Question 1

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

Accepted Answer

A) True 
 B)False

Question 2

_____________________ bonds can be exchanged for a fixed number of the issuing corporation's ordinary shares.

Accepted Answer

The answer of _____________________ bonds can be exchanged for a...

Question 3

On January 1, a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195. The first payment is due on December 31. Prepare the journal entries to record the first and second installment payments.

Accepted Answer

The answer of On January 1, a company borrowed $50,000...

Question 4

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Accepted Answer

A)   $0 gain or loss.
B)   $1,500 gain.
C)   $1,500 loss.
D)   $3,000 gain.
E)   $3,000 loss.F) B) and E)
G) All of the above

Question 5

Compound interest means that interest in a second period is based on the total amount borrowed plus the interest accrued in the first period.

Accepted Answer

A) True 
 B)False

Question 6

On January 1, $300,000 of par value bonds with a carrying amount of $310,000 is converted to 50,000 $5 par value ordinary shares. The entry to record the conversion of the bonds includes all of the following entries except:

Accepted Answer

A)   Debit to Bonds Payable $310,000.
B)   Debit to Premium on Bonds Payable $10,000.
C)   Credit to Share Capital-Capital $250,000.
D)   Credit to Share Premium-Ordinary $60,000.
E)   Debit to Bonds Payable $300,000.F) A) and D)
G) B) and E) A

Question 7

Bonds that give the issuer an option of retiring them before they mature are:

Accepted Answer

A)   Debentures.
B)   Serial bonds.
C)   Sinking fund bonds.
D)   Registered bonds.
E)   Callable bonds.F) B) and D)
G) D) and E)

Question 8

A bond traded at 102½ means that:

Accepted Answer

A)   The bond pays 2.5% interest.
B)   The bond traded at $1,025 per $1,000 bond.
C)   The market rate of interest is 2.5%.
D)   The bonds were retired at $1,025 each.
E)   The market rate of interest is 2 ½ % above the contract rate.F) C) and E)
G) A) and E)

Question 9

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance and the premium reduces the interest expense of the bond over its life.

Accepted Answer

A) True 
 B)False

Question 10

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Accepted Answer

A) True 
 B)False

Question 11

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

Accepted Answer

A) True 
 B)False

Question 12

The contract rate on previously issued bonds changes as the market rate of interest changes.

Accepted Answer

A) True 
 B)False  False

Question 13

The carrying amount of a long-term note payable:

Accepted Answer

A)   Is computed as the future value of all remaining future payments, using the market rate of interest.
B)   Is the face value of the long-term note less the total of all future interest payments.
C)   Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance.
D)   Is computed as the present value of all remaining interest payments, discounted using the note's rate of interest.
E)   Decreases each time period the discount on the note is amortized.F) A) and D)
G) A) and C)

Question 14

A company retires its bonds at 105. The face value is $100,000 and the carrying amount of the bonds at the retirement date is $103,745. The issuer's journal entry to record the retirement will include a:

Accepted Answer

A)   Debit to Premium on Bonds.
B)   Credit to Premium on Bonds.
C)   Debit to Discount on Bonds.
D)   Credit to Gain on Bond Retirement.
E)   Credit to Bonds Payable.F) All of the above
G) A) and E)

Question 15

An _______________ is a series of equal payments at equal time intervals.

Accepted Answer

The answer of An _______________ is a series of equal...

Question 16

A bond's par value is not necessarily the same as its market value.

Accepted Answer

A) True 
 B)False

Question 17

Tart Company's most recent balance sheet reports total assets of $42,000,000, total liabilities of $16,000,000 and shareholders' equity of $26,000,000. Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds. What effect, if any, would prepaying the bonds have on the company's debt-to-equity ratio?

Accepted Answer

A)   Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50.
B)   Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57.
C)   Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50.
D)   Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57.
E)   Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchanged.F) B) and C)
G) A) and B)

Question 18

A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.

Accepted Answer

The answer of A company has 10%, 20-year bonds outstanding...

Question 19

Which of the following accurately describes a debenture?

Accepted Answer

A)   A legal contract between the bond issuer and the bondholders.
B)   A type of bond issued in the names and addresses of the bondholders.
C)   A type of bond which requires the bond issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds.
D)   A type of bond which is not collateralized but backed only by the issuer's general credit standing.
E)   A type of bond that can be exchanged for a fixed number of shares of the issuing corporation's ordinary shares.F) C) and D)
G) B) and D) D

Question 20

Describe the recording procedures for the issuance, retirement, and paying of interest for notes.

Accepted Answer

At issuance, the proceeds from a note mu...

Exam 14: Long-Term Liabilities

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

Correct Answer
verified

_____________________ bonds can be exchanged for a fixed number of the issuing corporation's ordinary shares.

Correct Answer
verified

On January 1, a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195. The first payment is due on December 31. Prepare the journal entries to record the first and second installment payments.

Correct Answer
verified

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Correct Answer
verified

Compound interest means that interest in a second period is based on the total amount borrowed plus the interest accrued in the first period.

Correct Answer
verified

On January 1, $300,000 of par value bonds with a carrying amount of $310,000 is converted to 50,000 $5 par value ordinary shares. The entry to record the conversion of the bonds includes all of the following entries except:

Correct Answer
verified
A

Bonds that give the issuer an option of retiring them before they mature are:

Correct Answer
verified

A bond traded at 102½ means that:

Correct Answer
verified

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance and the premium reduces the interest expense of the bond over its life.

Correct Answer
verified

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Correct Answer
verified

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

Correct Answer
verified

The contract rate on previously issued bonds changes as the market rate of interest changes.

Correct Answer
verified
False

The carrying amount of a long-term note payable:

Correct Answer
verified

A company retires its bonds at 105. The face value is $100,000 and the carrying amount of the bonds at the retirement date is $103,745. The issuer's journal entry to record the retirement will include a:

Correct Answer
verified

An _______________ is a series of equal payments at equal time intervals.

Correct Answer
verified

A bond's par value is not necessarily the same as its market value.

Correct Answer
verified

Correct Answer
verified

A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.

Correct Answer
verified

Which of the following accurately describes a debenture?

Correct Answer
verified
D

Describe the recording procedures for the issuance, retirement, and paying of interest for notes.

Correct Answer
verified
At issuance, the proceeds from a note mu...
View Answer

Exam 14: Long-Term Liabilities

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

Correct AnswerverifiedShow Answer

_____________________ bonds can be exchanged for a fixed number of the issuing corporation's ordinary shares.

Correct AnswerverifiedShow Answer

On January 1, a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195. The first payment is due on December 31. Prepare the journal entries to record the first and second installment payments.

Correct AnswerverifiedShow Answer

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Correct AnswerverifiedShow Answer

Compound interest means that interest in a second period is based on the total amount borrowed plus the interest accrued in the first period.

Correct AnswerverifiedShow Answer

On January 1, $300,000 of par value bonds with a carrying amount of $310,000 is converted to 50,000 $5 par value ordinary shares. The entry to record the conversion of the bonds includes all of the following entries except:

Correct AnswerverifiedA

Bonds that give the issuer an option of retiring them before they mature are:

Correct AnswerverifiedShow Answer

A bond traded at 102½ means that:

Correct AnswerverifiedShow Answer

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance and the premium reduces the interest expense of the bond over its life.

Correct AnswerverifiedShow Answer

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Correct AnswerverifiedShow Answer

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

Correct AnswerverifiedShow Answer

The contract rate on previously issued bonds changes as the market rate of interest changes.

Correct AnswerverifiedFalse

The carrying amount of a long-term note payable:

Correct AnswerverifiedShow Answer

A company retires its bonds at 105. The face value is $100,000 and the carrying amount of the bonds at the retirement date is $103,745. The issuer's journal entry to record the retirement will include a:

Correct AnswerverifiedShow Answer

An _______________ is a series of equal payments at equal time intervals.

Correct AnswerverifiedShow Answer

A bond's par value is not necessarily the same as its market value.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.

Correct AnswerverifiedShow Answer

Which of the following accurately describes a debenture?

Correct AnswerverifiedD

Describe the recording procedures for the issuance, retirement, and paying of interest for notes.

Correct AnswerverifiedAt issuance, the proceeds from a note mu...View AnswerShow Answer

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A

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False

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D

Correct Answer
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At issuance, the proceeds from a note mu...
View Answer