ch. 10 quiz

Which of the following would not be a current liability on December 31? a. A $5,000 note payable due December 31 of the following year b. Accounts payable of $10,000 due January 30 of the following year c. A $1,000 note payable due May 31 of the following year d. A $10,000 bond payable due on December 31 in five years e. Accrued salaries payable of $600 to be paid on January 14 of the following year

A $10,000 bond payable due on December 31 in five years

Mohling Company typically sells subscriptions on an annual basis, and publishes eight times a year. The company sells 45,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions? a. A debit to a receivable account for $450,000 and credit a revenue account for $450,000. b. A debit to a prepaid asset account for $450,000 and credit the Cash account for $450,000. c. A debit to a receivable account for $56,250 and credit an unearned revenue account for $56,250. d. A debit to the Cash account for $450,000 and credit a revenue account for $450,000. e. A debit to the Cash account for $450,000 and credit an unearned revenue account for $450,000.

A debit to the Cash account for $450,000 and credit an unearned revenue account for $450,000.

The Lambert Company operates a consulting practice. New clients are required to pay the firm in two transactions. First, clients must pay $250 before receiving consulting services. Second, clients must pay $750 once the consulting firm finishes providing services to the client. How does The Lambert Company account for the first transaction? a. Debit the Cash account for $250 and credit the Unearned Revenue account for $250. b. Debit the Cash account for $250 and credit the Prepaid Service account for $250. c. Debit the Cash account for $750, debit the Unearned Revenue account for $250, and credit the Service Revenue account for $1,000. d. Debit the Cash account for $1,000 and credit the Service Revenue account for $1,000. e. Debit the Cash account for $250, debit the Prepaid Service account for $750, and credit the Service Revenue account for $1,000.

Debit the Cash account for $250 and credit the Unearned Revenue account for $250.

The Lambert Company operates a consulting practice. New clients are required to pay the firm in two transactions. First, clients must pay $250 before receiving consulting services. Second, clients must pay $750 once the consulting firm finishes providing services to the client. How does The Lambert Company account for the second transaction? a. Debit the Cash account for $250 and credit the Unearned Revenue account for $250. b. Debit the Cash account for $250 and credit the Prepaid Service account for $250. c. Debit the Cash account for $750, debit the Unearned Revenue account for $250, and credit the Service Revenue account for $1,000. d. Debit the Cash account for $1,000 and credit the Service Revenue account for $1,000. e. Debit the Cash account for $250, debit the Prepaid Service account for $750, and credit the Service Revenue account for $1,000.

Debit the Cash account for $750, debit the Unearned Revenue account for $250, and credit the Service Revenue account for $1,000.

What is the effect of amortizing a bond premium? a. It decreases the carrying value of the bonds. b. It does not affect the carrying value of the bonds. c. It increases interest expense. d. It increases the carrying value of the bonds. e. Its effect on the carrying value of bonds cannot be determined without knowing the maturity date of the bond.

It decreases the carrying value of the bonds.

What is the effect of amortizing a bond discount? a. Its effect on the carrying value of bonds cannot be determined without knowing the maturity date of the bond. b. It decreases the carrying value of the bonds. c. It increases the carrying value of the bonds. d. It does not affect the carrying value of the bonds. e. None of these are true

It increases the carrying value of the bonds.

Which of the following statements regarding the amortization of discounts and premiums on bonds is false? a. Over the life of the bond, the carrying value increases for discounted bonds when using the effective interest method. b. When the straight-line and effective interest methods of amortization result in interest that is materially different, GAAP requires use of the effective interest method. c. The amount of interest expense decreases each period over the life of a discounted bond issue when the effective interest method is used. d. The effective interest method applies a constant percentage to the bond carrying value to compute interest expense. e. None of these statements is false.

The amount of interest expense decreases each period over the life of a discounted bond issue when the effective interest method is used.

Which of the following is true for bonds that have been issued at a premium? a. The premium indicates that the cost of the bonds is higher than the bond interest paid. b. The unamortized premium will increase over the life of the bond. c. None of these. d. The carrying value of the bonds will decrease over the life of the bonds. e. Interest expense will not be affected by the amortization of the premium.

The carrying value of the bonds will decrease over the life of the bonds.

Which of the following is true for bonds that have been issued at a discount? a. None of these. b. The carrying value of the bonds will increase over the life of the bonds. c. The unamortized discount will increase over the life of the bond. d. The discount indicates that the cost of the bonds is lower than the bond interest paid. e. Interest expense will not be affected by the amortization of the discount.

The carrying value of the bonds will increase over the life of the bonds.

A corporation issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, what does this indicate? a. No relationship exists between the market and contractual rates. b. The market interest rate exceeds the contractual interest rate. c. The contractual interest rate exceeds the market interest rate. d. The bonds are redeemable. e. The contractual interest rate and the market interest rate are the same.

The contractual interest rate exceeds the market interest rate.

Low Flow Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued for $204,000, what does this indicate? a. No relationship exists between the market and contractual rates. b. The market interest rate exceeds the contractual interest rate. c. The contractual interest rate exceeds the market interest rate. d. The bonds are redeemable. e. The contractual interest rate and the market interest rate are the same.

The contractual interest rate exceeds the market interest rate.

Which of the following is false with regards to bonds? a. The face value of a bond is the amount of principal due at the maturity date. b. The contractual interest rate of a bond is the rate the investors demand for loaning funds. c. Callable bonds are bonds that the issuing corporation can redeem at a stated dollar amount prior to maturity. d. Secured bonds are bonds that have specific assets of the issuer pledged as collateral for the bonds. e. Bonds are a form of interest-bearing note payable often sold in denominations of $1,000.

The contractual interest rate of a bond is the rate the investors demand for loaning funds.

Which of the following statements regarding the amortization of discounts and premiums on bonds is true? a. The effective interest method applies a constant percentage to the bond carrying value to compute interest expense. b. None of these. c. When the straight-line and effective interest methods of amortization result in interest that is materially different, GAAP requires use of the straight-line method. d. The amount of interest expense decreases each period over the life of a discounted bond issue when the effective interest method is used. e. Over the life of the bond, the carrying value decreases for discounted bonds when using the effective interest method.

The effective interest method applies a constant percentage to the bond carrying value to compute interest expense.

Which of the following statements regarding the amortization of discounts and premiums on bonds is false? a. None of these statements is false. b. Over the life of the bond, the carrying value increases for discounted bonds when using the effective interest method. c. The amount of interest expense increases each period over the life of a discounted bond issue when the effective interest method is used. d. The effective interest method applies a non-constant percentage to the bond carrying value to compute interest expense. e. When the straight-line and effective interest methods of amortization result in interest that is materially different, GAAP requires use of the effective interest method.

The effective interest method applies a non-constant percentage to the bond carrying value to compute interest expense.

The journal entry to record issuing bonds at a discount will include a debit to the Cash account for the following amount: a. The face value of the bonds minus the amount of the discount b. The face value of the bonds plus the amount of the discount c. The stated value of the bonds d. The face value of the bonds e. The maturity value of the bonds

The face value of the bonds minus the amount of the discount

The journal entry to record issuing bonds at a premium will include a debit to the Cash account for the following amount: a. The face value of the bonds minus the amount of the discount b. The face value of the bonds plus the amount of the discount c. The stated value of the bonds d. The face value of the bonds e. The maturity value of the bonds

The face value of the bonds plus the amount of the discount

Which of the following is true for bonds that have been issued at premium? a. The unamortized premium will increase over a life of a bond b. Interest expense will not be affected by the amortization of the premium c. None of these. d. The premium indicates that the cost of the bonds is lower than the interest paid e. The carrying value of the bonds will increase over the life of the bonds.

The premium indicates that the cost of the bonds is lower than the interest paid

A professional team sells season tickets to its fans. There are 10 home games during the season. This year's season tickets sold for a total of $12,000,000 cash. What will be credited by the team after each home game is played? a. Unearned Ticket Revenue for $1,200,000 b. Ticket Revenue for $1,000,000 c. Unearned Ticket Revenue for $1,250,000 d. Unearned Ticket Revenue for $1,000,000 e. Ticket Revenue for $1,200,000

Ticket Revenue for $1,200,000

Which of the following statements regarding the amortization of discounts and premiums on bonds is false? a. None of these statements is false. b. Over the life of the bond, the carrying value increases for discounted bonds when using the effective interest method. c. The amount of interest expense increases each period over the life of a discounted bond issue when the effective interest method is used. d. The effective interest method applies a constant percentage to the bond carrying value to compute interest expense. e. When the straight-line and effective interest methods of amortization result in interest that is materially different, GAAP requires use of the straight-line method.

When the straight-line and effective interest methods of amortization result in interest that is materially different, GAAP requires use of the straight-line method.

The year-end balance of the Premium on Bonds Payable is a. deducted from Bonds Payable on the balance sheet. b. shown on the income statement as an expense. c. added to Bonds Payable on the balance sheet. d. shown on the statement of cash flows as an operating activity. e. shown on the income statement as a revenue.

added to Bonds Payable on the balance sheet.

The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n) a. interest rate that increases over time according to a pre-arranged schedule. b. None of these. c. interest rate that decreases over time according to a pre-arranged schedule. d. interest rate that constantly matches the market interest rate. e. constant rate of interest.

constant rate of interest.

A corporation issues $1,000,000 of 8%, 5-year bonds when bonds of similar risk are paying 9%. The 8% rate of interest is called the __________ rate. a. yield b. market c. contractual d. effective e. term

contractual

Bonds that may be exchanged for common stock at the option of the bondholders are known as a. convertible bonds. b. callable bonds. c. trading securities. d. options. e. stock bonds.

convertible bonds.

A company receives $176, of which $16 is for sales tax. The journal entry to record the sale with sales tax would include a a. credit to Sales Taxes Payable for $16. b. credit to Sales Tax Revenue for $16. c. debit to Sales Taxes Expense for $16. d. debit to Sales Revenue for $176. e. debit to Cash for $160.

credit to Sales Taxes Payable for $16.

A company's cash register tape shows cash sales of $12,000 not including sales tax. The sales tax rate is 5% of sales. The journal entry to record the cash sales with sales tax includes a a. debit to he Sales Tax Receivable account for $600. b. credit to the Sales Tax Revenue account for $600. c. debit to the Cash account for $600. d. credit to the Sales Tax Payable account for $600. e. debit to the Sales account for $12,000.

credit to the Sales Tax Payable account for $600.

Liabilities are classified on the balance sheet as a. current or long-term. b. earned or unearned. c. taxed or untaxed. d. solvent or insolvent. e. accrued or deferred.

current or long-term.

The amortization of a bond discount will result in reporting an amount of interest expense for an interest period that a. exceeds the amount of cash to be paid for interest for the period. b. is less than the amount of cash to be paid for interest for the period. c. equals the amount of cash to be paid for interest for the period. d. has no predictable relationship with the amount of cash to be paid for interest for the period. e. exceeds the amount of cash to be paid for interest for the period in some years and is less than the amount of cash to be paid for interest for the period in other years.

exceeds the amount of cash to be paid for interest for the period.

In order for a liability to be classified as a current liability, it must be a debt that the company a. expects to pay with cash. b. expects to pay from neither existing current assets nor through the creation of other current liabilities. c. expects to pay from existing current assets or through the creation of other current liabilities. d. expects to pay from existing current assets. e. expects to pay through the creation of other current liabilities.

expects to pay from existing current assets or through the creation of other current liabilities.

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount a. equal to face value. b. greater than face value. c. that cannot be determined. d. less than face value.

greater than face value.

Secured bonds are bonds that a. mature in installments. b. can be converted into common stock. c. are in the possession of a bank. d. pay interest. e. have specific assets of the issuer pledged as collateral.

have specific assets of the issuer pledged as collateral.

When bonds are issued at a premium, the total interest cost of the bonds over the life of the bonds is equal to the amount of a. interest paid over the life of the bond minus the amount of premium at sale point. b. interest paid over the life of the bond plus the amount of premium at sale point. c. premium termination value. d. interest paid over the life of the bond. e. premium at sale point.

interest paid over the life of the bond minus the amount of premium at sale point.

The amortization of a bond premium will result in reporting an amount of interest expense for an interest period that a. exceeds the amount of cash to be paid for interest for the period. b. has no predictable relationship with the amount of cash to be paid for interest for the period. c. equals the amount of cash to be paid for interest for the period. d. is less than the amount of cash to be paid for interest for the period. e. exceeds the amount of cash to be paid for interest for the period in some years and is less than the amount of cash to be paid for interest for the period in other years.

is less than the amount of cash to be paid for interest for the period.

The sale or issuance of bonds for more than their face value a. is a rare occurrence. b. will cause the total cost of borrowing to be less than the bond interest paid. c. will reduce the value of bonds at maturity. d. will have no net effect on interest expense by the time the bonds mature. e. will cause the total cost of borrowing to be more than the bond interest paid.

will cause the total cost of borrowing to be less than the bond interest paid.

The sale or issuance of bonds for less than their face value a. will cause the total cost of borrowing to be more than the bond interest paid. b. is a rare occurrence. c. will cause the total cost of borrowing to be less than the bond interest paid. d. will have no net effect on interest expense by the time the bonds mature. e. will reduce the value of bonds at maturity.

will cause the total cost of borrowing to be more than the bond interest paid.

The time period for classifying a liability as a current liability rather than as a long-term liability can be determined by whether it is expected to be paid a. within one month or less regardless of the operating cycle. b. within one year or the operating cycle, whichever is longer. c. within one year regardless of the operating cycle. d. the operating cycle regardless of how long or short it is. e. within one year or the operating cycle, whichever is shorter.

within one year or the operating cycle, whichever is longer.

A current liability is a debt that can reasonably be expected to be paid a. out of cash currently on hand. b. out of currently recognized revenues. c. within 30 days. d. within one year, or the operating cycle, whichever is shorter. e. within one year, or the operating cycle, whichever is longer.

within one year, or the operating cycle, whichever is longer.

Over the term or life of a bond issued at a discount, the balance in the Discount on Bonds Payable account will a. decrease. b. be unaffected until the bonds mature. c. fluctuate up and down if the market is volatile. d. increase. e. vary directly with market rates.

decrease.

Over the term or life of a bond issued at a premium, the balance in the Premium on Bonds Payable account will a. be unaffected until the bonds mature. b. decrease. c. increase. d. fluctuate up and down if the market is volatile. e. vary directly with market rates.

decrease.

A liability is classified as current or long-term based on its a. interest rate. b. principal. c. amount including principal and interest. d. due date compared to the end of the current period. e. age.

due date compared to the end of the current period.

A corporation issues $1,000,000 of 8%, 5-year bonds when bonds of similar risk are paying 7.5%. The 7.5% rate of interest is called the __________ rate. a. contractual b. effective c. coupon d. face e. stated

effective

The carrying value of bonds will equal the market price of the bonds a. at the option date. b. at the end of each fiscal period. c. at the close of every trading day. d. every six months on the dates interest is paid. e. on the date of issuance.

on the date of issuance.

In what denomination are bonds typically issued? a. $1,000,000 (or multiples of $1,000,000) b. $100 (or multiples of $100) c. $10,000 (or multiples of $10,000) d. $100,000 (or multiples of $100,000) e. $1,000 (or multiples of $1,000)

$1,000 (or multiples of $1,000)

How is the market value of a bond issuance determined? a. By adding the present value of the principal amount to the present value of the interest payments b. By adding the face value of the principal amount to the coupon value of the interest payments terminal value of the principal amount to the terminal value of the interest payments c. By adding the stated value of the principal amount to the stated value of the interest payments d. By adding the face value of the principal amount to the coupon value of the interest payments e. By adding the nominal value of the principal amount to the nominal value of the interest payments

By adding the present value of the principal amount to the present value of the interest payments

When a bond is sold at a premium, at what amount is it reported on the balance sheet? a. Premium value b. Carrying value c. Fair market value d. Interest value e. Market value

Carrying value

On December 1, 2017, a company issued a note payable of $50,000, of which $10,000 will be repaid each year. What is the proper classification of this note on the December 31, 2017 balance sheet? a. $10,000 current liability; $40,000 long-term liability b. $20,000 long-term liability; $30,000 current liability c. $50,000 long-term liability d. $50,000 current liability e. $10,000 long-term liability; $40,000 current liability

$10,000 current liability; $40,000 long-term liability

On January 1, Slick Corp. issues $1,000,000 of 10-year, 6% bonds at face value. Which one of the following is one effect of the entry to record the issuance of the bonds? a. Debit to premium on bonds payable for $60,000 b. Credit to bond interest expense for $60,000 c. Credit to cash for $1,000,000 d. Credit to cash for $60,000 e. Debit to cash for $1,000,000

Debit to cash for $1,000,000

When a bond is issued at a discount, at what value is it reported on the balance sheet? a. Market value minus face value b. Face value minus market value c. Face value minus any amortized discount d. Face value minus any unamortized discount e. Redeemable value

Face value minus any unamortized discount

What is the nature of a bond premium? a. It reduces the cost of borrowing. b. None of these. c. If only affects the cost of borrowing if the bond is convertible. d. It doesn't change the cost of borrowing. e. It increases the cost of borrowing.

It reduces the cost of borrowing.

Which of the following statements regarding the amortization of discounts and premiums on bonds is true? a. Over the life of the bond, the carrying value decreases for discounted bonds when using the effective interest method. b. When the straight-line and effective interest methods of amortization result in interest that is materially different, GAAP requires use of the straight-line method. c. The effective interest method applies a non-constant percentage to the bond carrying value to compute interest expense. d. The amount of interest expense increases each period over the life of a discounted bond issue when the effective interest method is used. e. None of these.

The amount of interest expense increases each period over the life of a discounted bond issue when the effective interest method is used.

Low Flow Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued for $198,000, what does this indicate? a. No relationship exists between the market and contractual rates. b. The market interest rate exceeds the contractual interest rate. c. The contractual interest rate exceeds the market interest rate. d. The bonds are redeemable. e. The contractual interest rate and the market interest rate are the same.

The market interest rate exceeds the contractual interest rate.

A professional team sells season tickets to its fans. There are 10 home games during the season. This year's season tickets sold for a total of $12,000,000 cash. Which account will be credited upon the receipt of the $12,000,000? a. Cash b. Tickets receivable c. Unearned ticket revenue d. Prepaid tickets e. Ticket revenue

Unearned ticket revenue

Which one of the following is not a typical current liability? a. Federal unemployment taxes b. Accounts payable c. Salaries and wages payable d. Unpaid note payable that is due after the next year e. Unpaid note payable that is due in the next year

Unpaid note payable that is due after the next year

A corporation issued a 10%, 5-year, $100,000 bond when the market rate of interest was 12%. The bond will sell at a. face value. b. a discount. c. a premium. d. par. e. stated value.

a discount.

If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at a. the prime rate b. a premium. c. par. d. the conversion rate e. a discount.

a discount.

The person who purchases the bond and holds it as an investment it is called the: a. bond issuer b. bonder c. bondholder d. bond fiduciary e. bond agent

bondholder

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are referred to as a. early retirement bonds. b. debentures. c. options. d. termination bonds. e. callable bonds.

callable bonds.

When the effective-interest method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated multiplying the a. face value of the bonds at the beginning of the period by the contractual interest rate. b. carrying value of the bonds at the beginning of the period by the effective interest rate. c. None of these d. carrying value of the bonds at the beginning of the period by the contractual interest rate. e. face value of the bonds at the beginning of the period by the effective interest rate.

carrying value of the bonds at the beginning of the period by the effective interest rate.

Which of the following least likely would be classified as a current liability? a. Sales tax payable b. Unearned revenues c. Salary and wages payable d. Accounts payable e. Bonds payable

Bonds payable

The cash register tape indicates sales are $1,000 and sales taxes are $75. What journal entry is needed to record this information? a. Debit the Cash account for $1,075, credit the Sales account for $1,000, and credit the Sales Taxes Payable for $75. b. Debit the Cash account for $1,000, and credit the Sales account for $1,000. c. Debit the Cash account for $1,075, and credit the Sales account for $1,075. d. Debit the Cash account for $1,000, debit the Sales Tax Expense account for $75, credit the Sales account for $1,000, and Sales Taxes Payable account for $75. e. Debit the Cash account for $1,000, debit the Sales Tax Expense account for $75, and credit the Sales account for $1,075.

Debit the Cash account for $1,075, credit the Sales account for $1,000, and credit the Sales Taxes Payable for $75.

When a bond is sold at a premium, at what value is it reported on the balance sheet? a. Face value plus any amortized premium b. Face value minus any amortized premium c. Face value plus any unamortized premium d. Face value minus any unamortized premium e. Redeemable value

Face value plus any unamortized premium

Which statement describes the market interest rate? a. All of these b. It is the contractual interest rate used to determine the amount of cash interest paid by the borrower. c. It is the coupon rate stated on the bond certificate that determines the period interest payments. d. It is the rate investors' demand for loaning funds. e. It is listed in the bond indenture.

It is the rate investors' demand for loaning funds.

Which of the following is true with regards to bond discounts? a. Amortizing a bond discount decreases interest expense. b. None of these c. Reporting a bond discount on the balance sheet decreases the bond's carrying value. d. Reporting a bond discount on the balance sheet increases the bond holder's net income. e. Amortizing a bond discount decreases the maturity value of the bonds.

Reporting a bond discount on the balance sheet decreases the bond's carrying value.

Which of the following is true for bonds that have been issued at a discount? a. The carrying value of the bonds will decrease over the life of the bonds. b. Interest expense will not be affected by the amortization of the discount. c. The discount indicates that the cost of the bonds is higher than the bond interest paid. d. The unamortized discount will increase over the life of the bond. e. None of these.

The discount indicates that the cost of the bonds is higher than the bond interest paid.

If the market interest rate for a bond is lower than the stated interest rate, the bond will sell at a. the prime rate b. a premium. c. par. d. the conversion rate e. a discount.

a premium.

The interest expense recorded on an interest payment date is decreased a. only if market rates decrease after the bond was issued. b. by the amortization of discount on bonds payable. c. by the amortization of premium on bonds payable. d. only if market rates increase after the bond was issued. e. only if the bonds were sold at face value.

by the amortization of premium on bonds payable.

In the balance sheet, the account discount on bonds payable is a. deducted from Bonds Payable on the balance sheet. b. shown on the income statement as an expense. c. added to Bonds Payable on the balance sheet. d. shown on the statement of cash flows as an operating activity. e. shown on the income statement as a revenue.

deducted from Bonds Payable on the balance sheet.

The market rate of interest is often called the a. effective rate. b. stated rate. c. contractual rate. d. coupon rate. e. prime rate.

effective rate.

If the market rate of interest is 12%, a $10,000, 10%, 10-year bond that pays interest annually would sell at an amount a. greater than face value. b. referred to as legal capital. c. equal to face value. d. less than face value. e. that cannot be determined.

less than face value.