Acc 10

When a company increases the amount borrowed on a line of credit, the amount of:

- total liabilities increase -total assets increase

On January 1, Year 1, Hector incorporated issued bonds with a face value of $120,000 stated rate of 8% and a five year term to maturity. Interest is payable;e in cash on December 31 of each year. The effective rate of interest was 7% and the bonds sold for $124,920. Hector used the effective interest rate method to amortize the premium. Based on this information, the amount of the premium that was amortized Year 1 was

-$856

A creditor that holds a subordinated debenture has______level of security as a general creditor.

-a lower

A payment on an installment loan will___.

-affect the balance sheet -affect the statement of stockholder's equity

When a bond discount is amortized using the effective interest rate method, the:

-amount of interest expense recognized increase as the bond ages -carrying value of the bond liability increases as the bond ages.

Which of the following statements is true?

-bondholder who chose not to convert can continue to receive interest even when the market price of the related stock certificates decreases. -convertible bonds usually carry a lower rate of interest than comparable bonds without conversion feature - convertible bondholders can switch their investments to stock certificates if the market price of the related stock increases

On January 1, Year 1, Dixon Company issued bonds with a $50,000 fave value at 96. The bonds had a 10 year term and an 8% stated rate of interest. Based on this information, the:

-carrying value of the bond liability immediately after this issue is $48,000 -balance in the stockholders' equity account would not be affected.

when a bond discount is amortized using the effective interest rate method, the:

-carrying value of the bond liability increases as the bond ages -amount of interest expense recognized increases as the bond ages.

The discount on bonds payable account is a ____(adjunct/ contra) account that is ____ (added/subtracted) to/from the face value of the bonds payable account to determine the carrying value of the bond liability

-contra -subtracted

The journal entry to record a payment on an installment loan note would include a ____ (debit/credit) to the cash, a ___ (debit/credit) to the installment loan payable account, and a ___ (debit/credit) to the interest expense account.

-credit -debit -debit

The journal entry to recognize a cash payment for interest on a line of credit includes a ___.

-credit to cash -debit to interest expense

The journal entry to record cash payment for interest on a bond that was issued at a premium will include a

-credit to the cash account -debit to the interest expense account -debit to the premium on bonds payable account

The journal entry to record the issue of bonds payable at a premium will include a ____ to the cash account, a ___to the premium on bonds payable account, and a ___ to the bonds payable account.

-debit -credit -credit

The journal entry to record a cash payment for interest on a bond that was issued at a premium will include a

-debit to the interest expense account. -debit to the premium on bonds payable account -credit to the cash account

A payment on an installment loan____(increases/decreases) the amount of total assets, ____(increase/decreases the amount of net income, and ____(increases/decreases) the amount of cash flow from financing and operating activated.)

-decrease -decrease -decrease

The retirement of bonds on the maturity date will:

-decrease assets -not affect stockholders' equity

Payments on installment notes________.

-include a payment for interest. -include a repayment of a portion of the principal balance.

On January 1, Year 1, Dixon Company issued bonds with a $500,000 face value at 104. The bonds had a 10 year term and a 8% stated rate of interest. As a result if the bond issue, the ___ would not be affected.

-income statement -statement of stockholders' equity

On January 1, Year 1 Dixon Company issued bonds with $50,000 face value at 96. The bonds had a 10 year and an 8% stated rate of interest. As a result of the bond issue, the:

-income statement would not be affected. -statement of stockholders' equity would not be affected.

When Grey Company borrowed money by issuing bonds, the balance in the Bonds Payable account ________ and the balance in the Cash account ___________.

-increased -increased

When a company makes an installment loan payment, the amount of:

-liabilities decrease -total assets decreases. - total assets decrease -stockholders' equity decrease

During the term of line of credit the borrower:

-may increase the amount borrowed -may decrease the amount borrowed

When a company recognizes a cash payment for interest expense on a bond that was issued at a discount____.

-net income decrease -total assets decrease

A line of credit___.

-normally has a fluctuating interest rate. -usually limits the amount that can be borrowed.

The rate of interest written in the bond certificate is called the ___ rate of interest, while the rate of interest a company actually pays on a bond is called the ____ rate of interest.

-stated -effective

When a bond is issued at a premium the___, rate of interest is higher than the___ rate of interest.

-stated -effective

When a company makes a cash payment for interest on bond that was issued at face value:

-total liabilities is not affected - total assets decrease

The issuing company is allowed to to redeem (pay off) the bond debt before the maturity date when bonds are_____.

callable

On January 1, Year 1, Dixon Company issued bonds with a $50,000 face value at 104. The bonds had a 10 year term and a 8% stated rate of interest. Recognizing the bond issue would

cause the bonds payable account to increase by $50,00

To reduce the risk that they won't get paid, lenders frequently require borrowers to pledge designated assets as ______ for loans.

collateral

interest expense

cost incurred by the borrower for the use of some other entities' assets

The journal entry to record issuing bonds payable at face value would included___to bonds payable and a ___to cash.

credit debit

The hours entry to record a cash payment for interest on a bond payment will include_____to interest expense and a ___ to cash.

debit credit

Bond premiums reduce the ___interest rate.

effective

Which of the following entities does not publish ratings of the risk of default as guides to bond investors?

federal government

The carrying value of a bond liability that was issued at a discount will be____ the face value of the bond liability.

less than

When bonds sell at a discount, it means that the selling price is ___ the face value

less than

Bond obligations

normally carry lower interest rates than bank charge

All other things being equal , using debt financing with equity will___ level of retain earnings.

produce a higher level

In practice, bonds normally pay interest____.

semiannually

Bonds that mature at specified intervals throughout the life of the total issue are called

serial bonds

A $1,000 face value bond issued at 105 will have a carrying of _____ immediately after the issue.

$1050

On January 1, Year 1, Zoe Company issued a $200,00, 9%, 5 year term installment loan. The loan required $51, 419 annual cash payment on December 31 of each year. Based on this information, the amount of interest expense incurred during Year 1 was____.

$18,000

On January 1, Year 1, Dixon Company issued bonds with a $50,000 face value at 96. The bonds had a 10 year term and an 8% state rate of interest. On December 31, Year 10, after the last cash payment for interest has been made, the entry to retire the bonds will cause assets to decrease by ____.

$50,000

If a company has net income of $340,000, interest expense of $10,000, and income tax expense of $180,000, how much is its EBIT?

$530,000

On January 1, Year 1, Hector Incorporated issued bonds with a face value of $120,000, a stated rate of interest of 8% and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 7% and the bonds sold for $124,920. Hector used the effective interest rate method to amortize the premium. based on this information, the amount of cash paid for interest in Year 1 was ____.

$9,600

On January 1, Year 1, a company issued at face value a $10,000 bond that carried a 20 year term and an 8% annual interest rate. Interest payments are made on an annual basis. At the end of Year 5, the company made a cash payment for interest. Based on this information, the Year 2 financial statements would show:

- an $800 cash outflow from operating activities - $800 of interest expense

The seller of a bond is called the ____________, while the buyer of a bond is called the ___________.

- borrower -lender

How would issuing a bond to borrow money affect a company's financial statements?

- cash flow from financing activities increase -net income is not affected

On January 1, Year 1, Ocean Enterprises issued bonds with a face value of $60,000, stated rate of interest of 8% and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The bonds sold for $57,666 based on an effective interest rate of 9% Ocean Enterprises used the effective interest rate method to amortize bond discount. Based on this information, the amount of the discount amortized in Year 1 was ___.

390

On January 1, Year 1, Hector incorporate issued bonds with face value of $120,000, a state rate of 8% and a five year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 7% and the bonds sold for $124,920. Hectors used the effective interest rate method to amortize the premium. Based on this information, the amount of interest expense recognized in Year 1 was ____.

8,744

The letters in the acronym EBIT stands for

Earnings before Interest and Taxes

Which of the following is the most accurate method of amortizing bond discounts and premiums?

Effective interest rate method

The premium on bonds payable account is ___ (added/subtracted) to/from the face value of the bonds payable account to determine the carrying value of the bond liability.

added

Issuing a bond to borrow money is a(n)

asset source transaction

Loans that require payments of principal and interest at regular intervals are called ______.

installments

effective rate of interest

interest rate that exists on the day the bonds are issued

stated rate of interest

interest rate written in the bond certificate

On January 1, Year 1, Dixon Company issued bonds with a $50,00 face value at 96. the binds had a 10 year term and a 8% state rate of interest.

the statement of cash flows would show $48,000 cash inflow from financing activities

On January 1, Year 1, Dixon Company issued bonds with a $50,000 face value at 104. The bonds had a 10 year term and a 8% stated rate of interest. Interest is payable in cash on December 31 of each year. Assuming straight-line amortization, which of the following statements regarding the recognition of interest expense on December 31, Year 1 is true?

total assets decrease by $4,000