Acct 2110 chapter 9 vocab

9-18. 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. 1.47 (D/E Ratio = Total assets/SE)

9-3. 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 sold at a discount. d. the bond rate of interest is 10.125% of the market rate of interest.

a. a $1,000 bond sold for $1,012.50

9-11. 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. minus the premium amortization for the period

9-21. 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. present value of the stream of interest payments and the present value of the maturity amount.

9-9. 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. $1600 ($40,000 0.08 = $3,200/year 6/12 = $1,600)

9-13. In 2019, Drew Company issued $200,000 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 × 8% b. $189,640 × 6.73% c. $200,000 × 8% d. $200,000 × 6.73%

b. $189,640 X 6.73%

9-8. 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. $60,000

9-15. 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. Amortization of the premium for the first interest period will be $613. (Interest payments = $100,000 x 0.06 = $6,000First period interest expense = $107,732 x 0.05 = $5,387First period premium amortization = $6,000 x $5,387 = $613)

9-17. Which of the following statements regarding the new accounting rules, which take effect in 2019, for leases is false? a. If the lease term is one year or longer, a liability must be recognized. b. If the lease term is less than one year, an asset must be recognized. c. The new lease accounting rules will result in more assets and liabilities being recognized on the balance sheet. d. Leasing will likely remain popular under the new lease accounting rules because leases do not require a large initial outlay of cash.

b. If the lease term is less than one year, an asset must be recognized

9-2. 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 other companies in the same business.

b. the market interest was less than the stated rate at the time of issue

9-19. 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 to equity ratio? a. 0.75 b. 0.375 c. 0.25 d. 0.125

c. 0.25 (Long term debt/Total equity[assets])

9-4. What best describes the discount on bonds payable account? a. A liability b. An asset c. A contra liability d. An expense

c. A contra liability

9-1 .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. The entire principal amount of most bonds mature on a single date.

9-5. 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. an addition to a long-term liability

9-16. 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. bond interest expense is deductible for tax purposes, while dividends paid on stock are not.

9-10. 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. plus the discount amortization for the period

9-20. McLaughlin 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. .50

9-7. Bower Company sold $100,000 of 20-year bonds for $95,000. The stated rate on the bonds was 7%, and interest is paid annually on December 31. What entry would be made on December 31 when the interest is paid? (Numbers are omitted.) 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. Interest Expense Discount on Bonds Payable Cash

9-14. 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. a constant interest rate is charged against the debt carrying value.

9-12. Installment bonds differ from 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. a portion of each installment bond payment pays down the principle balance

9-6. 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.

d. increase in assets and an increase in liabilities