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Match the term and the definition.Not all definitions will be used.

Premises
Deferred Revenue
Premium
Face value
Yield
Loan covenant
Accrued liability
Public debt offering
Issue price
Line of credit
Responses
Also known as the market interest rate.
The amount that the lender actually pays for a bond.
Also known as the stated interest rate on a bond.
The amount a company must repay creditors when a bond matures.
These are liabilities that are overdue for payment.
The value of this type of lease is recorded as a contra-asset account.
Bond features that allow the issuer to repay the loan early under certain conditions.
The amount by which a bond's issue price exceeds its face value.
When cash is received before the company provides goods or services to customers.
The current market value of a bond if the current holder sells it to a third party.
A prearranged agreement that allows a company to borrow at will up to a limit.
The total amount of money that a company owes in debt.
These are liabilities that have been incurred during the period but not yet paid.
Bond features that,if violated,allow the lender to demand repayment.
The cost of issuing a bond.
This type of lease goes unrecorded on the balance sheet.
When a company borrows money by issuing bonds in the financial markets.

Correct Answer

Also known as the market interest rate.
The amount that the lender actually pays for a bond.
Also known as the stated interest rate on a bond.
The amount a company must repay creditors when a bond matures.
These are liabilities that are overdue for payment.
The value of this type of lease is recorded as a contra-asset account.
Bond features that allow the issuer to repay the loan early under certain conditions.
The amount by which a bond's issue price exceeds its face value.
When cash is received before the company provides goods or services to customers.
The current market value of a bond if the current holder sells it to a third party.
A prearranged agreement that allows a company to borrow at will up to a limit.
The total amount of money that a company owes in debt.
These are liabilities that have been incurred during the period but not yet paid.
Bond features that,if violated,allow the lender to demand repayment.
The cost of issuing a bond.
This type of lease goes unrecorded on the balance sheet.
When a company borrows money by issuing bonds in the financial markets.

The three key pieces of information that are stated on the bond certificate are:


A) the interest payment,the face value of the bond,and the credit rating of the company.
B) the market interest rate,the price of the bond,and the maturity date.
C) the stated interest rate,the face value of the bond,and the maturity date.
D) the interest payment,the issue price of the bond,and the credit rating of the company.

E) B) and C)
F) All of the above

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Calculate the debt-to-assets ratio and the times interest earned ratio for the following company.  Gil’s Fish and Tackle, Inc.Balance Sheet At December 31,2018  Assets  Cash Accounts Receivable (less allowance)  Inventories  Property, Plant, and Equipment Long-term Investments Total Assets Liabilities  Account Payable Current Portion of Long-Term Debt  Bonds Payable  Total Liabilities  Shareholders’ EquityContributed Capital  Retained Earnings  Total Equity  Total Liabilities and Equity$22,200169,10068,300102,80030,000$392,400$49,20068,800100,000‾218,000‾100,00074,400‾174,400‾$392,400\begin{array}{c} \hline\text { Gil's Fish and Tackle, Inc.Balance Sheet At December 31,2018 }\\\begin{array}{|l} \hline \text { Assets } & \\ \hline\text { Cash } & \\ \hline \text {Accounts Receivable (less allowance) } & \\ \hline\text { Inventories } & \\\hline \text { Property, Plant, and Equipment} & \\\hline \text { Long-term Investments } & \\ \hline \text {Total Assets } & \\\hline \text {Liabilities } & \\\hline \text { Account Payable} & \\ \hline \text { Current Portion of Long-Term Debt } & \\ \hline \text { Bonds Payable } & \\ \hline \text { Total Liabilities } & \\\hline \text { Shareholders' Equity} & \\ \hline \text {Contributed Capital } & \\\hline \text { Retained Earnings } & \\ \hline\text { Total Equity } & \\ \hline\text { Total Liabilities and Equity} & \\\hline\end{array}\begin{array}{|r|}\hline\\\hline \$ 22,200 \\\hline 169,100 \\\hline 68,300 \\\hline 102,800 \\\hline 30,000 \\\hline \$ 392,400 \\\hline\\\hline \$ 49,200 \\\hline 68,800 \\\hline \underline{100,000} \\\hline \underline{218,000} \\\hline\\\hline 100,000 \\\hline \underline{74,400} \\\hline \underline{174,400} \\\hline \$ 392,400 \\\hline\end{array}\end{array}

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Gil's Fish and Tackle, Inc.Incume Statem...

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When the amount of a contingent liability can be estimated and its likelihood is possible but not probable,the company should:


A) include a description in the footnotes to the financial statements.
B) record the amount of the liability times the probability of its occurrence.
C) record the liability and estimated amount of the loss on the balance sheet.
D) omit the information about the contingent liability from its financial statements and footnotes.

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

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A company's balance sheet at the end of year is as follows:  Assets  Cash $104,600 Accounts receivable (less allowance for doubtful accourts)  209,300 Inventories 118,500 Short-tem investments 11,500‾ Tatal current assets 443,900 Property, plant, and equipment 292,600 Long-temn irvestrnent 23,500‾ TOTAL ASSETs 760,000‾ Liabilities  Accounts payable $370,900 Current portion of long-tem debt 35,850 Long-tem debt 250000‾ TOTAL LIABILITIES $656,750\begin{array} { | l | r | } \hline \text { Assets } & \\\hline \text { Cash } & \$ 104,600 \\\hline \text { Accounts receivable (less allowance for doubtful accourts) } & 209,300 \\\hline \text { Inventories } & 118,500 \\\hline \text { Short-tem investments } & \underline { 11,500 } \\\hline \text { Tatal current assets } & 443,900 \\\hline \text { Property, plant, and equipment } & \mathbf { 2 9 2 , 6 0 0 } \\\hline \text { Long-temn irvestrnent } & \underline { 23,500 } \\\hline \text { TOTAL ASSETs } & \underline { 760,000 } \\\hline \text { Liabilities } & \\\hline \text { Accounts payable } & \mathbf { \$ 3 7 0 , 9 0 0 } \\\hline \text { Current portion of long-tem debt } & \mathbf { 3 5 , 8 5 0 } \\\hline \text { Long-tem debt } & \underline { \mathbf { 2 5 0 } 000 } \\\hline \text { TOTAL LIABILITIES } & \mathbf { \$ 6 5 6 , 7 5 0 } \\\hline\end{array} The debt-to-assets ratio for this company is:


A) approximately 1.15.
B) approximately 0.91.
C) approximately 1.86.
D) approximately 0.86.

E) All of the above
F) B) and C)

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On October 31,2018,assume that Steelco Inc.had $20.9 billion in Cash,Short-Term Investments,and (Net)Accounts Receivable and $26.1 billion in current liabilities.Also it had $20.4 billion in Long term assets.On October 3,2018,the company received $350 million when it issued long term promissory notes.The notes will mature in 2023 and pay interest at the annual rate of 7%.Steelco's fiscal year ends on October 31.Journalize the issuance on Oct.3 and the accrual of interest,at year-end.What is the debt-to-assets ratio for Steelco on October 31?  Date  Account  Debit  Credit  Oct. 3, 2018  Cash $350,000,000 Notes Payable $350,000,000 Oct 31, 2018  Interest Expense $2,041,667 Interest Payable $2,041,667\begin{array} { | l | l | r | r| } \hline \text { Date } & \text { Account } & \text { Debit } & \text { Credit } \\\hline \text { Oct. 3, 2018 } & \text { Cash } & \$ 350,000,000 & \\\hline & \text { Notes Payable } & & \$ 350,000,000 \\\hline \text { Oct 31, 2018 } & \text { Interest Expense } & \$ 2,041,667 & \\\hline & \text { Interest Payable } & & \$ 2,041,667 \\\hline\end{array}

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Interest Expense = 350,000,000...

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Some bonds allow the borrower to repay the bond by issuing stock.This feature is known as:


A) convertibility.
B) a loan covenant.
C) callable.
D) seniority.

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

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Payroll deductions are amounts subtracted from employees' net earnings to determine their net pay.

A) True
B) False

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In October,you borrow $50,000,repayable in five years,at 8% annual interest,in order to buy new equipment.In March and again in September of the following year you pay half the annual interest to your creditors.Assuming no other long-term debt,what is the initial balance in the long-term debt account?


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

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

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A company receives $95 for merchandise sold to a consumer,of which $5 is for sales tax.The $5 of sales tax:


A) increases sales revenue.
B) increases current liabilities.
C) increases selling expenses.
D) none of the answers are acceptable.

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

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Deferred revenue is recorded as an asset until the revenue has been earned.

A) True
B) False

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At the beginning of the first quarter,your company borrows $20,000 for four years at 8% interest and has to repay $5,000 of principal each year.Interest is paid at the end of the second and fourth quarters,and the principal is due at the end of the year.How would this information be reported on the balance sheet at the end of the first quarter?


A) $400 as interest expense and $20,000 under long-term debt.
B) $400 as interest payable,$5,000 as current portion of long-term debt under current liabilities,and $15,000 under long-term debt.
C) $1,600 of interest under current liabilities,$5,000 as current portion of long-term debt under current liabilities and $15,000 under long-term debt.
D) $400 as interest payable under current liabilities and $20,000 under long-term debt.

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

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Current liabilities are short-term obligations that will always be paid within 12 months.

A) True
B) False

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When the amount of a contingent liability cannot be estimated and its possible but not probable,the company should:


A) include a description in the footnotes to the financial statements.
B) record the amount of the liability times the probability of its occurrence.
C) record the liability and estimated amount of the loss on the balance sheet.
D) omit the information about the contingent liability from its financial statements and footnotes.

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

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As time passes,a bond liability creates interest expense,which


A) need not be matched to each period in which the liability is owed.
B) is matched to each period in which the liability is owed.
C) may be matched to each period in which the liability is owed,but it depends on whether the company is following ASPE or IFRS.
D) all of the answers are acceptable in certain situations.

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

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A company issues a 5-year bond with a $7,500 discount.Using straight-line amortization,the company should:


A) debit discount on bonds payable $1,500 per year.
B) credit discount on bonds payable $1,500 per year.
C) debit interest payable $1,500 per year.
D) credit interest payable $1,500 per year.

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

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Operating cycles are generally longer than a year.

A) True
B) False

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On January 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 was $10,866.Using the effective interest method of amortization,the interest expense in the first year ended December 31 would be:


A) $700.00
B) $543.30.
C) $667.00
D) $758.80.

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

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During a two week pay period,your company's employees earned gross wages and salaries of $67,500.The employees have income tax withholdings of $7,800 and the company owes a total of $10,400 in Canada Pension Plan payments (includes both the company and employee portions).Calculate the net pay that was paid to the employees and wages and salary expense for the company.Prepare the journal entry for this transaction.

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Net Pay = Gross Pay (wages and salaries ...

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The principal of a loan does not include any interest charges.

A) True
B) False

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