Accounting Chapter 9

With the effective interest method of amortization, the amortization of a bond discount results in a(n): A) Increase in stockholders' equity B) Decrease in liabilities C) Increase in interest expense D) Decrease in interest expense

C

Current liabilities are: A) Due, but no receivable for more than one year B) Due, but no payable for more than one year C) Due and receivable within one year D) Due and payable within one year

D

The portion of long-term debt due within one year should: A) Be classified as a long-term liability B) Not be separated from the long-term portion of debt C) Be paid immediately D) Be reclassified as a current liability

D

If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will: A) Decrease as the bonds approach their maturity date B) Increase as the bonds approach their maturity date C) Remain constant throughout the bonds' life D) Fluctuate throughout the bonds' life

A

Which of the following would describe a callable bond? A) Borrower has the right to pay off the bonds prior to due date B) Borrower has the right to issue more bonds prior to due date C) Borrower has the right to call of the interest payments on the bonds D) Investor has the right to call off the intent payments on the bonds

A

The interest charged by the bank, at the rate of 9%, on a 3-month, discounted notes payable for $100,000 is: A) $9,000 B) $2,250 C) $750 D) $1,000

B

If bonds are issued at 101.25, this means that: A) A $1,000 bond sold for $101.25 B) The bonds sold at a discount C) A $1,000 bonds sold for $1,012.50 D) The band rate of interest is 1-.125% of the market rate of interest

C

Which of the following would most likely be classified as a current liability? A) Two-year payable B) Bonds payable C) Mortgage payable D) Portion of long-term debt due within one year

D

With the effective interest method of amortization, the amortization of a bond premium results in a(n) A) Increase in liabilities B) Decrease of stockholders' equity C) Increase in interest expense D) Decrease in interest expense

D

Banister Company wishes to issue $600,000 of 10-year, 7% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the issue price of the bond? A) The market rate of interest, the stated rate of interest, the bond rating, and the bond life. B) The face value of the bonds, the stated rate of interest, the market rate of interest, and the bond life. C) The life of the bonds, the market rate of interest, the bond rating, and the face value of the bonds. D) The face value of the bonds, the market rate of interest, the purpose of the issue, and the bond life.

B

Bonds are sold at a premium if the: A) Issuing company has a better reputation than other companies in the same business B) Market rate of interest was less than the state rate at the time of the issue C) Market rate of interest was more than the states rate at the time of the issue D) Market rate of interest was the same as the stated rate at the time of the issue

B

If a company's bonds are callable: A) The bondholder has the right to sell an option on the bond B) The issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest if 4% C) The bonds are never allowed to remain outstanding until the maturity date D) The investor never knows what the redemption price will be until the bonds are actually called

B

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will: A) Decrease as the bonds approach their maturity date B) Increase as the bonds approach their maturity date C) Remain constant throughout the bond's life D) Fluctuate throughout the bonds' life

B

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount: A) Less than face value B) Equal to the face value C) Greater than face value D) That cannot be determined

C

Long-term liabilities generally include: A) Liabilities related to long-term assets B) Accounts payable, because they are interest-bearing C) Obligations that extend beyond one year D) Accrued expenses

C

The Discount on Bonds Payable account is shown on the balance sheet as: A) An asset B) An expense C) A contra-liablity D) As a reduction in equity for the discount provided

C

The journal entry to record the payment of an ordinary notes is: A) Debit cash; credit notes payable B) Debit cash; credit accounts payable C) Debit notes payable and interest expense; credit cash D) Debit notes payable and interest receivable; credit cash

C

Under the effective inters method, the cash paid on each interest payment date will: A) Decrease if bonds are issued at a premium B) Increase if bonds are issued at a premium C) Remain constant regardless of the issuance price D) Increase if bonds are issued at a discount

C

Which of the following statements regarding contingent liabilities is true? A) If they are probable and estimable, then they must be recorded even before the outcome of the future event. B) If they are probable and estimable, then they should be disclosed in the notes to the financial statements. C) The accounting principle that determines whether a contingent liability is to be recorded is that of historical cost. D) Contingencies that are not estimable should not be recorded or disclosed in the financial statements even if they are probable.

A

The journal entry to record the insurance of note for the purpose of borrowing funds is: A) Debit accounts payable; credit notes payable B) Debit cash; credit notes payable C) Debit notes payable; credit cash D) Debit cash and interest expense; credit notes payable

B

When will bonds sell at a discount? A) The credit standing of the issuing company is not as good as other companies in a similar line of business B) The stated rate of interest is less than the market rate of intent at the time of the issue C) The states rate of interest is more than the market rate of interest at the time of the issue D) The stated rate of interest is same as the market rate of interest at the time of issue

B

Which of the following lease conditions would result in a capital lease to the lessee? A) The lessee will return the proper of the lessor at the end of the lease term B) The lessee obtains enough rights to use the asset and is in substance the owner C) The leased asset is not capitalized on the balance sheet D) The lease term is 70% of the property's economic life

B

Which of the following statements about bond accounting under the effective interest method is correct? A) The cash interest paid is calculated as the bond face value u the market rate. B) The interest expense is calculated as the carrying value u the market rate. C) The difference between the cash interest paid and the interest expense is added to the carrying value of bonds sold at a premium. D) The difference between the interest expense and the interest paid is deducted from the carrying value of bonds sold at a discount.

B

When bonds are issued by a company, the accounting entry shows an: A) Increase in liabilities and a decrease in equity B) Increase in liabilities and an increase in equity C) Increase in assets an an increase in liabilities D) Increase in assets and an increase in equity

C

When determining the amount of interest to be paid on a bond, which of the following information is necessary? A) The market value of the bonds after one year B) The selling price of the bonds C) The stated rate of interest on the bonds D) The effective rate of interest of the bonds

C

The amount of federal income taxes withheld from employee's gross pay is recorded as a: A) Payroll expense B) Contra account C) Current asset D) Current liability

D

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

D

The premium on bonds payable account is shown on the balance sheet as: A) A contra asset B) A reduction of an expense C) As an increase in equity for the premium provided D) An addition to a long-term liability

D

When bonds are sold for less than the face amount, this means that the: A) Maturity value will be less than the face amount B) Maturity value will be greater than the face amount C) Bonds are sold at premium D) Stated rate of interest is less than the market rate of interest

D

Which of the following accounts would NOT appear on the balance sheet of a lessee company recording a capital lease? A) Accumulated depreciation on the leased asset B) Capital lease liability in the current liability section C) Capital lease liability in the long-term liability section D) Rent expense on the leased asset

D

Which of the following statements regarding amortization is true? A) Amortization of the premium causes the premium on bonds payable account to increase B) Amortization of the premium causes the amount of interest expense to increase C) Cash inters payments on bonds equals interest expense on the income statement when there is amortization premium D) Amortization of a premium continue over the life of the bond until the balance in the account is reduced to zero

D