ACCT 2110 Chapter 9 Practice Questions

If bonds are issued at 101.25, this means that a. a $1,000 bond sold for $1,012.50 b. a $1,000 bond sold for $101.25 c. the bonds are sold at discount d. the bond rate of interest is 10.125% of the market rate of interest

a

The bond issue price is determined by calculating the a. present value of the stream of interest payments and the present 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 future value of the maturity amount

a

When bonds are issued at a premium, the interest expense for the period is the amount of interest payment for the period a. minus the premium amortization for the period b. plus the premium amortization for the period c. plus the discount amortization for the period d. minus the discount amortization for the period

a

Willow Corporation's balance sheet showed the following amounts: current liabilities, $5,000; bonds payable $1,500; lease obligations, $2,300. Total stockholders' equity was $6,000. The debt to equity ratio is a. 1.47 b. 1.42 c. 0.83 d. 0.63

a

Bonds are sold at a premium if the a. market rate of interest was more than the stated rate at the time of issue b. market rate of interest was less than the stated rate at the time of issue c. company will have to pay a premium to retire the bonds d. issuing company has a better reputation than the other companies in the same business

b

Bonds in the amount of $100,000 with a life of 10 years were issued by the Roundy Company. If the stated rate is 6% and interest is paid semiannually, what would be the total amount of interest paid over the life of the bonds? a. $120,000 b. $60,000 c. $30,000 d. $6,000

b

In 2013, Drew Company issued $220,000 of bonds for $189,640. If the stated rate of interest was 6% and the yield was 6.73%, how would Drew calculate the interest expense for the first year on the bonds using the effective interest method? a. $189,640 x 8% b. $189,640 x 6.73% c. $200,000 x 8% d. $200,000 x 6.73%

b

Sean Corp. issued a $40,000, 10-year bond, with a stated rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period? a. $800 b. $1,600 c. $3,200 d. $4,000

b

Serenity Company issued $100,000 of 6%, 10-year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,732. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually. a. Amortization of the premium for the first interest period will be $1,464 b. Amortization of the premium for the first interest period will be $613 c. Interest payments to bondholders each period will be $5,000 d. Interest payments to bondholders each period will be $6,464

b

WVA Mining Company has leased a machine from Franklin Machinery Company. The annual payments are $6,000, and the life of the lease is 8 years. It is estimated that the useful life of the machine is 9 years. How would WVA record the acquisition of the machine? a. The machine would be recorded as an asset with a cost of $54,000 b. The machine would be recorded as an asset, at the present value of $6,000 for 8 years c. The machine would be recorded as an asset, at the present value of $6,000 for 9 years d. The company would not record the machine as an asset but would record rent expense of $6,000 per year

b

Which of the following statements regarding leases is false? a. If a lease is classified as a capital lease, the lessee records a lease liability on its balance sheet b. If a lease is classified as an operating lease, the lessee records a lease liability on its balance sheet c. Accounting recognizes two types of leases- operating and capital leases d. Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash

b

Bonds are a popular source of financing because a. a company having cash flow problems can postpone payment of interest to bondholders b. financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock c. bond interest expense is deductible for tax purposes, while dividends paid on stock are not d. the bondholders can always convert their bonds into stock if they choose

c

Kinsella Corporation's balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000, total assets, $200,000. What is the long-term debt equity ratio? a. 0.75 b. 0.375 c. 0.25 d. 0.125

c

The premium on bonds payable account is shown on the balance sheet as a. a contra asset b. a reduction of an expense c. an addition to a long-term liability d. a subtraction from a long-term liability

c

What best describes the discount on bonds payable account? a. a liability b. an asset c. a contra liability d. an expense

c

When bonds are issued at a discount, the interest expense for the period is the amount of interest payment for the period a. plus the premium amortization for the period b. minus the premium amortization for the period c. plus the discount amortization for the period d. minus the discount amortization for the period

c

When bonds are issued by a company, the accounting entry typically shows an a. increase in liabilities and a decrease in stockholders' equity b. increase in assets and an increase in stockholders' equity c. increase in liabilities and an increase in stockholders' equity d. increase in assets and an increase in liabilities

c

Which of the following statements regarding bonds payable is true? a. Generally, bonds are issued in denominations of $100 b. When an issuing company's bonds are traded in the "secondary" market, the company will receive part of the proceeds when the bonds are sold from the first purchaser to the second purchaser c. The entire principal amount of most bonds mature on a single date d. A debenture bond is backed by specific assets of the issuing company

c

Bower co sold $100,000 of 20-year bonds for $95,000. The stated rate on the bonds was 7%, and interest is paid annually on Dec. 31. What entry would be made on December 31 when the interest is paid? a. Interest Expense Cash b. Interest Expense Bonds Payable Cash c. Interest expense Discount on Bonds payable Cash d. Interest Expense Discount on Bonds payable Cash

d

Installment bonds differ form typical bonds in what way? a. Essentially they are the same b. The entire principal balance is paid off at maturity for installment bonds c. Installment bonds do not have a stated rate d. A portion of each installment bond payment pays down the principal balance

d

McLauglin Corporation's balance sheet showed the following amounts: current liabilities, $75,000; total liabilities, $100,000; total assets, $200,000. What is the debt to total assets ratio? a. 2 b. 1 c. 0.875 d. 0.50

d

On January 2, 2013, Sylvester Metals Co. leased a mining machine from EDH Leasing Corp. The lease qualifies as an operating lease. The annual payments are $4,000 paid at the end of each year, and the life of the lease is 10 years. What entry would Sylvester make when the machine is delivered by EDH? a. Prepaid Rent 40,000 Lease Liability 40,000 b Leased Assets 40,000 Lease Liability 40,000 c. Prepaid Rent 4,000 Lease Liability 4,000 d. No entry is neccessary

d

The result of using the effective interest method of amortization of the discount on bonds is that a. the cash interest payment is greater than the interest expense b. the amount of interest expense decreases each period c. the interest expense for each amortization period is constant d. a constant interest rate is charged against the debt carrying value

d

Which of the following lease conditions would result in a capital lease to the lessee? a. the lessee will return the property to the lessor at the end of the lease term b. the lease term is 70% of the property's economic life c. The fair market value of the property at the inception of the lease is $18,000; the present value of the minimum lease payments is $15,977 d. The lessee can purchase the property for $1 at the end of the lease term

d