Accounting Chapter 9

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Bonds are sold at a premium if the

market rate of interest was less than the stated rate at the time of issue

The ______ is the rate of return that investors in the bond markets demand for bonds of similar risk

market rate of return

Although operating leases are not recorded on the balance sheet by the lessee, they are disclosed in the _________

notes to the financial statements

Long term liabilities generally include

obligations that extend beyond one year

The bond issue price is determined by calculating the

present value of the stream of interest payments and the present value of the maturity amount

when bonds are sold for less than the face amount, this means that the

stated rate of interest is less than the market rate of interest

borrower has the right to pay off the bonds prior to due date

callable bond

An _____ lease is recorded on the lessee's balance sheet as an asset and related liability

capital

An obligation that arises from an existing condition whose outcome is UNCERTAIN and whose resolution depends on a future event is called a

contingent liability

Discount on bonds payable is shown on the balance sheet as an

contra liability

The discount on bonds payable account is shown on the balance sheet as

contra liability

The current ratio is computed by dividing currents asset by

current liabilities

The interest charged by the bank, at the rate of 9% on a 3 month, discounted note payable for 100,000 is

2,250

To find Current Ratio, the equation is

CURRENT Assets/CURRENT Liabilities

Which of the following accounts would NOT appear on the balance sheet of a lessee company recording a capital lease

Rent expense on the leased asset

Which of the following statement about bond accounting under the effective interest method is correct

The interest expense is calculated as the carrying value, market rate.

Which of the following lease conditions would result in a capital lease to the lessee?

The lessee obtains enough rights to use the asset and is in substance the owner

Horizontal Analysis Equation

Total Liabilities 2012 - Total Liabilities 2011 Then take your answer and divide it by the lowest number

To find debts for assets, the equation is

Total Liabilities/Total Assets

Vertical Analysis

Total Liabilities/Total Liabilities and Equity

If bonds are issued at 101.25 this means that,

a 1000 bond sold for 1, 012.50

Which of the following statements regarding amortization is true

amortization of a premium continues over the life of the bond until the balance in the account is reduced to zero

The premium on bonds payable account is shown on the balance sheet as

an addition to a long term liability

the portion of long term debt due within one year should

be reclassified as a current liability

_____ Bonds may be retired by the issuing company before their specified due date

callable

Portion of long term debt due within one year is

current liability

The amount of federal income taxes withheld from an employees gross pay is recorded as a

current liability

The journal entry to record the issuance of a note for the purpose of borrowing funds is

debit cash, credit notes payable

The journal entry to record the payment of an ordinary note is

debit notes payable and interest expense, credit cash

If bonds were initially issued at a premium, the carrying value of the bonds on the users books will

decrease as the bonds approach their maturity date

with the effective interest method of amortization, the amortization of a bond PREMIUM results in an

decrease in interest expense

if the market rate of interest is greater than the stated rate, then the bonds are issued at a

discount

Current liabilities are

due and payable within one year

The amount of money the borrower agrees to repay at maturity of a bond is usually referred to as the

face value

Which of the following statements regarding contingent liabilities is true

if they are probable and estimable, then they must be recorded even before the outcome of the future event

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will:

increase as the bonds approach their maturity date

When bonds are issued by a company, the accounting entry shows an

increase in assets and an increase in liabilities

With the effective interest method of amortization, the amortization of a bond DISCOUNT results in an

increase in interest expense

Obligations that extend beyond one year are referred to as

long term liabilities

Under the effective interest method, the cash paid on each interest payment date will

remain constant regardless of the issuance price

Under the _______ method of amortization, an equal amount of discount or premium is amortized each time interest is paid

straight line

If a company bonds are callable,

the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of the interest is 4%

When will bonds sell at a discount

the stated rate of interest is less than the market rate of interest at the time of issue

When determining the amount of interest to be paid on a bond, which of the following information is necessary?

the stated rate of interest on the bonds


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