ACCT 5312 - Ch 7
Which of the following financial statement effects occur when bond interest is accrued? (select all) A. Current liabilities are increased. B. Current assets are decreased. C. Expenses are increased and net income is decreased. D. Bonds Payable is increased.
A & C A. Current liabilities are increased. C. Expenses are increased and net income is decreased.
Which of the following statements regarding financial leverage are true? (select all) A. Financial leverage refers to the difference between ROI and ROE. B. When financial leverage works to the advantage of shareholders, the firm's ROI is greater than its ROE. C. If a firm does not earn enough to pay the interest on its debt, the creditors can ultimately force the firm into bankruptcy.
A & C A. Financial leverage refers to the difference between ROI and ROE. C. If a firm does not earn enough to pay the interest on its debt, the creditors can ultimately force the firm into bankruptcy.
Firm A (with no financial leverage) earns an ROI of 10 percent. Firm B also earns an ROI of 10 percent, but its assets are partially financed by debt bearing an interest rate of 15 percent. Which of the following statements about the two firms are correct? (select all) A. Firm B will have negative financial leverage. B. Firms A and B are equally risky. C. Firm B's ROE will be less than Firm A's ROE.
A & C A. Firm B will have negative financial leverage. C. Firm B's ROE will be less than Firm A's ROE.
Which of the following effects would occur when the accrual of income taxes requires an increase in the Deferred Income Tax Liability account? (select all) A. Income Tax Expense will be debited. B. Retained Earnings will be credited. C. Deferred Tax Liabilities will be credited. D. Income Taxes Payable will be debited.
A & C A. Income Tax Expense will be debited. C. Deferred Tax Liabilities will be credited.
The financial statement effects of an early retirement of bonds usually include: (select all) A. a decrease to assets. B. a decrease in the Accumulated Depreciation account. C. retirement of any unamortized premium or discount associated with the retired bonds.
A & C A. a decrease to assets. C. retirement of any unamortized premium or discount associated with the retired bonds.
The financial statement effects of recording a firm's accrued property taxes for the year include: (Select all) A. an increase to current liabilities and no effect on cash. B. a decrease to current liabilities and a decrease to cash. C. an increase to expenses and a decrease to net income. D. a decrease to expenses and an increase to net income.
A & C A. an increase to current liabilities and no effect on cash. C. an increase to expenses and a decrease to net income.
Payroll taxes assessed directly against an employer include: (select all) A. employer's share of FICA tax B. federal and state income taxes C. federal and state unemployment taxes
A & C A. employer's share of FICA tax C. federal and state unemployment taxes
Bond premium: (select all) A. is a deferred credit that is amortized to interest expense over the life of a bond. B. is classified in the balance sheet as a contra account to the Bonds Payable account. C. amortization reduces interest expense below the amount actually paid to bondholders.
A & C A. is a deferred credit that is amortized to interest expense over the life of a bond. C. amortization reduces interest expense below the amount actually paid to bondholders.
Bond discount: (select all) A. represents additional interest expense to be recognized over the life of the bond. B. amortization decreases interest expense relative to the amount actually paid to bondholders. C. is a deferred charge that is amortized to interest expense over the life of the bond.
A & C A. represents additional interest expense to be recognized over the life of the bond. C. is a deferred charge that is amortized to interest expense over the life of the bond.
Assume that 8 percent bonds with a 10-year maturity are issued to investors who desire a 10 percent return on investment. The face value of the bonds is $1,000. When pricing the bonds using the present value of the bond payments, which of the following statements are true? (select all) A. The bonds' maturity amount of $1,000 will be discounted back to present value at the market interest rate of 10 percent. B. The bonds will be issued at a premium. C. The bonds' annual interest annuity will be discounted back to present value at the stated rate of 8 percent. D. The bonds' annual interest annuity is equal to $80 ($1,000 x 8%).
A & D A. The bonds' maturity amount of $1,000 will be discounted back to present value at the market interest rate of 10 percent. D. The bonds' annual interest annuity is equal to $80 ($1,000 x 8%).
The entry to record a firm's payroll tax obligation for a payroll period includes: (Select all) A. a debit to Payroll Tax Expense. B. a debit to Wages Expense for the gross pay. C. a credit to Wages Payable (or Accrued Payroll) for the net pay. D. a credit to Payroll Taxes Payable (or Accrued Payroll Taxes).
A & D A. a debit to Payroll Tax Expense. D. a credit to Payroll Taxes Payable (or Accrued Payroll Taxes).
The financial statement effects of the retirement of discount bonds or premium bonds at maturity include: (select all) A. a decrease in assets. B. a decrease in expenses. C. a decrease in bond premium or bond discount. D. a decrease in noncurrent liabilities.
A & D A. a decrease in assets. D. a decrease in noncurrent liabilities.
Deferred tax liabilities arise because of the ______ (select all) A. difference between a company's book income and taxable income B. difference between a company's book value and market value C. accounting process of recording the expenses as and when they are paid for D. accounting process of matching revenues and expenses
A & D A. difference between a company's book income and taxable income D. accounting process of matching revenues and expenses
The financial statement effects of the entry to record actual warranty costs in the year in which the warranty is honored include: (select all) A. no effect on net income. B. an increase to current liabilities and no effect on cash. C. an increase to expenses and a decrease to net income. D. a decrease to current liabilities and a decrease to cash (or repair parts inventory).
A & D A. no effect on net income. D. a decrease to current liabilities and a decrease to cash (or repair parts inventory).
Firm A (with no financial leverage) earns an ROI of 10 percent. Firm B also earns an ROI of 10 percent, but its assets are partially financed by debt bearing an interest rate of 8 percent. Which of the following statements about Firm A and Firm B are correct? (select all) A. Firm B will have positive financial leverage. B. Firm B's ROE will be greater than Firm A's ROE. C. Firm B's stockholders will be rewarded for taking the risk of borrowing money at a fixed cost. D. Firm B's risk will be lower than that of firm A.
A, B & C A. Firm B will have positive financial leverage. B. Firm B's ROE will be greater than Firm A's ROE. C. Firm B's stockholders will be rewarded for taking the risk of borrowing money at a fixed cost.
The financial statement effects of an employer's entry to record payroll obligations for a payroll period include: (Select all) A. a credit to Wages Payable (or Accrued Payroll) for the net pay. B. a debit to Wages Expense for the gross pay. C. credits to withholding liabilities. D. a debit to Wages Expense for the net pay. E. a credit to Wages Payable (or Accrued Payroll) for the gross pay.
A, B & C A. a credit to Wages Payable (or Accrued Payroll) for the net pay. B. a debit to Wages Expense for the gross pay. C. credits to withholding liabilities.
Which of the following statements are true regarding how bond prices are quoted? (select all) A. Corporate bonds are usually issued in denominations of $1,000. B. A $1,000 face amount bond that has a market value of $980 is priced at 98. C. A $1,000 bond trading at $103 can be purchased for $1,300. D. A bond is trading at a discount when its face amount is more than its market value.
A, B & D A. Corporate bonds are usually issued in denominations of $1,000. B. A $1,000 face amount bond that has a market value of $980 is priced at 98. D. A bond is trading at a discount when its face amount is more than its market value.
The entry to record accrued interest in the borrower's books has which of the following effects on the financial statements? (select all) A. Expenses are increased. B. Revenues are decreased. C. net income is decreased. D. Current liabilities are increased. E. Current assets are decreased.
A, C & D A. Expenses are increased. C. net income is decreased. D. Current liabilities are increased.
Assume that 8 percent bonds with a 10-year maturity are issued to investors who desire a 7 percent return on investment. The face value of the bonds is $1,000. In pricing the bonds using the present value of the bond issuance, which of the following statements are true? (select all) A. The bonds' annual interest annuity will be discounted back to present value at the market rate of 7 percent. B. The bonds' annual interest annuity is equal to $70 ($1,000 x 7%). C. The bonds will be issued at a premium. D. The bonds' maturity amount of $1,000 will be discounted back to present value at the market interest rate of 7 percent.
A, C & D A. The bonds' annual interest annuity will be discounted back to present value at the market rate of 7 percent. C. The bonds will be issued at a premium. D. The bonds' maturity amount of $1,000 will be discounted back to present value at the market interest rate of 7 percent.
Identify the impact of allocation of unearned revenue to the fiscal year in which the product is delivered and the revenue is earned. (select all that apply) A. Revenues increase. B. Current assets increase C. working capital increases D. net income remains unaffected E. Liabilities decrease
A, C & E A. Revenues increase. C. working capital increases E. Liabilities decrease
Which of the following are impacts of short-term borrowing on financial statements? A. Cash increases B. working capital increases C. net income increases D. current liability increases E. current assets increases F. Retained earnings increases
A, D & E A. Cash increases D. current liability increases E. current assets increases
On October 1, 2022, Pool Patrol, Incorporated, received $5,400 from a property management company, representing a prepayment for a 12-month pool cleaning service contract that began on that date and extends until September 30, 2023. The adjusting entry that will be made by Pool Patrol at the end of each month to show the amount of pool cleaning service fees "earned" during the month is: A. Dr Unearned service revenue 450 Cr Service Revenue 450 B. Dr Cash 450 Cr Service Revenue 450 C. Dr Unearned service revenue 4950 Cr service revenue 4950 D. Dr. Cash 5400 Cr Unearned service revenue 5400
A. Dr Unearned service revenue 450 Cr Service Revenue 450
Computing a borrower's effective interest rate is another application of which of the following concepts? A. Present value concept B. Current value concept C. Periodic interest concept D. Perpetual interest concept
A. Present value concept
What happens when a firm's income tax rates do not increase relative to its depreciation deductions? A. The firm's deferred income tax liability will increase over time. B. The firm's depreciated assets must be revalued at the current year's income tax rates. C. The firm's overall income tax liability is reduced relative to its depreciated assets. D. The firm's deferred income tax liability will decrease over time.
A. The firm's deferred income tax liability will increase over time.
Debt financing usually has _______. A. a lower cost to a firm as compared to equity financing B. the same cost to a firm as equity financing C. a higher cost to a firm as compared to equity financing D. no economic cost to a firm
A. a lower cost to a firm as compared to equity financing
The financial leverage characteristic of long-term debt results in: A. a magnification of ROE relative to what it would be without long-term debt. B. a reduction of the risk that creditors will not be paid. C. a magnification of ROI relative to what it would be without long-term debt. D. the deductibility, for income tax purposes, of dividends to stockholders.
A. a magnification of ROE relative to what it would be without long-term debt.
One of the key advantages of issuing debt as opposed to common stock to raise additional funds is that: A. interest expense is deductible in calculating taxable income, whereas dividends are not tax deductible. B. capital investment projects are normally more successful when financed by debt as opposed to equity. C. issuing debt reduces a corporation's financial leverage and thus allows ROI to become approximately equal to ROE. D. issuing common stock substantially increases a corporation's perceived risk.
A. interest expense is deductible in calculating taxable income, whereas dividends are not tax deductible.
Bonds are often issued at a premium or discount largely because of: A. market interest rate fluctuations that occur from the time the stated interest rate is established until the bonds are issued. B. the inability of management and investors to correctly assess the relative risks associated with the bonds being issued. C. unrealistic stated interest rates associated with bonds that have substantially different risk profiles than management is willing to admit. D. the desire of management to attract institutional investors in either the premium or the discount bond markets.
A. market interest rate fluctuations that occur from the time the stated interest rate is established until the bonds are issued.
The market value of a bond is the sum of the present value of future interest payments and the present value of the amount to be repaid at maturity, discounted at: A. market rate B. dividend rate C. coupon rate D. prime rate
A. market rate
When borrowing money, the most important objective of the borrower should be to: A. minimize the APR. B. avoid borrowing on a discount basis. C. minimize monthly payments. D. make the maturity date as far in the future as possible.
A. minimize the APR.
When a company issues a bond at a premium: A. the company's interest expense will be less than the interest paid each year. B. the company's interest expense will be more than the interest paid each year. C. investors perceive the bond to be a very safe investment. D. the company is more profitable than most companies in its industry.
A. the company's interest expense will be less than the interest paid each year.
Current maturities of long-term debt are a current liability representing that portion of long-term debt that: A. will be maturing within a year of the balance sheet date. B. has been refinanced with the bank as short-term debt. C. is expected to be used as part of a debt/equity swap transaction. D. is similar to an account payable owed to suppliers for the purchase of goods in the normal course of business.
A. will be maturing within a year of the balance sheet date.
Which of the following financial statement effects occur when a bond interest payment is made? Assume that the bond interest payment amount had been previously accrued in full. (select all) A. Bonds Payable is decreased. B. Current assets are decreased. C. Current liabilities are decreased. D. Expenses are increased and net income is decreased.
B & C B. Current assets are decreased. C. Current liabilities are decreased.
Identify the correct statements about a registered bond. (select all) A. For a registered bond, the bondholder receives interest by clipping a coupon on the interest payment date and depositing it in the bank account. B. For a registered bond, the name and address of the owner of the bond are known to the issuer. C. For a registered bond, interest payments are mailed to the bondholder on the basis as called for in the indenture. D. For a registered bond, the name and address of the owner of the bond are not known to the issuer.
B & C B. For a registered bond, the name and address of the owner of the bond are known to the issuer. C. For a registered bond, interest payments are mailed to the bondholder on the basis as called for in the indenture.
Which of the following financial statement effects occur when a bond discount is amortized? (select all) A. Both current assets and current liabilities are decreased. B. The net carrying value of Bonds Payable is increased. C. Expenses are increased and net income is decreased
B & C B. The net carrying value of Bonds Payable is increased. C. Expenses are increased and net income is decreased
Bond discount: (select all) A. is a deferred credit that is amortized to Bonds Payable account over the life of a bond. B. amortization increases interest expense over the amount actually paid to bondholders. C. is classified in the balance sheet as a contra account to the Bonds Payable account.
B & C B. amortization increases interest expense over the amount actually paid to bondholders. C. is classified in the balance sheet as a contra account to the Bonds Payable account.
Bond premium: ( select all) A. amortization increases interest expense over the amount actually paid to bondholders. B. represents a reduction in interest expense to be recognized over the life of a bond. C. has the opposite effect on a bond's carrying value than does a bond discount.
B & C B. represents a reduction in interest expense to be recognized over the life of a bond. C. has the opposite effect on a bond's carrying value than does a bond discount.
Which of the following are frequently listed as other noncurrent liabilities? (select all) A. Accounts payable B. Obligations to pension plans C. Estimated bonds payable in long term D. Estimated liabilities under lawsuits
B & D B. Obligations to pension plans D. Estimated liabilities under lawsuits
The borrower's entry to record the proceeds of a short-term discounted note at the time of borrowing would include: (Check all that apply). A. a decrease to Discount on short-term debt for the amount of interest on the note. B. an increase to Short-Term Debt for the principal amount of the note. C. an increase to Interest Expense for the amount of interest on the note. D. an increase to Cash for the amount of proceeds (the principal amount of the note less the amount of interest on the note).
B & D B. an increase to Short-Term Debt for the principal amount of the note. D. an increase to Cash for the amount of proceeds (the principal amount of the note less the amount of interest on the note).
The financial statement effects of the accrual of estimated warranty liability in the year in which products are sold include: (select all) A. a decrease to expenses and an increase to net income. B. an increase to current liabilities and no effect on cash. C. a decrease to current liabilities and a decrease to cash (or repair parts inventory). D. an increase to expenses and a decrease to net income.
B & D B. an increase to current liabilities and no effect on cash. D. an increase to expenses and a decrease to net income.
Which of the following statements are true regarding how bond prices are quoted? ( select all) A. Corporate bonds are usually issued in denominations of $100. B. A bond discount is the excess of the face amount over the market value of the bond. C. When a bond has a market price that is greater than its face amount, it is trading at a premium. D. Bond prices are often expressed as a percentage of the bond's face amount.
B, C & D B. A bond discount is the excess of the face amount over the market value of the bond. C. When a bond has a market price that is greater than its face amount, it is trading at a premium. D. Bond prices are often expressed as a percentage of the bond's face amount.
Deferred tax liabilities: (select all) A. involve a straightforward computational process and are a noncontroversial and easily understood liability category. B. are provided for temporary differences between income tax and financial statement recognition of revenues and expenses. C. are normally long term in nature. D. are one of the most significant liabilities shown on the balance sheet for many firms.
B, C & D B. are provided for temporary differences between income tax and financial statement recognition of revenues and expenses. C. are normally long term in nature. D. are one of the most significant liabilities shown on the balance sheet for many firms.
Other accrued liabilities commonly reported on the balance sheet include: (Select all) A. prepaid expense B. advertising obligations C. estimated warranty liabilities D. estimated accounts payable E. property taxes payable
B, C & E B. advertising obligations C. estimated warranty liabilities E. property taxes payable
Identify the impact of recording the cash received in advance from customers. (select all) A. Unearned revenues are recorded and this increases net income. B. Current liabilities increase. C. Working capital increases. D. Cash increases. E. Net income is not affected.
B, D & E B. Current liabilities increase D. Cash increases. E. Net income is not affected.
Which of the following is true regarding bond discounts and/or premiums? A. Bond discount is amortized but bond premium is not. B. Both bond discount and premium are amortized. C. Neither bond discount nor premium is amortized. D. Bond premium is amortized but bond discount is not.
B. Both bond discount and premium are amortized.
The entry to record a short-term borrowing is: A. Dr. Notes Receivable Cr. Short-Term Debt B. Dr. Cash Cr. Short-Term Debt C. Dr. Cash Cr. Bonds Payable D. Dr. Cash Cr. Other Financing Sources
B. Dr. Cash Cr. Short-Term Debt
As a firm increases in size and acquires more depreciable assets, what happens to the difference between book and tax depreciation? A. Book depreciation exceeds tax depreciation for newer assets. B. It grows with each passing year. C. It decreases with each passing year. D. It eventually reaches equilibrium.
B. It grows with each passing year.
How do lenders expect to be repaid when issuing a working capital loan? A. Through the depreciation of noncurrent assets B. Through the sale of inventory C. Through the sale of shares of company stock D. Through a revolving line of credit
B. Through the sale of inventory
Many current liabilities are affected by accrual accounting entries. This happens because: A. liabilities are usually paid when they are incurred. B. accrual accounting involves recognizing liabilities when expenses have been incurred but not yet paid. C. accrual accounting frequently involves recognizing liabilities before they are incurred. D. the only way to reduce a liability account balance is with an adjusting entry.
B. accrual accounting involves recognizing liabilities when expenses have been incurred but not yet paid.
Current maturities of long-term debt are reported _____. A. in the noncurrent liability section along with long-term debt B. in the current liability section but separately from short-term debt C. in the noncurrent liability section but separately from long -term debt D. in the current liability section along with short-term debt
B. in the current liability section but separately from short-term debt
A magazine publisher has an account called "Unearned Subscription Revenue." The transaction that causes the balance of this account to decrease is: A. magazines are printed for the publisher. B. magazines are mailed to subscribers. C. subscriptions are sold to new subscribers. D. cash is received from new subscribers.
B. magazines are mailed to subscribers.
The payment of a current liability will: A. decrease working capital. B. not affect working capital. C. decrease net income. D. increase working capital.
B. not affect working capital.
If the market price of a bond exceeds its face amount: A. the company's ROI and working capital have been increasing over time. B. the coupon rate is more than the market interest rate. C. the coupon rate is less than the market interest rate. D. the maturity rate has been declining.
B. the coupon rate is more than the market interest rate.
The difference between the gross and net methods of recording the accounts payable relates to: A. the amount of cash discounts allowed. B. the timing of the recognition of cash discounts. C. neither the timing of the recognition of cash discounts nor the amount of cash discounts allowed. D. both the timing of the recognition of cash discounts and the amount of cash discounts allowed.
B. the timing of the recognition of cash discounts.
Accounts payable are normally shown: A. on the balance sheet as a current liability, net of anticipated cash discounts. B. on the income statement as an expense, but not reduced by anticipated cash discounts. C. on the balance sheet as a current liability, but not reduced by anticipated cash discounts. D. on the balance sheet as a noncurrent liability, but not reduced by anticipated cash discounts.
C. on the balance sheet as a current liability, but not reduced by anticipated cash discounts.
Identify an item that is commonly included with noncurrent liabilities. A. Accounts receivable B. Contingent gains C. product warranties D. interest payables
C. product warranties
Calculate the amount of interest (straight basis) on a 2-year loan of $2,000 at a 15 percent interest rate. A. $2,000 x 0.15 x 24 = $7,200 B. $2,000 x 0.15 = $300 C. $2,000 x 0.15 x 1/2 = $150 D. $2,000 x 0.15 x 2 = $600
D. $2,000 x 0.15 x 2 = $600
If a firm has an average income tax rate of 25 percent and issues long-term debt with an interest rate of 8 percent, then the after-tax cost of debt is: A. Not determinable without knowing the inflation rate. B. 8% x (1 + 25%) = 10% C. 8% D. 8% x (1 - 25%) = 6%
D. 8% x (1 - 25%) = 6%
What term is sometimes used to refer to the carrying value of a payable bond? A. Receivable value B. Mature value C. Market value D. Book value
D. Book value
The entry to record the pay-off of bonds at maturity is: A. Dr. Bonds Payable Dr. Interest Expense Cr. Cash B. Dr. Cash Cr. Bonds Payable C. Dr. Bonds Payable Cr. Cash Cr. Interest Expense D. Dr. Bonds Payable Cr. Cash
D. Dr. Bonds Payable Cr. Cash
The journal entry that would normally be made by an issuing company upon the early retirement of bonds (with unamortized bond discount remaining) would be: A. Dr. Bonds Payable Dr. Loss on Retirement of Bonds Dr. Discount on Bonds Payable Cr. Cash B. Dr. Bonds Payable Cr. Cash Cr. Discount on Bonds Payable Cr. Gain on Retirement of Bonds C. Dr. Bonds Payable Cr. Cash D. Dr. Bonds Payable Dr. Loss on Retirement of Bonds Cr. Cash Cr. Discount on Bonds Payable
D. Dr. Bonds Payable Dr. Loss on Retirement of Bonds Cr. Cash Cr. Discount on Bonds Payable
The borrower's entry to record the proceeds of a short-term discounted note at the time of borrowing is: A. Dr. Cash Cr. Discount on Short-Term Debt Cr. Short-Term Debt B. Dr. Cash Cr. Short-Term Debt C. Dr. Short-Term Debt Cr. Cash D. Dr. Cash Dr. Discount on Short-Term Debt Cr. Short-Term Debt
D. Dr. Cash Dr. Discount on Short-Term Debt Cr. Short-Term Debt
The entry to record the accrual of income taxes when an increase in the Deferred Income Tax Liability account is required is: A. Dr. Income Tax Expense Dr. Income Taxes Payable Cr. Deferred Tax Liabilities B. Dr. Income Taxes Payable Cr. Deferred Tax Liabilities C. Dr. Income Tax Expense Dr. Deferred Tax Liabilities Cr. Income Taxes Payable D. Dr. Income Tax Expense Cr. Income Taxes Payable Cr. Deferred Tax Liabilities
D. Dr. Income Tax Expense Cr. Income Taxes Payable Cr. Deferred Tax Liabilities
The entry to record accrued interest in the borrower's book is: A. Dr. Interest Expense Cr. Interest Income B. Dr. Interest Expense Cr. Cash C. Dr. Interest Receivable Cr. Interest Income D. Dr. Interest Expense Cr. Interest Payable
D. Dr. Interest Expense Cr. Interest Payable
What happens to a bond's value at its maturity date? A. Its book value is equal to its amortization amount. B. Its discount value is greater than its carrying value. C. Its payable value is greater than its interest rate. D. Its carrying value is equal to its face amount.
D. Its carrying value is equal to its face amount.
Which is a correct mode of repayment of term bonds and serial bonds at the time of maturity? A. Serial bonds require a lump-sum repayment of the face amount, but term bonds are repaid in installments. B. Both term bonds and serial bonds require a lump-sum repayment of the face amount. C. Both term bonds and serial bonds are repaid in installments. D. Term bonds require a lump-sum repayment of the face amount, but serial bonds are repaid in installments.
D. Term bonds require a lump-sum repayment of the face amount, but serial bonds are repaid in installments.
The entry to record an employer's payroll obligation for a payroll period includes: A. a debit to Wages Expense for the net pay. B. a credit to Wages Payable (or Accrued Payroll) for the gross pay. C. a debit to Wages Payable (or Accrued Payroll) for the net pay. D. a debit to Wages Expense for the gross pay.
D. a debit to Wages Expense for the gross pay.
The entry to record actual warranty costs in the year in which the warranty is honored includes: A. a decrease to expenses. B. an increase to current liabilities. C. an increase to expenses. D. a decrease to current liabilities.
D. a decrease to current liabilities.
The liability for product warranty claims is an example of a liability that: A. has been calculated using estimates. B. has been recorded in the process of matching revenue and expense. C. also resulted in a reduction of net income. D. all of these answers are correct.
D. all of these answers are correct.
A debenture is secured _____ A. by the pledge of securities B. by the intangible assets C. by a lien against real estate owned by the issuer D. only by the general credit of the issuer
D. only by the general credit of the issuer
An unearned revenue or deferred credit is a current liability that is normally settled by: A. returning the cash to customers who had paid in advance for the company to deliver goods or to provide services. B. paying cash to suppliers for goods or for services which the company had previously been negotiating to buy. C. converting it to a noncurrent liability. D. performing the agreed services (or delivering the agreed goods), which the customer had paid for in advance.
D. performing the agreed services (or delivering the agreed goods), which the customer had paid for in advance.
A company should record a contingent liability on its balance sheet only when _____ A. the potential payment has to be made to a government organization B. the potential payment can bankrupt the company C. the amount of the loss is more than the company's current assets D. the amount of the loss is reasonably estimable
D. the amount of the loss is reasonably estimable
Many airlines have frequent flyer programs that permit travelers to accumulate credits that can be applied to the cost of tickets for future flights. Most airlines recognize the cost of their frequent flyer programs when the credits are used to purchase tickets. This practice, which seems to ignore the matching concept, results in: A. understating liabilities and overstating expenses. B. stating liabilities and expenses at appropriate amounts. C. overstating liabilities and expenses. D. understating liabilities and expenses.
D. understating liabilities and expenses.
Callable bonds will be called when the market interest rate is sufficiently ______ (above/below) the stated rate being paid on the bonds
below
Potential claims on a company's resources arising from such things as pending litigation, environmental hazards, casualty losses to property, and product warranties are referred to as _______ (callable/contingent/convertible) liabilities.
contingent
For the _______ (straight/discount) basis of interest calculation, the loan is based on the principal amount of the loan but the interest is subtracted from the principal at the beginning of the loan and the difference is made available to the borrower.
discount
On January 1, 2022, $40 million face amount of 5%, 20-year bonds were issued. The bonds pay interest on a semiannual basis on June 30 and December 31 each year. The market interest rates were slightly higher than 5% when the bonds were sold. The bonds were issued at a _______ (premium/discount) and the semiannual interest expense will be _______ (more/less) than the amount of interest paid on each payment date.
discount more than
The amount of discount or premium amortization on bonds is the smallest in the first year and increases in each subsequent year under the ________ (straight-line/effective) interest method.
effective
As market interest rates rise, bond prices _____ (rise/fall)
fall
The difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE) is referred to as __________ (operating/financial) leverage
financial
The employer's Wages Expense for a payroll period represents the employees' ________ (gross/net) pay.
gross
The ________ (stated/market) interest rate, adjusted for compounding frequency, is the discount rate used in the present value calculations for bond pricing.
market
There is usually a time lag between the establishment of the interest rate to be printed on the face of the bond and the actual issue date. During this time, ________ (stated/market) interest rates fluctuate, causing the proceeds of the bond to be more than the face amount.
market
The employer's Wages Payable or Accrued Payroll for a payroll period represents employees' _______ (gross/net) pay
net
All bonds issued nowadays are in the form of ______ (registered/coupon) bonds.
registered
As market interest rates fall, bond prices ______ (fall/rise)
rise
The ________ (stated/market) interest rate, adjusted for compounding frequency, is used to calculate the amount of interest paid for each payment period of a bond's life.
stated
The _________ (straight/discount) basis of interest calculation involves charging interest on the money available to the borrower for the length of time it was borrowed.
straight
The amount of discount or premium amortization on bonds is the same each year under the _______(straight-line/effective) interest method.
straight-line
At the maturity date, a lump-sum repayment of the face amount of a _________ (term/serial) bond is made, whereas the face amount of a _________(term/serial) bond is repaid in installments over time.
term serial
With respect to callable bonds, which of the following statements are true? (select all) A. The bondholders are usually required to accept a bond discount at the time the bonds are called. B. The bondholders have the option of calling the bonds before the scheduled maturity date, but are not obligated to do so. C. The issuer usually is required to pay a call premium to the bondholders if the bonds are called. D. The issuer has the option of calling the bonds before the scheduled maturity date, but is not obligated to do so.
C & D C. The issuer usually is required to pay a call premium to the bondholders if the bonds are called. D. The issuer has the option of calling the bonds before the scheduled maturity date, but is not obligated to do so.
The entry to record the accrual of property taxes for the year includes: (select all) A. a debit to Property Taxes Payable. B. a credit to Property Tax Expense. C. a credit to Property Taxes Payable. D. a debit to Property Tax Expense.
C & D C. a credit to Property Taxes Payable. D. a debit to Property Tax Expense.
Identify the bond that is secured by a pledge of securities or other intangible property. A. A debenture bond B. A mortgage bond C. A collateral trust bond D. A bond indenture
C. A collateral trust bond
Which of the following is a true statement regarding interest calculation methods? A. Interest is calculated on either a straight basis or an undiscounted basis. B. If a borrower receives a loan on a discount basis, the APR will be less than the simple interest. C. If a borrower receives a loan on a discount basis, the APR will be more than the simple interest rate. D. Interest is calculated on either a straight basis or a delayed basis.
C. If a borrower receives a loan on a discount basis, the APR will be more than the simple interest rate.
Which of the following conditions must be met before a contingent liability is recorded on a firm's balance sheet? A. The amount of the loss must exceed the total noncurrent assets. B. The loss must be ascertained in the current fiscal year. C. It must be probable that the loss will be confirmed by a future transaction or event. D. The amount of loss must exceed the total noncurrent liabilities.
C. It must be probable that the loss will be confirmed by a future transaction or event.
What does a short-term loan's maturity date specify? A. When the value of the loan surpasses the value of inventory B. The point at which it converts to a long-term loan C. When the loan must be repaid D. When the interest rate will increase
C. When the loan must be repaid
An unearned revenue or deferred credit: A. is reported on the income statement as a nonoperating gain rather than as a revenue. B. leads to a decrease in noncurrent assets and noncurrent liabilities. C. is a current liability for cash collected from customers prior to delivering the agreed goods. D. does not impact current assets.
C. is a current liability for cash collected from customers prior to delivering the agreed goods.
As accrued liabilities represent expenses that have been incurred but not yet paid, accountants report other accrued liabilities on financial statements to adhere to the ______. A. economic entity principle B. monetary unit principle C. matching principle D. going concern principle
C. matching principle
