Accounting exam 4--Chapter 8

if bonds are issued at 101.25, this means that:

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

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 a long-term liability

the portion of long-term debt due within one year should:

be reclassified as a current liability

what describes a callable bond?

borrower has the right to pay off the bonds prior to due date

____ bonds may be retired by the issuing company before their specified due date.

callable

a(n) ____ lease is recorded on the leesee's balance sheet as an asset and related liability.

capital

an obligation that arises from an existing condition whose outcome is uncertain and whose resolution depends on a future event is called a ____.

contingent liability

discount of bonds payable is shown on the balance sheet as a(n) _____.

contra-liability

the current ratio is computed by dividing current assets by ___.

current liabilities

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

current liability

the journal entry to record the issuance of a note for the purpose of borrowing fund it:

debit cash; credit notes payable

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

debit notes payable and interest expense; credit cash

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

decrease as the bonds approach their maturity date

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

decrease in interest expense

if the market rate of interest is greater than the stated rate, then the bonds are issued at a(n) _____.

discount

current liabilities are:

due and payable within one year

the amount of money the borrower agrees to repay at maturity of a bond is usually referred to as the ___.

face value

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

increase in assets and an increase in liabilities

with the effective interest method of amortization, the amortization of a bond discount result in a(n):

increase in interest expense

obligations that extend beyond one year are referred to as _____.

long-term liabilities

bonds are sold at premium if the:

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

the ___ is the rate of return that investors in the bond markets demand for bonds of similar risk.

market rate of return

although operating leases are not recorded on the balance sheet by the lessee, they are disclosed in the ___.

notes to the financial statements

long-term liabilities generally include:

obligations that extend beyond one year

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

under the ___ method of amortization, an equal amount of discount or premium is amortized each time interest is paid.

straight-line

when will bonds sell at discount?

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

when determining the amount of interest to be paid on a bond, what information is necessary?

the stated rate of interest on the bonds