Test 4 Cornett

The journal entry to record the payment of an ordinary note is

debit notes payable and interest expense, credit cash

f bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will

decrease as bonds approach their maturity rate

With the effective interest method of amortization, the amortization of a bond premium results in a(n)

decrease in interest expense

determine cash interest to be paid

face value x stated rate x month rate (6/12)

Bonds are sold at a premium if the

market rate of interest was less than the stated rate at the times of the issue

When determining the amount of interest to be paid on a bond, which of the following information is necessary

the stated rate of interest on the bonds

debt to asset ratio

total liabilities/total assets

Pointe Corporation's balance sheet showed the following amounts for its liability accounts: Notes payable, $130,000; Bonds Payable, $800,000; Accrued Expenses, $20,000; and Deferred Income Tax Liability, $120,000. Total assets was $1,470,000. The debt to assets ratio is:

$130,000 (Notes payable) + $800,000 (Bonds Payable) + $20,000 (Accrued Expenses) + $120,000 (Deferred Income Taxes) / $1,470,000 (Total Assets) =$1,070,000 / $1,470,000 = 0.73

Rating Corporation's balance sheet showed the following amounts for its liability accounts: Accounts Payable, $100,000; Bonds Payable, $150,000; Taxes Payable, $20,000; and Deferred Income Tax Liability, $5,000. Total assets was $500,000. The debt to assets ratio is:

$100,000 (Accounts Payable) + $150,000 (Bonds Payable) + $20,000 (Taxes Payable) + $5,000 (Deferred Income Taxes) / $500,000 (Total Assets)$275,00/$500,000 = .55

Which of the following statements regarding contingent liabilities is true

If they are probable and estimable, then they must be recorded even before the outcome of the future event.

The Collins Company sold $200,000 of 10-year bonds for $190,000. The stated rate on the bonds was 8% and interest is paid annually on December 31. What entry would be made on December 31 when the interest is paid? (Numbers are omitted.)

Interest Expense Discount on Bonds Payable Cash

The Discount on Bonds Payable account is shown on the balance sheet as

a contra-liability

The Premium on Bonds Payable account is shown on the balance sheet as

an addition to long term liability

describe a callable bond

borrower has the right to call on the bond before the due date

Which of the following lease conditions would result in a capital lease to the lessee

The lessee obtains enough rights to use the asset and is in substance the owner

effective interest method/interest expense

carrying value x market rate x month rate (6/12)

current ratio

current assets/current liabilities

to get current assets

current liabilities x current ratio

The amount of federal income taxes withheld from an employee's gross pay is recorded as a

current liability

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount

greater than face value

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will

increase as bonds approach maturity date

When bonds are issued by a company, the accounting entry shows an

increase in both assets & liabilities

With the effective interest method of amortization, the amortization of a bond discount results in a(n)

increase in interest expense

The portion of long-term debt due within one year should

reclassified as a current liability

Under the effective interest method, the cash paid on each interest payment date will

remain constant regardless of the issuance price

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

rent expense on the leased asset

when will bonds sell at a discount

when the stated rate of interest is less than the market rate at the time of the issue

The bond issue price is determined by calculating the

present value of the stream of interest payments and the present value of the maturity amount

The journal entry to record the issuance of a note for the purpose of borrowing funds is

debit cash, credit notes payable

When bonds are sold for less than the face amount, this means that the

stated rate of interest is less than the market rate of interest