Question 1

When evaluating a company's solvency,an investor's major concern is whether all debt has been properly recorded.

Accepted Answer

A) True 
 B)False

Question 2

A company's balance sheet showed the following amounts for liabilities and stockholders' equity accounts: Current Liabilities,$50,000;Bonds Payable,$600,000;Capital Lease Obligations,$120,000;and Deferred Income Tax Liability,$20,000.Total stockholders' equity was $520,000.What is the debt-to-equity ratio?

Accepted Answer

A)  0.66
B)  0.70
C)  1.42
D)  1.52E) A) and B)
F) B) and D)

Question 3

A bond issue price is the present value of the cash flows that the bond will produce.

Accepted Answer

A) True 
 B)False

Question 4

Bonds are a popular source of financing because

Accepted Answer

A)  the relative cost of issuing debt is often lower than the cost of issuing equity.
B)  financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock.
C)  a company having cash flow problems can postpone payment of interest to bondholders.
D)  the bondholders can always convert their bonds into stock if they choose.E) C) and D)
F) B) and D)

Question 5

Under the effective interest method of amortization,the interest expense for each period is the carrying value times the ____________________.

Accepted Answer

The answer of Under the effective interest method of amortization,the...

Question 6

If a bondholder has the right to retire the bonds,they are referred to as callable.

Accepted Answer

A) True 
 B)False

Question 7

Long-term debt generally refers to obligations that extend beyond one year.

Accepted Answer

A) True 
 B)False

Question 8

When each payment reduces the outstanding loan balance,which,in turn,reduces the interest expense in the subsequent period,it is call an ____________________ debt.

Accepted Answer

The answer of When each payment reduces the outstanding loan...

Question 9

The bond issue price is determined by calculating the

Accepted Answer

A)  present value of the stream of interest payments and the future value of the maturity amount.
B)  future value of the stream of interest payments and the future value of the maturity amount.
C)  future value of the stream of interest payments and the present value of the maturity amount.
D)  present value of the stream of interest payments and the present value of the maturity amount.E) None of the above
F) All of the above

Question 10

Kalahari Limited On January 2,2013,this company issued 1,000,000,10-year bonds for $1,150,000.The bonds pay interest on June 30 and December 31.The stated rate is 10% and the market rate is 8%.The company plans to use the effective interest method of amortizing bond discounts and premiums.
-Refer to Kalahari Limited.What is the carrying value of the bonds after the first interest payment is made on June 30,2013?

Accepted Answer

A)  $1,154,000
B)  $1,146,000
C)  $1,142,400
D)  $1,000,000E) A) and B)
F) C) and D)

Question 11

With the Effective Interest Method of Amortization,the amortization of a bond discount results in a(n)

Accepted Answer

A)  increase in stockholders' equity.
B)  decrease in liabilities.
C)  increase in interest expense.
D)  decrease in interest expense.E) All of the above
F) None of the above

Question 12

Which of the following would describe a callable bond?

Accepted Answer

A)  Borrower has the right to pay off the bonds prior to due date.
B)  Borrower has the right to issue more bonds prior to due date of existing bonds.
C)  Borrower has the right to call off the interest payments on the bonds.
D)  Investor has the right to call off the interest payments on the bonds.E) A) and B)
F) A) and C)

Question 13

A bond issuing at 101.25 means that the bond

Accepted Answer

A)  sold for $101.25.
B)  sold at a discount.
C)  sold for $1,012.50.
D)  stated rate is lower than the market rate of interest.E) A) and C)
F) None of the above

Question 14

Which of the following statements regarding leases is false?

Accepted Answer

A)  Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash.
B)  Accounting recognizes two types of leases--operating and capital leases.
C)  If a lessor classifies a lease as a capital lease,then the lessor records a lease liability on its balance sheet.
D)  If a lease is classified as an operating lease,the lessee records an asset on its balance sheet.E) B) and C)
F) A) and C)

Question 15

Current assets are $200,000,long term assets are $300,000,current liabilities are $100,000,long-term liabilities are $200,000,paid-in capital is $150,000,and retained earnings total $50,000.What is the debt-to-total-assets ratio?

Accepted Answer

A)  .4 or .4 to 1
B)  .6 or .6 to 1
C)  .2 or .2 to 1
D)  .9 or .9 to 1E) A) and B)
F) None of the above

Question 16

A company issued $500,000 of bonds for $498,351.Interest is paid semiannually.The bond markets and the financial press are likely to report the bond issue price as:

Accepted Answer

A)  498.35
B)  100.00
C)  99.67
D)  49.84E) A) and B)
F) C) and D)

Question 17

Keller Company issued $1,000,000,8%,7 year bonds with interest payable semiannually when the yield rate was 8%.The bonds issued at

Accepted Answer

A)  $887,037
B)  $1,000,000
C)  $1,112,963
D)  This question cannot be answered without the time value of money tables.E) A) and D)
F) B) and C)

Question 18

Callable bonds may be retired by the issuer before their specified due date.

Accepted Answer

A) True 
 B)False

Question 19

The Discount on Bonds Payable account is shown on the balance sheet as

Accepted Answer

A)  an asset.
B)  an expense.
C)  a long-term liability.
D)  a contra-liability account that reduces the bond to market value at the issue date.E) A) and B)
F) C) and D)

Question 20

Kaleidoscope Paint On January 1,2013,this company issued $500,000,10-year,9% bonds for $480,745.The bonds pay interest on June 30 and December 31.The market rate is 10%.The company plans to use the effective interest method of amortizing bond discounts and premiums.
-Refer to Kaleidoscope Paint.The interest expense on the bonds at June 30,2013,is

Accepted Answer

A)  $22,500
B)  $24,037
C)  $21,634
D)  $43,267E) All of the above
F) B) and D)

Exam 9: Long-Term Liabilities

When evaluating a company's solvency,an investor's major concern is whether all debt has been properly recorded.

Correct Answer
verified

A company issued $500,000 of bonds for $498,351.Interest is paid semiannually.The bond markets and the financial press are likely to report the bond issue price as:

Correct Answer
verified

Which of the following statements regarding leases is false?

Correct Answer
verified

Keller Company issued $1,000,000,8%,7 year bonds with interest payable semiannually when the yield rate was 8%.The bonds issued at

Correct Answer
verified

A bond issue price is the present value of the cash flows that the bond will produce.

Correct Answer
verified

Bonds are a popular source of financing because

Correct Answer
verified

A bond issuing at 101.25 means that the bond

Correct Answer
verified

Under the effective interest method of amortization,the interest expense for each period is the carrying value times the ____________________.

Correct Answer
verified

Callable bonds may be retired by the issuer before their specified due date.

Correct Answer
verified

With the Effective Interest Method of Amortization,the amortization of a bond discount results in a(n)

Correct Answer
verified

The bond issue price is determined by calculating the

Correct Answer
verified

Long-term debt generally refers to obligations that extend beyond one year.

Correct Answer
verified

Correct Answer
verified

The Discount on Bonds Payable account is shown on the balance sheet as

Correct Answer
verified

Current assets are $200,000,long term assets are $300,000,current liabilities are $100,000,long-term liabilities are $200,000,paid-in capital is $150,000,and retained earnings total $50,000.What is the debt-to-total-assets ratio?

Correct Answer
verified

If a bondholder has the right to retire the bonds,they are referred to as callable.

Correct Answer
verified

Which of the following would describe a callable bond?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When each payment reduces the outstanding loan balance,which,in turn,reduces the interest expense in the subsequent period,it is call an ____________________ debt.

Correct Answer
verified

Exam 9: Long-Term Liabilities

When evaluating a company's solvency,an investor's major concern is whether all debt has been properly recorded.

Correct AnswerverifiedShow Answer

A company issued $500,000 of bonds for $498,351.Interest is paid semiannually.The bond markets and the financial press are likely to report the bond issue price as:

Correct AnswerverifiedShow Answer

Which of the following statements regarding leases is false?

Correct AnswerverifiedShow Answer

Keller Company issued $1,000,000,8%,7 year bonds with interest payable semiannually when the yield rate was 8%.The bonds issued at

Correct AnswerverifiedShow Answer

A bond issue price is the present value of the cash flows that the bond will produce.

Correct AnswerverifiedShow Answer

Bonds are a popular source of financing because

Correct AnswerverifiedShow Answer

A bond issuing at 101.25 means that the bond

Correct AnswerverifiedShow Answer

Under the effective interest method of amortization,the interest expense for each period is the carrying value times the ____________________.

Correct AnswerverifiedShow Answer

Callable bonds may be retired by the issuer before their specified due date.

Correct AnswerverifiedShow Answer

With the Effective Interest Method of Amortization,the amortization of a bond discount results in a(n)

Correct AnswerverifiedShow Answer

The bond issue price is determined by calculating the

Correct AnswerverifiedShow Answer

Long-term debt generally refers to obligations that extend beyond one year.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Discount on Bonds Payable account is shown on the balance sheet as

Correct AnswerverifiedShow Answer

Current assets are $200,000,long term assets are $300,000,current liabilities are $100,000,long-term liabilities are $200,000,paid-in capital is $150,000,and retained earnings total $50,000.What is the debt-to-total-assets ratio?

Correct AnswerverifiedShow Answer

If a bondholder has the right to retire the bonds,they are referred to as callable.

Correct AnswerverifiedShow Answer

Which of the following would describe a callable bond?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When each payment reduces the outstanding loan balance,which,in turn,reduces the interest expense in the subsequent period,it is call an ____________________ debt.

Correct AnswerverifiedShow Answer

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