Final Exam Chapter 14

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When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be:

increased by accrued interest from May 1 to June 1.

Note disclosures for long-term debt generally include all of the following except:

names of specific creditors.

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. Another step in calculating the issue price of the bonds is to:

none of these -- multiply $5,000 by the table value for 20 periods and 4% from the present value of an annuity table.

part of continuing operations.

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to:

the market rate multiplied by the beginning-of-period carrying amount of the bonds.

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that:

the nominal rate of interest exceeded the market rate.

A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place:

the present value of the debt instrument must be approximated using an imputed interest rate.

The debt to total assets ratio is computed by dividing:

total liabilities by total assets.

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will:

increase if the bonds were issued at either a discount or a premium.

The 12% bonds payable of Nyman Co. had a carrying amount of $2,080,000 on December 31, 2012. The bonds, which had a face value of $2,000,000, were issued at a premium to yield 10%. Nyman uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2013, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is a. $0. b. $16,000. c. $24,800. d. $80,000.

$2,080,000 - [($2,000,000 × .06) - ($2,080,000 × .05)] = $2,064,000 (CV of bonds) ($2,000,000 × 1.04) - $2,064,000 = $16,000.

On January 1, Patterson Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of a. $164,700. b. $171,300. c. $154,830. d. $153,000.

$2,817,000 × .10) - ($3,000,000 × .09) = $11,700 ($3,000,000 - $2,817,000) - $11,700 = $171,300.

On December 31, 2010, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,200,000 note with $120,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $580,000, an original cost of $960,000, and accumulated depreciation of $460,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2013, reduces the face amount of the note to $500,000, and reduces the interest rate to 6%, with interest payable at the end of each year. Nolte should recognize a gain or loss on the transfer of the equipment of a. $0. b. $80,000 gain. c. $120,000 gain. d. $380,000 los Nolte should recognize a gain on the partial settlement and restructure of the debt of a. $0. b. $30,000. c. $110,000. d. $150,000. Nolte should record interest expense for 2013 of a. $0. b. $30,000. c. $60,000. d. $90,000.

$580,000 - ($960,000 - $460,000) = $80,000. ($1,200,000 + $120,000) - [$580,000 + $500,000 + ($500,000 × .06 × 3)] = $150,000. 0. The effective-interest rate is 0%.

The 10% bonds payable of Nixon Company had a net carrying amount of $760,000 on December 31, 2012. The bonds, which had a face value of $800,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2013, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2013 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2013? Ignore taxes. a. $16,000. b. $50,400. c. $44,800. d. $56,000.

$760,000 + [($760,000 × .06) - ($800,000 × .05)] = $765,600 (CV of bonds) $765,600 - ($800,000 × 1.02) = $50,400.

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013? a. $9,835,116 b. $9,970,312 c. $9,816,916 d. $9,831,762

$9,831,762 $9,802,072 + ($197,928 × 3/20) = $9,831,762.

On January 1, 2012, Ann Price loaned $90,156 to Joe Kiger. A zero-interest-bearing note (face amount, $120,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2014. The prevailing rate of interest for a loan of this type is 10%. The present value of $120,000 at 10% for three years is $90,156. What amount of interest income should Ms. Price recognize in 2012? a. $9,016. b. $12,000. c. $36,000. d. $27,048.

$90,156 × .10 = $9,016.

On October 1, 2012 Macklin Corporation issued 5%, 10-year bonds with a face value of $2,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a credit of a. $50,000 to Interest Payable. b. $80,000 to Discount on Bonds Payable. c. $1,920,000 to Bonds Payable. d. $80,000 to Premium on Bonds Payable.

($2,000,000 × 1.04) - $2,000,000 = $80,000 premium.

On July 1, 2012, Spear Co. issued 3,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2012 and mature on April 1, 2022. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance? a. $3,045,000 b. $3,000,000 c. $2,970,000 d. $2,895,000

($3,000,000 × .99) + ($3,000,000 × .10 × 3/12) = $3,045,000.

At Corporation: December 31, 2012 the following balances existed on the books of Foxworth Bonds Payable $3,000,000 Discount on Bonds Payable 240,000 Interest Payable 75,000 Unamortized Bond Issue Costs 180,000 If the bonds are retired on January 1, 2013, at 102, what will Foxworth report as a loss on redemption? a. $555,000 b. $480,000 c. $405,000 d. $300,000

($3,000,000 × 1.02) - ($3,000,000 - $240,000 - $180,000) = $480,000.

On its December 31, 2012 balance sheet, Emig Corp. reported bonds payable of $9,000,000 and related unamortized bond issue costs of $480,000. The bonds had been issued at par. On January 2, 2013, Emig retired $4,500,000 of the outstanding bonds at par plus a call premium of $105,000. What amount should Emig report in its 2013 income statement as loss on extinguishment of debt (ignore taxes)? a. $0 b. $105,000 c. $240,000 d. $345,000

($4,500,000 + $105,000) - [($9,000,000 - $480,000) × 1/2] = $345,000.

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for:

20 periods and 4% from the present value of 1 table.

Putnam Company's 2012 financial statements contain the following selected data: Income taxes $40,000 Interest expense 25,000 Net income 60,000 Putnam's times interest earned for 2012 is:

5.0 times

In the recent year Hill Corporation had net income of $280,000, interest expense of $60,000, and tax expense of $80,000. What was Hill Corporation's times interest earned ratio for the year?

7.0

85. Presented below is the stockholders' equity section of Oaks Corporation at December 31, 2012: Common stock, par value $20; authorized 75,000 shares; issued and outstanding 45,000 shares $ 900,000 Paid-in capital in excess of par value 250,000 Retained earnings 300,000 $1,450,000 During 2013, the following transactions occurred relating to stockholders' equity: 3,000 shares were reacquired at $28 per share. 3,000 shares were reacquired at $35 per share. 1,800 shares of treasury stock were sold at $30 per share. For the year ended December 31, 2013, Oaks reported net income of $450,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2013, balance sheet? a. $1,765,000. b. $1,761,400. c. $1,757,800. d. $1,315,000.

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2012 balance sheet? a. $14,709,482 b. $15,000,000 c. $14,718,844 d. $14,706,232

When an item of expense is paid and recorded in advance, it is normally called a(n) a. prepaid expense. b. accrued expense. c. estimated expense. d. cash expense.

Anders, Inc., has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2013. There were no dividends declared in 2011. The board of directors declares and pays a $90,000 dividend in 2012 and in 2013. What is the amount of dividends received by the common stockholders in 2013? a. $30,000 b. $50,000 c. $90,000 d. $0

At the beginning of 2013, Flaherty Company had retained earnings of $250,000. During the year Flaherty reported net income of $100,000, sold treasury stock at a "gain" of $36,000, declared a cash dividend of $60,000, and declared and issued a small stock dividend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per share. The amount of retained earnings available for dividends at the end of 2013 was a. $230,000. b. $260,000. c. $266,000. d. $296,000.

Colson Inc. declared a $240,000 cash dividend. It currently has 9,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders? a. $114,000. b. $126,000. c. $177,000. d. None.

Garwood Company has the following items: write-down of inventories, $360,000; loss on disposal of Sports Division, $555,000; and loss due to an expropriation, $339,000. Ignoring income taxes, what total amount should Garwood Company report as extraordinary losses? a. $339,000 b. $555,000. c. $699,000. d. $894,000.

Goods in transit which are shipped f.o.b. destination should be a. included in the inventory of the seller. b. included in the inventory of the buyer. c. included in the inventory of the shipping company. d. none of these.

Hernandez Company has 490,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $1,739,500. b. $735,000. c. $269,500. d. $245,000.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will a. exceed what it would have been had the effective-interest method of amortization been used. b. be less than what it would have been had the effective-interest method of amortization been used. c. be the same as what it would have been had the effective-interest method of amortiza- tion been used. d. be less than the stated (nominal) rate of interest.

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be a. greater than if the straight-line method were used. b. greater than the amount of the interest payments. c the same as if the straight-line method were used. d. less than if the straight-line method were used.

In a period of rising prices, the inventory method which tends to give the highest reported inventory is a. FIFO. b. moving average. c. LIFO. d. weighted-average.

In order to be classified as an extraordinary item in the income statement, an event or transaction should be a. unusual in nature, infrequent, and material in amount. b. unusual in nature and infrequent, but it need not be material. c. infrequent and material in amount, but it need not be unusual in nature. d. unusual in nature and material, but it need not be infrequent.

Lower-of-cost-or-market as it applies to inventory is best described as the a. drop of future utility below its original cost. b. method of determining cost of goods sold. c. assumption to determine inventory flow. d. change in inventory value to market value.

On April 15 of the current year, a fire destroyed the entire uninsured inventory of a retail store. The following data are available: Sales, January 1 through April 15 $360,000 Inventory, January 1 60,000 Purchases, January 1 through April 15 300,000 Markup on cost 25% The amount of the inventory loss is estimated to be a. $72,000. b. $36,000. c. $90,000. d. $60,000.

Technique Co. has equipment with a carrying amount of $1,600,000. The expected future net cash flows from the equipment are $1,630,000, and its fair value is $1,360,000. The equipment is expected to be used in operations in the future. What amount (if any) should Technique report as an impairment to its equipment? a. No impairment should be reported. b. $240,000 c. $30,000 d. $270,000

Which of the following concepts relates to using the allowance method in accounting for accounts receivable? a. Bad debt expense is an estimate that is based on historical and prospective information. b. Bad debt expense is based on the actual amounts determined to be uncollectible. c. Bad debt expense is an estimate that is based only on an analysis of the receivables aging. d. Bad debt expense is management's determination of which accounts will be sent to the attorney for collection.

Which of the following is an example of "off-balance-sheet financing"? 1. Non-consolidated subsidiary. 2. Special purpose entity. 3. Operating leases.

All of these are examples of "off-balance-sheet financing."

dividends

An example of an item which is not a liability is a. dividends payable in stock. b. advances from customers on contracts. c. accrued estimated warranty costs. d. the portion of long-term debt due within one year.

. In a period of rising prices, the inventory method which tends to give the highest reported net income is a. base stock. b. first-in, first-out. c. last-in, first-out. d. weighted-average.

28. Stacey and Bruce want to begin saving for their baby's college education. They estimate that they will need $200,000 in eighteen years. If they are able to earn 6% per annum, how much must be deposited at the beginning of each of the next eighteen years to fund the education? a. $6,471. b. $6,105. c. $11,111. d. $5,924.

AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue? a. $14,700. b. $14,850. c. $15,000. d. $15,150.

Confectioners, a chain of candy stores, purchases its candy in bulk from its suppliers. For a recent shipment, the company paid $1,800 and received 8,500 pieces of candy that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell for $0.15 each. Group 2 consists of 5,500 pieces that are expected to sell for $0.36 each. Group 3 consists of 500 pieces that are expected to sell for $0.72 each. Using the relative sales value method, what is the cost per item in Group 1? a. $0.150. b. $0.100. c. $0.120. d. $0.225.

Gannon Company acquired 8,000 shares of its own common stock at $20 per share on February 5, 2012, and sold 4,000 of these shares at $27 per share on August 9, 2013. The fair value of Gannon's common stock was $24 per share at December 31, 2012, and $25 per share at December 31, 2013. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2013 to record the sale of 4,000 shares? a. Treasury Stock for $108,000. b. Treasury Stock for $80,000 and Paid-in Capital from Treasury Stock for $28,000. c. Treasury Stock for $80,000 and Retained Earnings for $28,000. d. Treasury Stock for $96,000 and Retained Earnings for $12,000.

Gardner Corporation purchased a truck at the beginning of 2012 for $90,000. The truck is estimated to have a salvage value of $3,600 and a useful life of 120,000 miles. It was driven 18,000 miles in 2012 and 32,000 miles in 2013. What is the depreciation expense for 2012? a. $13,500 b. $12,960 c. $21,600 d. $36,000

Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and 9,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $312,000. The proceeds allocated to the common stock is a. $32,500 b. $141,818 c. $162,500 d. $170,182

Goods in transit which are shipped f.o.b. shipping point should be a. included in the inventory of the seller. b. included in the inventory of the buyer. c. included in the inventory of the shipping company. d. none of these.

Houghton Company has the following items: common stock, $900,000; treasury stock, $105,000; deferred taxes, $125,000 and retained earnings, $390,000. What total amount should Houghton Company report as stockholders' equity? a. $1,060,000. b. $1,185,000. c. $1,310,000. d. $1,395,000.

In a troubled debt restructuring in which the debt is continued with modified terms, a gain should be recognized at the date of restructure, but no interest expense should be recognized over the remaining life of the debt, whenever the a. carrying amount of the pre-restructure debt is less than the total future cash flows. b. carrying amount of the pre-restructure debt is greater than the total future cash flows. c. present value of the pre-restructure debt is less than the present value of the future cash flows. d. present value of the pre-restructure debt is greater than the present value of the future cash flows.

In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize a. no gain or loss on the restructuring. b. a gain on the restructuring. c. a loss on the restructuring. d. none of these.

Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $481,250. The entry to record the redemption will include a a. credit of $18,750 to Loss on Bond Redemption. b. credit of $18,750 to Discount on Bonds Payable. c. debit of $28,750 to Gain on Bond Redemption. d. debit of $10,000 to Premium on Bonds Payable.

Kesler, Inc. estimates the cost of its physical inventory at March 31 for use in an interim financial statement. The rate of markup on cost is 25%. The following account balances are available: Inventory, March 1 $385,000 Purchases 301,000 Purchase returns 14,000 Sales during March 525,000 The estimate of the cost of inventory at March 31 would be a. $147,000. b. $252,000. c. $278,250. d. $196,000.

LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from LeMay Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2012, the company sold 500,000 boxes of Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If the bowls cost LeMay Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2012? a. $150,000 b. $40,000 c. $60,000 d. $84,000

Lexington Company sells product 1976NLC for $50 per unit. The cost of one unit of 1976NLC is $45, and the replacement cost is $43. The estimated cost to dispose of a unit is $10, and the normal profit is 40%. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market? a. $20. b. $40. c. $43. d. $45.

Lynch Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because of technological changes. An entry to record the impairment should a. recognize an extraordinary loss for the period. b. include a credit to the equipment accumulated depreciation account. c. include a credit to the equipment account. d. not be made if the equipment is still being used.

On April 13, 2012, Neill Co. purchased machinery for $168,000. Salvage value was estimated to be $7,000. The machinery will be depreciated over ten years using the double-declining balance method. If depreciation is computed on the basis of the nearest full month, Neill should record depreciation expense for 2013 on this machinery of a. $29,120. b. $28,560. c. $28,770. d. $29,306.

On January 1, 2012, Graham Company purchased a new machine for $2,800,000. The new machine has an estimated useful life of nine years and the salvage value was estimated to be $100,000. Depreciation was computed on the sum-of-the-years'-digits method. What amount should be shown in Graham's balance sheet at December 31, 2013, net of accumulated depreciation, for this machine? a. $2,260,000 b. $1,780,000 c. $1,742,221 d. $1,659,000

When a note payable is issued for property, goods, or services, the present value of the note is measured by a. the fair value of the property, goods, or services. b. the fair value of the note. c. using an imputed interest rate to discount all future payments on the note. d. any of these

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that a. the effective yield or market rate of interest exceeded the stated (nominal) rate. b. the nominal rate of interest exceeded the market rate. c. the market and nominal rates coincided. d. no necessary relationship exists between the two rates.

Solar Products purchased a machine for $39,000 on July 1, 2012. The company intends to depreciate it over 4 years using the double-declining balance method. Salvage value is $3,000. Depreciation for 2012 is a. $19,500 b. $9,750 c. $14,625 d. $9,000

The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the a. net realizable value. b. net realizable value less normal profit margin. c. replacement cost. d. selling price less costs of completion and disposal.

The term used for bonds that are unsecured as to principal is a. junk bonds. b. debenture bonds. c. indebenture bonds. d. callable bonds.

Turner Corporation acquired two inventory items at a lump-sum cost of $80,000. The acquisition included 3,000 units of product LF, and 7,000 units of product 1B. LF normally sells for $24 per unit, and 1B for $8 per unit. If Turner sells 1,000 units of LF, what amount of gross profit should it recognize? a. $3,000 b. $9,000. c. $16,000. d. $19,000.

Vasguez Corporation had a 1/1/12 balance in the Allowance for Doubtful Accounts of $30,000. During 2012, it wrote off $21,600 of accounts and collected $6,300 on accounts previously written off. The balance in Accounts Receivable was $600,000 at 1/1 and $720,000 at 12/31. At 12/31/12, Vasguez estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2012? a. $6,000. b. $21,300. c. $27,600. d. $36,000.

Vista newspapers sold 6,000 of annual subscriptions at $125 each on September 1. How much unearned revenue will exist as of December 31? a. $0. b. $500,000. c. $250,000. d. $750,000.

When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at? a. Sales price b. Net realizable value c. Historical cost d. Net realizable value reduced by a normal profit margin

Which of the following elements of financial statements is not a component of comprehensive income? a. Revenues b. Distributions to owners c. Losses d. Expenses

Winter Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Winter's lawyer states that it is probable that Winter will lose the suit and be found liable for a judgment costing Winter anywhere from $1,600,000 to $8,000,000. However, the lawyer states that the most probable cost is $4,800,000. As a result of the above facts, Winter should accrue a. a loss contingency of $1,600,000 and disclose an additional contingency of up to $6,400,000. b. a loss contingency of $4,800,000 and disclose an additional contingency of up to $3,200,000. c. a loss contingency of $4,800,000 but not disclose any additional contingency. d. no loss contingency but disclose a contingency of $1,600,000 to $8,000,000.

secured bonds

Bonds for which the owners' names are not registered with the issuing corporation are called a. bearer bonds. b. term bonds. c. debenture bonds. d. secured bonds.

income bonds

Bonds that pay no interest unless the issuing company is profitable are called a. collateral trust bonds. b. debenture bonds. c. revenue bonds. d. income bonds.

(use graph)25. Jose entered into a contract where he will receive $1,000,000 after twenty years. Assuming an appropriate interest rate is 5% compounded annually, what is the present value of this amount? a. $2,653,300 b. $5,306,600 c. $2,924,420 d. $376,890

26. Angie invested $100,000 she received from her grandmother in a fund that is expected to earn 10% per annum. To what amount should the investment grow in five years if interest is compounded semi-annually? a. $155,134 b. $161,050 c. $162,890 d. $177,156

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, a. a loss should be recognized by the debtor. b. a gain should be recognized by the debtor. c. a new effective-interest rate must be computed. d. no interest expense or revenue should be recognized in the future.

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

a new effective-interest rate must be computed.

AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the gross method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale? a. Debit Accounts Receivable for $14,850. b. Debit Accounts Receivable for $14,850 and Sales Discounts for $150. c. Debit Accounts Receivable for $15,000. d. Debit Accounts Receivable for $15,000 and Sales Discounts for $150.

AG Inc. made a $15,000 sale on account with the following terms: 2/10, n/30. If the company uses the net method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale? a. Debit Accounts Receivable for $14,700. b. Debit Accounts Receivable for $14,700 and Sales Discounts for $300. c. Debit Accounts Receivable for $15,000. d. Debit Accounts Receivable for $15,000 and Sales Discounts for $300.

An analysis of stockholders' equity of Hahn Corporation as of January 1, 2012, is as follows: Common stock, par value $20; authorized 100,000 shares; issued and outstanding 90,000 shares $1,800,000 Paid-in capital in excess of par 700,000 Retained earnings 760,000 Total $3,260,000 Hahn uses the cost method of accounting for treasury stock and during 2012 entered into the following transactions: Acquired 2,500 shares of its stock for $75,000. Sold 2,000 treasury shares at $35 per share. Sold the remaining treasury shares at $20 per share. Assuming no other equity transactions occurred during 2012, what should Hahn report at December 31, 2012, as total additional paid-in capital? a. $695,000 b. $700,000 c. $705,000

At December 31, 2012 the following balances existed on the books of Rentro Corporation: Bonds Payable $2,500,000 Discount on Bonds Payable 200,000 Interest Payable 60,000 Unamortized Bond Issue Costs 150,000 If the bonds are retired on January 1, 2013, at 102, what will Rentro report as a loss on redemption? a. $250,000 b. $337,500 c. $400,000 d. $460,000

Fama Corporation reports the following information: Net income $750,000 Dividends on common stock 210,000 Dividends on preferred stock 90,000 Weighted average common shares outstanding 200,000 Fama should report earnings per share of a. $2.25. b. $2.70 c. $3.30. d. $3.75.

Farmer Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $19,400,000 b. $20,450,000 c. $19,700,000 d. $19,100,000

For a nonmonetary exchange of plant assets, accounting recognition should not be given to a. a loss when the exchange has no commercial substance. b. a gain when the exchange has commercial substance. c. part of a gain when the exchange has no commercial substance and cash is paid (cash paid/received is less than 25% of the fair value of the exchange). d. part of a gain when the exchange has no commercial substance and cash is received (cash paid or received is less than 25% of the fair value of the exchange).

Hansen Corporation received cash of $27,000 on September 1, 2012 for one year's rent in advance and recorded the transaction with a credit to Unearned Rent Revenue. The December 31, 2012 adjusting entry is a. debit Rent Revenue and credit Unearned Rent Revenue, $9,000. b. debit Rent Revenue and credit Unearned Rent Revenue, $18,000. c. debit Unearned Rent Revenue and credit Rent Revenue, $9,000. d. debit Cash and credit Unearned Rent Revenue, $18,000.

If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting a. Bonds Payable. b. Gain on Restructuring of Debt. c. Unrealized Holding Gain/Loss-Income. d. None of these.

In a period of rising prices, the inventory method which tends to give the highest reported cost of goods sold is a. FIFO. b. average cost. c. LIFO. d. none of these.

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, the creditor should a. compute a new effective-interest rate. b. not recognize a loss. c. calculate its loss using the historical effective rate of the loan. d. calculate its loss using the current effective rate of the loan.

Kohlman Corporation owns machinery with a book value of $380,000. It is estimated that the machinery will generate future cash flows of $350,000. The machinery has a fair value of $280,000. Kohlman should recognize a loss on impairment of a. $ -0-. b. $ 30,000. c. $100,000. d. $ 70,000.

Luther Inc., has 3,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2013, and December 31, 2012. The board of directors declared and paid a $7,500 dividend in 2012. In 2013, $36,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2013? a. $25,500 b. $18,000 c. $ 10,500 d. $ 9,000

Plant assets purchased on long-term credit contracts should be accounted for at a. the total value of the future payments. b. the future amount of the future payments. c. the present value of the future payments. d. none of these.

The cost of land does not include a. costs of grading, filling, draining, and clearing. b. costs of removing old buildings. c. costs of improvements with limited lives. d. special assessments.

The printing costs and legal fees associated with the issuance of bonds should a. be expensed when incurred. b. be reported as a deduction from the face amount of bonds payable. c. be accumulated in a deferred charge account and amortized over the life of the bonds. d. not be reported as an expense until the period the bonds mature or are retired.

The total payroll of Teeter Company for the month of October, 2012 was $600,000, of which $150,000 represented amounts paid in excess of $106,800 to certain employees. $500,000 represented amounts paid to employees in excess of the $7,000 maximum subject to unemployment taxes. $150,000 of federal income taxes and $15,000 of union dues were withheld. The state unemployment tax is 1%, the federal unemployment tax is .8%, and the current F.I.C.A. tax is 7.65% on an employee's wages to $106,800 and 1.45% in excess of $106,800. What amount should Teeter record as payroll tax expense? a. $197,700. b. $188,400. c. $38,400. d. $47,400.

The two fundamental qualities that make accounting information useful for decision making are a. comparability and timeliness. b. materiality and neutrality. c. relevance and faithful representation. d. faithful representation and comparability.

Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is also a debit balance of $3,000 in the allowance for doubtful accounts. If the company estimates that 1% of its net credit sales will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense? a. $12,700. b. $15,700. c. $61,000. d. $67,000.

What is meant by comparability when discussing financial accounting information? a. Information has predictive or confirmatory value. b. Information is reasonably free from error. c. Information that is measured and reported in a similar fashion across companies. d. Information is timely.

What is the normal journal entry for recording bad debt expense under the allowance method? a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable. b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense. c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts. d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.

What is the objective of financial reporting? a. Provide information that is useful to management in making decisions. b. Provide information that clearly portray nonfinancial transactions. c. Provide information about the reporting entity that is useful to present and potential equity investors lenders, and other creditors. d. Provide information that excludes claims to the resources.

When making decisions, investors are interested in assessing? a. the company's ability to generate net cash inflows. b. management's ability to protect and enhance the capital providers' investments. c. Both a and b. d. the company's ability to generate net income.

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited? a. Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. b. Paid-in capital in excess of par for the purchase price. c. Treasury stock for the purchase price. d. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

Which of the following is a characteristic of a perpetual inventory system? a. Inventory purchases are debited to a Purchases account. b. Inventory records are not kept for every item. c. Cost of goods sold is recorded with each sale. d. Cost of goods sold is determined as the amount of purchases less the change in inventory.

Which of the following taxes does not represent a common payroll deduction? a. Federal income taxes. b. FICA taxes. c. State unemployment taxes. d. State income taxes.

Worthington Chandler Company purchased equipment for $12,000. Sales tax on the purchase was $800. Other costs incurred were freight charges of $200, repairs of $350 for damage during installation, and installation costs of $225. What is the cost of the equipment? a. $12,000 b. $12,800 c. $13,225 d. $13,575

A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $600,000. To extinguish this debt, the company had to pay a call premium of $200,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes?

Charge $800,000 to a loss in the year of extinguishment.

. A primary source of stockholders' equity is a. income retained by the corporation. b. appropriated retained earnings. c. contributions by stockholders. d. both income retained by the corporation and contributions by stockholders.

24. An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at a. 8% for eight periods. b. 2% for eight periods. c. 8% for 32 periods. d. 2% for 32 periods.

27. What would you pay for an investment that pays you $20,000 at the end of each year for the next ten years and then returns a maturity value of $300,000 after ten years? Assume that the relevant interest rate for this type of investment is 8%. a. $138,958. b. $134,202. c. $144,936. d. $273,158.

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013? a. $14,752,673 b. $14,955,466 c. $14,725,375 d. $14,747,642

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. What is interest expense for 2013, using straight-line amortization? a. $1,540,207 b. $1,170,000 c. $1,176,894 d. $1,184,845

A troubled debt restructuring will generally result in a. loss by the debtor and a gain by the creditor. b. loss by both the debtor and the creditor. c. gain by both the debtor and the creditor. d. gain by the debtor and a loss by the creditor.

An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the a. ledger. b. account. c. trial balance. d. none of these.

An accrued expense can best be described as an amount a. paid and currently matched with earnings. b. paid and not currently matched with earnings. c. not paid and not currently matched with earnings. d. not paid and currently matched with earnings.

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition a. any costs of issuing the bonds must be amortized up to the purchase date. b. the premium must be amortized up to the purchase date. c. interest must be accrued from the last interest date to the purchase date. d. all of these.

An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's a. portion of FICA taxes and unemployment taxes. b. and employer's portion of FICA taxes, and unemployment taxes. c. portion of FICA taxes, unemployment taxes, and any voluntary deductions. d. portion of FICA taxes and any voluntary deductions.

An expenditure made in connection with a machine being used by an enterprise should be a. expensed immediately if it merely extends the useful life but does not improve the quality. b. expensed immediately if it merely improves the quality but does not extend the useful life. c. capitalized if it maintains the machine in normal operating condition. d. capitalized if it increases the quantity of units produced by the machine.

Bell Inc. took a physical inventory at the end of the year and determined that $780,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of goods that were in transit that were shipped f.o.b. shipping point were actually received two days after the inventory count and that the company had $90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year? a. $780,000. b. $840,000. c. $870,000. d. $930,000.

Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 2,400 units that cost $12 each. During the month, the company made two purchases: 1,000 units at $13 each and 4,000 units at $13.50 each. Checkers also sold 4,300 units during the month. Using the LIFO method, what is the ending inventory? a. $40,146. b. $37,200. c. $41,850. d. $37,900.

Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 300 units that cost $65 each. During the month, the company made two purchases: 450 units at $68 each and 225 units at $70 each. Chess Top also sold 750 units during the month. Using the FIFO method, what is the amount of cost of goods sold for the month? a. $50,655. b. $48,750. c. $51,225. d. $50,100.

Elkins Corporation uses the perpetual inventory method. On March 1, it purchased $20,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost $2,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit a. purchase discounts for $400. b. inventory for $400. c. purchase discounts for $360. d. inventory for $360.

For Ronda Company, the following information is available: Cost of goods sold $175,000 Income tax expense 27,000 Operating expenses 105,000 Sales 500,000 Dividend revenue 12,000 In Ronda's multiple-step income statement, gross profit a. should not be reported b. should be reported at $337,000. c. should be reported at $180,000. d. should be reported at $325,000.

Generally, revenue from sales should be recognized at a point when a. management decides it is appropriate to do so. b. the product is available for sale to the ultimate consumer. c. the entire amount receivable has been collected from the customer and there remains no further warranty liability. d. none of these.

Given the acquisition cost of product Z is $64, the net realizable value for product Z is $58, the normal profit for product Z is $5, and the market value (replacement cost) for product Z is $60, what is the proper per unit inventory price for product Z? a. $64. b. $60. c. $53. d. $58.

If you invest $50,000 to earn 8% interest, which of the following compounding approaches would return the lowest amount after one year? a. Daily. b. Monthly. c. Quarterly. d. Annually

L'Orange Company's account balances at December 31, 2012 for Accounts Receivable and the Allowance for Doubtful Accounts are $480,000 debit and $900 credit. Sales during 2012 were $1,350,000. It is estimated that 2% of sales will be uncollectible. The adjusting entry would include a credit to the allowance account for

Long-term debt that matures within one year and is to be converted into stock should be reported a. as a current liability. b. in a special section between liabilities and stockholders' equity. c. as noncurrent. d. as noncurrent and accompanied with a note explaining the method to be used in its liquidation.

On February 1, 2012, Nelson Corporation purchased a parcel of land as a factory site for $250,000. An old building on the property was demolished, and construction began on a new building which was completed on November 1, 2012. Costs incurred during this period are listed below: Demolition of old building $ 20,000 Architect's fees 35,000 Legal fees for title investigation and purchase contract 5,000 Construction costs 1,290,000 (Salvaged materials resulting from demolition were sold for $10,000.) Nelson should record the cost of the land and new building, respectively, as a. $275,000 and $1,315,000. b. $260,000 and $1,330,000. c. $260,000 and $1,325,000. d. $265,000 and $1,325,000.

On January 3, 2012, Boyer Corp. owned a machine that had cost $300,000. The accumulated depreciation was $180,000, estimated salvage value was $18,000, and fair value was $480,000. On January 4, 2012, this machine was irreparably damaged by Pine Corp. and became worthless. In October 2012, a court awarded damages of $480,000 against Pine in favor of Boyer. At December 31, 2012, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Boyer's attorney, Pine's appeal will be denied. At December 31, 2012, what amount should Boyer accrue for this gain contingency? a. $480,000. b. $390,000. c. $300,000. d. $0.

P37. Treasury shares are a. shares held as an investment by the treasurer of the corporation. b. shares held as an investment of the corporation. c. issued and outstanding shares. d. issued but not outstanding shares.

Robertson Inc. bought a machine on January 1, 2002 for $400,000. The machine had an expected life of 20 years and was expected to have a salvage value of $40,000. On July 1, 2012, the company reviewed the potential of the machine and determined that its undiscounted future net cash flows totaled $200,000 and its discounted future net cash flows totaled $140,000. If no active market exists for the machine and the company does not plan to dispose of it, what should Robertson record as an impairment loss on July 1, 2012? a. $ 0 b. $11,000 c. $20,000 d. $71,000

Sodium Inc. borrowed $280,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31? a. $0. b. $33,600. c. $8,400. d. $25,200.

Stockholders' equity is generally classified into two major categories: a. contributed capital and appropriated capital. b. appropriated capital and retained earnings. c. retained earnings and unappropriated capital. d. earned capital and contributed capital.

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2012, contained the following accounts. 5-year Bonds Payable 8% $2,000,000 Interest Payable 50,000 Premium on Bonds Payable 100,000 Notes Payable (3 mo.) 40,000 Notes Payable (5 yr.) 165,000 Mortgage Payable ($15,000 due currently) 200,000 Salaries and wages Payable 18,000 Income Taxes Payable (due 3/15 of 2013) 25,000 The total long-term liabilities reported on the balance sheet are a. $2,365,000. b. $2,350,000. c. $2,465,000. d. $2,450,000.

The current assets section of the balance sheet should include a. machinery. b. patents. c. goodwill. d. inventory.

The rate of interest actually earned by bondholders is called the a. stated rate. b. yield rate. c. effective rate. d. effective, yield, or market rate.

Theoretically, the costs of issuing bonds could be a. expensed when incurred. b. reported as a reduction of the bond liability. c. debited to a deferred charge account and amortized over the life of the bonds. d. any of these.

Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year? a. $ 532,000. b. $ 520,000. c. $1,920,000. d. $ 508,000.

What is the rationale behind the ceiling when applying the lower-of-cost-or-market method to inventory? a. Prevents understatement of the inventory value. b. Allows for a normal profit to be earned. c. Allows for items to be valued at replacement cost. d. Prevents overstatement of the value of obsolete or damaged inventories.

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless a. no interest rate is stated. b. the stated interest rate is unreasonable. c. the stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note. d. any of these.

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will a. increase if the bonds were issued at a discount. b. decrease if the bonds were issued at a premium. c. increase if the bonds were issued at a premium. d. increase if the bonds were issued at either a discount or a premium.

Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets? a. Assets under construction for an enterprise's own use. b. Assets intended for sale or lease that are produced as discrete projects. c. Assets financed through the issuance of long-term debt. d. Assets not currently undergoing the activities necessary to prepare them for their intended use.

Which of the following is an example of "off-balance-sheet financing"? 1. Non-consolidated subsidiary. 2. Special purpose entity. 3. Operating leases. a. 1 b. 2 c. 3 d. All of these are examples of "off-balance-sheet financing."

Which of the following is included in the normal journal entry to record the collection of accounts receivable previously written off when using the allowance method? a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable. b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense. c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts. d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.

Which of these is not a major characteristic of a plant asset? a. Possesses physical substance b. Acquired for use in operations c. Yields services over a number of years d. All of these are major characteristics of a plant asset.

Which of these is not included in an employer's payroll tax expense? a. F.I.C.A. (social security) taxes b. Federal unemployment taxes c. State unemployment taxes d. Federal income taxes

greater than if the straightline method were used

Times Interest Earned

Income before income taxes and interest expense/int expense

Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements?

The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.

A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation?

The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period.

bond indenture

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the a. bond indenture. b. bond debenture. c. registered bond. d. bond coupon.

coupon rate, nominal rate, or stated rate

The interest rate written in the terms of the bond indenture is known as the a. coupon rate. b. nominal rate. c. stated rate. d. coupon rate, nominal rate, or stated rate.

effective yield or market rate

The rate of interest actually earned by bondholders is called the a. stated rate. b. yield rate. c. effective rate. d. effective, yield, or market rate.

debenture bonds

The term used for bonds that are unsecured as to principal is a. junk bonds. b. debenture bonds. c. indebenture bonds. d. callable bonds.

If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting:

Unrealized Holding Gain/Loss-Income.

Bond interest expense reported on the December 31, 2012 income statement of Macklin Corporation would be a. $23,000 b. $25,000 c. $27,000 d. $46,000

[($2,000,000 × .05) × 3/12] - [($80,000 ÷ 10) × 3/12] = $23,000.

40. Porter Corp. purchased its own par value stock on January 1, 2012 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from a. additional paid-in capital to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings. b. additional paid-in capital without regard as to whether or not there have been previous net "gains" from sales of the same class of stock included therein. c. retained earnings. d. net income.

"In-substance defeasance" is a term used to refer to an arrangement whereby:

a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust.

Treasury bonds should be shown on the balance sheet as:

a deduction from bonds payable issued to arrive at net bonds payable and outstanding.

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as:

a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.

In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize:

a gain on the restructuring.

On January 1, 2014, Ann Price borrowed $112,695 from Joe Kiger. A zero-interest-bearing note (face amount, $150,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2016. The prevailing rate of interest for a loan of this type is 10%. The present value of $150,000 at 10% for three years is $112,695. What amount of interest espense should Ms. Price recognize in 2014? a. $11,270. b. $15,000. c. $45,000. d. $33,810.

a. $11,270

On January 1, 2013, Doty Co. redeemed its 15-year bonds of $3,500,000 par value for 102. They were originally issued on January 1, 2001 at 98 with a maturity date of January 1, 2016. The bond issue costs relating to this transaction were $210,000. Doty amortizes discounts, premiums, and bond issue costs using the straight-line method. What amount of loss should Doty recognize on the redemption of these bonds (ignore taxes)? a. $126,000 b. $84,000 c. $70,000 d. $0

a. $126,000

On July 1, 2014, Spear Co. issued 2,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2014 and mature on April 1, 2024. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance? a. $2,030,000 b. $2,000,000 c. $1,980,000 d. $1,930,000

a. $2,030,000

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .534 Present value of annuity for 8 periods at 6% 6.210 Present value of annuity for 8 periods at 8% 5.747 Present value of annuity for 16 periods at 3% 12.561 Present value of annuity for 16 periods at 4% 11.652 The present value of the principal is a. $2,136,000. b. $2,160,000. c. $2,492,000. d. $2,508,000.

a. $2,136,000

Bond interest expense reported on the December 31, 2012 income statement of Macklin Corporation would be a. $23,000 b. $25,000 c. $27,000 d. $46,000

a. $23,000

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .534 Present value of annuity for 8 periods at 6% 6.210 Present value of annuity for 8 periods at 8% 5.747 Present value of annuity for 16 periods at 3% 12.561 Present value of annuity for 16 periods at 4% 11.652 The issue price of the bonds is a. $3,534,240. b. $3,539,280. c. $3,558,240. d. $3,998,400.

a. $3,534,240

On July 1, 2011, Noble, Inc. issued 9% bonds in the face amount of $10,000,000, which mature on July 1, 2017. The bonds were issued for $9,390,000 to yield 10%, resulting in a bond discount of $610,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2013, Noble's unamortized bond discount should be a. $528,100. b. $510,000. c. $488,000. d. $430,000.

a. $528,100

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will a. exceed what it would have been had the effective-interest method of amortization been used. b. be less than what it would have been had the effective-interest method of amortization been used. c. be the same as what it would have been had the effective-interest method of amortiza-tion been used. d. be less than the stated (nominal) rate of interest.

a. exceed what it would have been had the effective-interest method of amortization been used

An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition: a. any costs of issuing the bonds must be amortized up to the purchase date. b. the premium must be amortized up to the purchase date. c. interest must be accrued from the last interest date to the purchase date.

all of these.

Theoretically, the costs of issuing bonds could be: a. expensed when incurred. b. reported as a reduction of the bond liability. c. debited to a deferred charge account and amortized over the life of the bonds.

any of these.

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless: a. no interest rate is stated. b. the stated interest rate is unreasonable. c. the stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note.

any of these.

When a note payable is issued for property, goods, or services, the present value of the note is measured by: a. the fair value of the property, goods, or services. b. the fair value of the note. c. using an imputed interest rate to discount all future payments on the note.

any of these.

Long-term debt that matures within one year and is to be converted into stock should be reported:

as noncurrent and accompanied with a note explaining the method to be used in its liquidation.

On January 1, 2014, Ellison Co. issued eight-year bonds with a face value of $4,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: Present value of 1 for 8 periods at 6% .627 Present value of 1 for 8 periods at 8% .540 Present value of 1 for 16 periods at 3% .623 Present value of 1 for 16 periods at 4% .534 Present value of annuity for 8 periods at 6% 6.210 Present value of annuity for 8 periods at 8% 5.747 Present value of annuity for 16 periods at 3% 12.561 Present value of annuity for 16 periods at 4% 11.652 The present value of the interest is a. $1,379,280. b. $1,398,240. c. $1,490,400. d. $1,507,320.

b. $1,398,240

On January 1, 2012, Solis Co. issued its 10% bonds in the face amount of $4,000,000, which mature on January 1, 2022. The bonds were issued for $4,540,000 to yield 8%, resulting in bond premium of $540,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2012, Solis's adjusted unamortized bond premium should be a. $540,000. b. $503,200. c. $486,000. d. $406,000.

b. $503,200

On October 1, 2014 Bartley Corporation issued 5%, 10-year bonds with a face value of $5,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a a. credit of $125,000 to Interest Payable. b. credit of $200,000 to Premium on Bonds Payable. c. credit of $4,800,000 to Bonds Payable. d. debit of $200,000 to Discount on Bonds Payable

b. credit of $200,000 to premium on bonds payable

b. the nominal rate of interest exceeded the market rate

The printing costs and legal fees associated with the issuance of bonds should:

be accumulated in a deferred charge account and amortized over the life of the bonds.

Bonds for which the owners' names are not registered with the issuing corporation are called:

bearer bonds.

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the:

bond indenture.

A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using effective-interest amortization, how much interest expense will be recognized in 2012? a. $585,000 b. $1,170,000 c. $1,176,374 d. $1,176,249

Cash dividends are paid on the basis of the number of shares a. authorized. b. issued. c. outstanding. d. outstanding less the number of treasury shares.

Equestrain Roads sold $80,000 of goods and accepted the customer's $80,000 10% 1-year note payable in exchange. Assuming 10% approximates the market rate of return, how much interest would be recorded for the year ending December 31 if the sale was made on June 30? a. $0. b. $2,000. c. $4,000. d. $8,000.

Total stockholders' equity represents a. a claim to specific assets contributed by the owners. b. the maximum amount that can be borrowed by the enterprise. c. a claim against a portion of the total assets of an enterprise. d. only the amount of earnings that have been retained in the business.

Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $260,000. The proceeds allocated to the preferred stock is a. $232,917 b. $162,500 c. $141,818 d. $118,182

On January 1, 2012, Huff Co. sold $3,000,000 of its 10% bonds for $2,655,888 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2012? a. a. $132,798 b. b. $150,000 c. c. $159,353 d. d. $180,000

c. $159,353

Farmer Company issues $25,000,000 of 10-year, 9% bonds on March 1, 2014 at 97 plus accrued interest. The bonds are dated January 1, 2014, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $24,250,000 b. $25,562,500 c. $24,625,000 d. $23,875,000

c. $24,625,000

On June 30, 2013, Omara Co. had outstanding 8%, $4,000,000 face amount, 15-year bonds maturing on June 30, 2023. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2013 were $140,000 and $40,000, respectively. On June 30, 2013, Omara acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? a. $3,960,000. b. $3,860,000. c. $3,820,000. d. $3,760,000.

c. $3,820,000

The December 31, 2012, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2021 $2,000,000 Unamortized premium on bonds payable 54,000 The bonds were issued on December 31, 2011, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2013, Hess retired $800,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. a. $37,600. b. $21,600. c. $37,200. d. $40,000.

c. $37,200

The December 31, 2014, balance sheet of Hess Corporation includes the following items: 9% bonds payable due December 31, 2023 $3,000,000 Unamortized premium on bonds payable 81,000 The bonds were issued on December 31, 2013, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2015, Hess retired $1,200,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes. a. $56,400. b. $32,400. c. $55,800. d. $60,000.

c. $55,800

On October 1, 2014 Bartley Corporation issued 5%, 10-year bonds with a face value of $5,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Bond interest expense reported on the December 31, 2014 income statement of Bartley Corporation would be a. $67,500 b. $115,000 c. $57,500 d. $62,500

c. $57,500

A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, how much interest expense will be recognized in 2014? a. $390,000 b. $780,000 c. $784,249 d. $784,166

c. $784,249

Feller Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $9,700,000 b. $10,225,000 c. $9,850,000 d. $9,550,000

c. $9,850,000

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a a. debit to Interest Payable. b. credit to Interest Receivable. c. credit to Interest Expense. d. credit to Unearned Interest.

c. credit to interest expense

A ten-year bond was issued in 2011 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2013, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2013 should have equaled the a. call price. b. call price less unamortized discount. c. face amount less unamortized discount. d. face amount plus unamortized discount

c. face amount less unamortized discount

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a a. gain, net of income taxes. b. loss, net of income taxes. c. part of continuing operations. d. deferred credit to be amortized over the life of the new debt.

c. part of continuing operations

In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, the creditor should

calculate its loss using the historical effective rate of the loan.

When a business enterprise enters into what is referred to as off-balance-sheet financing, the company:

can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.

carrying amount of the pre-restructure debt is greater than the total future cash flows.

The interest rate written in the terms of the bond indenture is known as the:

coupon rate, nominal rate, or stated rate.

credit of $18,750 to Discount on Bonds Payable.

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a:

credit to Interest Expense.

d. $14,747,642 $14,703,109 + ($296,891 × 3/20) = $14,747,642.

On January 1, 2008, Goll Corp. issued 4,000 of its 10%, $1,000 bonds for $4,160,000. These bonds were to mature on January 1, 2016 but were callable at 101 any time after December 31, 2011. Interest was payable semiannually on July 1 and January 1. On July 1, 2013, Goll called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Goll's gain or loss in 2013 on this early extinguishment of debt was a. $120,000 gain. b. $48,000 gain. c. $40,000 loss. d. $32,000 gain.

d. $32,000 gain

d. $80,000 to premium on bonds payable

d. $9,831,762

d. increase if the bonds were issued at either a discount or a premium

Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to a. the stated (nominal) rate of interest multiplied by the face value of the bonds. b. the market rate of interest multiplied by the face value of the bonds. c. the stated rate multiplied by the beginning-of-period carrying amount of the bonds. d. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

d. the market rate multiplied by the beginning-of-period carrying amount of the bonds

The term used for bonds that are unsecured as to principal is:

debenture bonds.

Carr Corporation retires its $500,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $518,725. The entry to record the redemption will include a:

debit of $18,725 to Premium on Bonds Payable.

An example of an item which is not a liability is:

dividends payable in stock.

The rate of interest actually earned by bondholders is called the:

effective, yield, or market rate.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will:

exceed what it would have been had the effective-interest method of amortization been used.

face amount less unamortized discount.

A troubled debt restructuring will generally result in a:

gain by the debtor and a loss by the creditor.

If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be:

Final Exam Chapter 14

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