

Use the information above to answer the following question.If the straight-line method of amortization is used,how much total interest expense would be recorded in 2013?

Accepted Answer

A)  $1,840
B)  $840
C)  $1,000
D)  $864E) A) and D)
F) A) and C)

Question 7

When the times interest earned ratio declines,the likelihood of default on liabilities increases.

Accepted Answer

A) True 
 B)False

Question 8

A company receives $102,000 when it issues a bond with a face value of $100,000 and a stated interest rate of 7%.Which of the following statements is true?

Accepted Answer

A)  The annual interest expense is $7,000.
B)  The market interest rate is 7%.
C)  A contra account to bonds payable is not needed.
D)  The carrying value of the bonds will be $100,000 at maturity.E) A) and B)
F) A) and C)

Question 9

A company has bonds outstanding with a face value of $100,000.The unamortized premium on these bonds is $2,700.If the company retired these bonds at a call price of 99,the journal entry to record this retirement is:

Accepted Answer

A)  Option A
B)  Option B
C)  Option C
D)  Option DE) A) and B)
F) A) and C)

Question 10

The annual interest payment on bonds:

Accepted Answer

A)  increases over the life of the bonds when bonds are issued at a discount.
B)  decreases over the life of the bonds when bonds are issued at a discount.
C)  stays constant over the life of the bonds,regardless of whether bonds are issued at par,a discount,or a premium.
D)  increases over the life of the bonds under the effective-interest method,but stays constant under the straight-line method of amortization.E) B) and C)
F) A) and D)

Question 11

Which of the following would help a company improve its quick ratio?

Accepted Answer

A)  Borrowing money on a long-term note just before the end of the accounting period.
B)  Shifting resources from long-term assets to supplies and inventory.
C)  Shifting obligations from long-term liabilities to short-term liabilities.
D)  Acquiring inventory by issuing a long-term note.E) None of the above
F) B) and C)

Question 12

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.
D)  The account used to record the discount is a normal credit balance account.E) C) and D)
F) B) and C)

Question 13

Contingent liabilities must be recorded if:

Accepted Answer

A)  the future event is reasonably possible.
B)  the amount owed cannot be reasonably estimated.
C)  the future event is probable and the amount owed can be reasonably estimated.
D)  the future event is remote.E) B) and C)
F) B) and D)

Question 14

Which of the following statements best describes a contingent liability?

Accepted Answer

A)  The amount of a contingent liability is known and will definitely have to be paid in the future.
B)  A contingent liability is a potential liability that has arisen because of a past transaction or event,but its ultimate outcome will not be known until a future event occurs or fails to occur.
C)  A contingent liability will only be incurred if a particular future event takes place.
D)  A contingent liability is a potential liability that will be incurred if a natural disaster happens.E) A) and D)
F) B) and C)

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

Question 16

Some bonds allow the issuing company to retire the bond with cash at any time.These bonds are known as:

Accepted Answer

A)  convertible bonds.
B)  debenture bonds.
C)  callable bonds.
D)  coupon bonds.E) A) and D)
F) A) and C)

Question 17

Some bonds allow the borrower to repay the bond by issuing stock.These bonds are known as:

Accepted Answer

A)  convertible bonds.
B)  debenture bonds.
C)  callable bonds.
D)  coupon bonds.E) A) and B)
F) B) and D)

Question 18

You are considering buying a bond from a company that has a quick ratio of 0.45.This means that:

Accepted Answer

A)  the company has 45% of its total assets in the current category.
B)  the company does not have the ability to pay off all the debt it owes with all the assets it owns.
C)  the company does not have the ability to pay off all the debt that is due in the near future with assets that are available in the near future.
D)  stockholders currently own 45% of the company's assets.E) None of the above
F) A) and D)

Question 19

Which of the following statements is not true?

Accepted Answer

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)  Moody's,Fitch,and Standard and Poor's are the names of credit rating agencies.E) All of the above
F) None of the above A

Question 20

Some bonds mature in installments.If a bond issue contains this feature,the bonds are known as:

Accepted Answer

A)  secured bonds.
B)  convertible bonds.
C)  callable bonds.
D)  serial bonds.E) B) and C)
F) B) and D)

Exam 10: Liabilities

The entry to record the discount amortization and interest accrual on December 31,2014,would include a

Correct AnswerverifiedC

On October 1,2013,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 creditor.On December 31,2013,your adjusting journal entry for the quarter should:

Correct AnswerverifiedShow Answer

Which of the following statements regarding bonds payable net of a discount or premium is not true?

Correct AnswerverifiedShow Answer

When a company issues bonds that do not pay periodic interest,the bonds are called:

Correct AnswerverifiedShow Answer

Which of the following statements regarding loan terminology is true?

Correct AnswerverifiedC

Use the information above to answer the following question.If the straight-line method of amortization is used,how much total interest expense would be recorded in 2013?

Correct AnswerverifiedShow Answer

When the times interest earned ratio declines,the likelihood of default on liabilities increases.

Correct AnswerverifiedShow Answer

A company receives $102,000 when it issues a bond with a face value of $100,000 and a stated interest rate of 7%.Which of the following statements is true?

Correct AnswerverifiedShow Answer

A company has bonds outstanding with a face value of $100,000.The unamortized premium on these bonds is $2,700.If the company retired these bonds at a call price of 99,the journal entry to record this retirement is:

Correct AnswerverifiedShow Answer

The annual interest payment on bonds:

Correct AnswerverifiedShow Answer

Which of the following would help a company improve its quick ratio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Contingent liabilities must be recorded if:

Correct AnswerverifiedShow Answer

Which of the following statements best describes a contingent liability?

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

Some bonds allow the issuing company to retire the bond with cash at any time.These bonds are known as:

Correct AnswerverifiedShow Answer

Some bonds allow the borrower to repay the bond by issuing stock.These bonds are known as:

Correct AnswerverifiedShow Answer

You are considering buying a bond from a company that has a quick ratio of 0.45.This means that:

Correct AnswerverifiedShow Answer

Which of the following statements is not true?

Correct AnswerverifiedA

Some bonds mature in installments.If a bond issue contains this feature,the bonds are known as:

Correct AnswerverifiedShow Answer

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C

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C

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A

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