Accounting exam 4--Chapter 8
if bonds are issued at 101.25, this means that:
a $1,000 bond sold for $1,012.50
the discount on bonds payable account is shown on the balance sheet as:
a contra-liability
the premium on bonds payable account is shown on the balance sheet as:
an addition to a long-term liability
the portion of long-term debt due within one year should:
be reclassified as a current liability
what describes a callable bond?
borrower has the right to pay off the bonds prior to due date
____ bonds may be retired by the issuing company before their specified due date.
callable
a(n) ____ lease is recorded on the leesee's balance sheet as an asset and related liability.
capital
an obligation that arises from an existing condition whose outcome is uncertain and whose resolution depends on a future event is called a ____.
contingent liability
discount of bonds payable is shown on the balance sheet as a(n) _____.
contra-liability
the current ratio is computed by dividing current assets by ___.
current liabilities
the amount of federal income taxes withheld from an employee's gross pay is recorded as a:
current liability
the journal entry to record the issuance of a note for the purpose of borrowing fund it:
debit cash; credit notes payable
the journal entry to record the payment of an ordinary note is:
debit notes payable and interest expense; credit cash
if bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will:
decrease as the bonds approach their maturity date
with the effective interest method of amortization, the amortization of a bond premium results in a(n):
decrease in interest expense
if the market rate of interest is greater than the stated rate, then the bonds are issued at a(n) _____.
discount
current liabilities are:
due and payable within one year
the amount of money the borrower agrees to repay at maturity of a bond is usually referred to as the ___.
face value
when bonds are issued by a company, the accounting entry shows an:
increase in assets and an increase in liabilities
with the effective interest method of amortization, the amortization of a bond discount result in a(n):
increase in interest expense
obligations that extend beyond one year are referred to as _____.
long-term liabilities
bonds are sold at premium if the:
market rate of interest was less than the stated rate at the time of issue
the ___ is the rate of return that investors in the bond markets demand for bonds of similar risk.
market rate of return
although operating leases are not recorded on the balance sheet by the lessee, they are disclosed in the ___.
notes to the financial statements
long-term liabilities generally include:
obligations that extend beyond one year
when bonds are sold for less than the face amount, this means that the:
stated rate of interest is less than the market rate of interest
under the ___ method of amortization, an equal amount of discount or premium is amortized each time interest is paid.
straight-line
when will bonds sell at discount?
the stated rate of interest is less than the market rate of interest at the time of issue
when determining the amount of interest to be paid on a bond, what information is necessary?
the stated rate of interest on the bonds