FinancialAccountingCH10

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Which of the following companies will record the lowest interest expense each year? Assume all four companies have seven-year bonds with a face value of $1 million and a 4.85% annual rate. A : Company 1 sold their bonds at 95. B : Company 4 sold their bonds at 105. C : Company 3 sold their bonds at 103. D : Company 2 sold their bonds at 100.

B : Company 4 sold their bonds at 105.

Bonds Payable与Notes payable 区别:

1)spacial kind of notes payable(loan) 2)very large amount 3)loans from many people 4)maturity date is much longer,long term borrowing(5 years,10years,20 years)

Choate International plans to issue $15 million in 10-year bonds. They believe they can afford to pay $1,150,000 in interest to bondholders each year. Which annual interest rate should they use for their bonds? The current market interest rate is 7.75% for similar bonds. A : 7.75% B : 8.1% C : 7.65% D : 6.5%

7.65% An annual interest rate of 7.65% would require Choate International to pay $1,147,500 in interest each year ($15 million * 0.0765 = $1,147,500). Both 7.75% and 8.1% would require them to pay more than $1,150,000 in interest, so those interest rates should not be used. An interest rate of 6.5% would allow them to pay less than their maximum interest amount, but the bonds would not be very competitive because the interest rate is below the market interest rate.

Foremost Manufacturing wants to buy $50,000 of sheet metal from Ore Industries on credit. Before agreeing to the sale, Ore decides to evaluate Foremost's financial status. Of the following potential findings, which would lead Ore to refuse to sell the metal on credit? A Foremost's current assets are $450,000 and its current liabilities are $475,000. B Foremost's accounts payable are $22,000 and its accounts receivable are $21,000. C Foremost's current liabilities are $450,000 and its current assets are $475,000. D Foremost's accounts receivable are $22,000 and its accounts payable are $21,000.

A Foremost's current assets are $450,000 and its current liabilities are $475,000. 注意是拒绝

A company with a poor credit rating needs to raise funds for expansion, but the bank will not give them a loan. In addition, their common stock prices are already low, so they do not want to issue more shares of common stock. What would be the best way for this company to raise funds for the expansion? A Sell secured bonds. B Sell convertible bonds. C Sell callable bonds. D Sell unsecured bonds.

A Sell secured bonds.

Fultz Home Furnishings is considering issuing stocks or bonds to raise money to purchase a new manufacturing facility. If they want to issue securities in small denominations, which type of security should they choose? A : only stocks B : only bonds C : either stocks or bonds D : neither stocks nor bonds

A : only stocks

10.1 A company receives $198, $13 of which is for sales tax. The journal entry to record the sale would include a A: credit to Sales Taxes Payable for $13. B : debit to Cash for $180. C : debit to Sales Tax Expense for $13. D : debit to Sales Revenue for $198.

A: credit to Sales Taxes Payable for $13.

Four companies have each issued $4 million in bonds. Which company will have the highest balance in a contra account, assuming this is the first bond issuance for all four companies? A : Company 1, who sold their bonds at 99 B : Company 3, who sold their bonds at 101 C : Company 4, who sold their bonds at 105 D : Company 2, who sold their bonds at 94

Answer: a) Company 2, who sold their bonds at 94. Explanation: Since this is the first bond and also, company 2 is the only one selling for the lowest as compared to others. Therefore, company 2 will have the highest balance in a contra account.

10.20: What is the difference between the contractual interest rate and the market interest rate? A : The contractual interest rate is the interest rate used to determine the present value of the bond, whereas the market interest rate is the general rate investors demand for loaning funds. B : The contractual interest rate is used to determine the actual amount of cash interest the issuer pays and the investor receives, whereas the market interest rate is the general rate investors demand for loaning funds. C : The contractual interest rate is the general rate investors demand for loaning funds and is used to determine the actual amount of cash interest the issuer pays and the investor receives whereas market rate is the interest rate used to determine the present value of the bond. D : The contractual interest rate is the interest rate used to determine the present value of the bond, whereas the market interest rate is the rate used to determine the actual amount of cash interest the issuer pays and the investor receives.

B : The contractual interest rate is used to determine the actual amount of cash interest the issuer pays and the investor receives, whereas the market interest rate is the general rate investors demand for loaning funds.

What is a note payable? A : a contingency that is reasonably likely to occur B : an oral agreement C : a written promissory note D : a standing agreement

C : a written promissory note

Q 10.39: Which of the following four companies will have the lowest carrying value on their bonds if they decide to redeem their bonds before the maturity date? Assume each company's bonds have a face value of $15 million and 10% of the premium or discount is unamortized at the time of redemption. A : Company 3 sold their bonds at 102 and redeemed them at 98. B : Company 1 sold their bonds at 94 and redeemed them at 106. C : Company 2 sold their bonds at 98 and redeemed them at 99. D : Company 4 sold their bonds at 103 and redeemed them at 104.

Company 1 sold their bonds at 94 and redeemed them at 106. Bonds that were sold at a discount will have a lower carrying value than bonds sold at a premium, assuming they all have the same face value. Therefore, companies 3 and 4 can be eliminated from consideration. Between companies 1 and 2, Company 1 has an unamortized amount of [$15 million - ($15 million 0.94)] 10% = $90,000 for a carrying value of $15 million - $90,000 = $14,910,000, and Company 2 has an unamortized amount of [$15 million - ($15 million 0.98)] 10% = $30,000 for a carrying value of $15 million - $30,000 = $14,970,000. Therefore, Company 1 has the lowest carrying value at the time of redemption.

Q 10.41: Distinguish between a current asset and a current liability. A Current assets do not involve pre-paid items where current liabilities do in the form of unearned revenue. B Current assets must be adjusted for market values, while current liabilities values are only what is due. C Current assets can be depreciated but, current liabilities cannot. D A current asset considers the value of a company's resources that can easily be converted to cash within one year; whereas current liabilities are debts to be paid, using current assets, within one year.

D A current asset considers the value of a company's resources that can easily be converted to cash within one year; whereas current liabilities are debts to be paid, using current assets, within one year.

If a company wants to reserve the right to purchase their issued bonds back from the bondholder, they should issue ________ bonds. A : secured B : unsecured. C : convertible D : callable

D : callable

Q 10.19: What is one difference between the current ratio and the times interest earned ratio? A : The current ratio measures a company's solvency, and the times interest earned ratio measures a company's profitability. B : The current ratio measures a company's profitability, and the times interest earned ratio measures a company's liquidity. C : The current ratio measures a company's ability to meet short-term obligations, and the times interest earned ratio measures a company's ability to meet long-term obligations. D : The current ratio measures a company's ability to meet long-term obligations, and the times interest earned ratio measures a company's ability to meet short-term obligations.

The current ratio measures a company's ability to meet short-term obligations, and the times interest earned ratio measures a company's ability to meet long-term obligations.

The carrying value of bonds is another term for ________

book value.

Q 10.14: Bent Corporation issues 500, 10-year, 6%, $4,000 bonds dated January 1, 2017, at 96. The journal entry to record the issuance will show a A : debit to Cash for $115,200. B : debit to Cash for $1,920,000. C : credit to Bonds Payable for $37,600. D : debit to Discount on Bonds Payable for $2,000,000.

debit to cash for $1,920,000 500*4000*.96

Admire County Bank agrees to lend Givens Brick Company $600,000 on January 1st. Givens Brick Company signs a $600,000, 8%, 9-month note. Assuming that interest has already been accrued to September 30th, what entry will Givens Brick Company make to pay off the note and interest at maturity?

debit: Note payable 600,000 interest payable 36,000 Credit: cash 36,000

When a bond is issued for more than its face value, the market rate of interest is ________ the interest rate stated on the bond.

less than

By computing the present value of the principal paid at maturity and all interest payments to be made over the term of the bond, you can obtain the ________ of bonds.

market price

10.12When will the carrying value of bonds equal the market price?

on the date of issuance

An investor knows the total assets and total liabilities of a company, but they are not sure how much of the assets and liabilities are current versus long-term. Based on this, the investor could calculate A : both the company's liquidity and their solvency. B : neither the company's liquidity nor their solvency. C : the company's solvency but not their liquidity. D : the company's liquidity but not their solvency.

the company's solvency but not their liquidity.

Bank Line of Credit: A line of credit is a prearranged agreement between a company and a lender that permits the company, should it be neces- sary, to borrow up to an agreed-upon amount. For example, a recent disclosure regarding debt in General Motors' annual report states that it has $12 billion of unused lines of credit.

信用额度是公司和贷方之间预先约定的协议,在必要时允许公司向约定的金额借款。例如,通用汽车公司最近披露的年度报告中有120亿美元的未使用信贷额度。

The company does not report sales taxes as an expense. It simply forwards to the government the amount paid by the customer. Thus, Cooley Grocery serves only as a collection agent for the taxing authority.

公司没有将销售税作为费用报告。它只是将客户支付的金额转发给政府。因此,Cooley杂货店仅作为税务当局的收款代理。

The contractual interest rate is the rate applied to the face (par) value to arrive at the interest paid in a year. The market interest rate is the rate investors demand for loaning funds to the corporation. When the contractual interest rate and the market interest rate are the same, bonds sell at face value.

合同利率是适用于面值(票面)的利率,以计算一年之内支付的利息。 市场利率是投资者向公司贷款所需的利率。 当合约利率和市场利率相同时,债券按面值出售。

A capital lease is a contract entitling a renter to the temporary use of an asset, and such a lease has the economic characteristics of asset ownership for accounting purposes. The capital lease requires a renter to book assets and liabilities associated with the lease if the rental contract meets specific requirements. In essence, a capital lease is considered a purchase of an asset, while an operating lease is handled as a true lease under generally accepted accounting principles (GAAP).

资本租赁是赋予承租人临时使用资产的合同,在会计上具有资产所有权的经济特征。如果租赁合同符合特定的要求,资本租赁要求承租人将与租赁有关的资产和负债记入帐面。从本质上讲,资本租赁被认为是对资产的购买,而经营租赁按照公认会计原则(GAAP)被视为真正的租赁。


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