Accounting Chapter 9
Bonds are sold at a 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
The bond issue price is determined by calculating the
present value of the stream of interest payments and the present value of the maturity amount
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
borrower has the right to pay off the bonds prior to due date
callable bond
An _____ lease is recorded on the lessee'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 on bonds payable is shown on the balance sheet as an
contra liability
The discount on bonds payable account is shown on the balance sheet as
contra liability
The current ratio is computed by dividing currents asset by
current liabilities
The interest charged by the bank, at the rate of 9% on a 3 month, discounted note payable for 100,000 is
2,250
To find Current Ratio, the equation is
CURRENT Assets/CURRENT Liabilities
Which of the following accounts would NOT appear on the balance sheet of a lessee company recording a capital lease
Rent expense on the leased asset
Which of the following statement about bond accounting under the effective interest method is correct
The interest expense is calculated as the carrying value, market rate.
Which of the following lease conditions would result in a capital lease to the lessee?
The lessee obtains enough rights to use the asset and is in substance the owner
Horizontal Analysis Equation
Total Liabilities 2012 - Total Liabilities 2011 Then take your answer and divide it by the lowest number
To find debts for assets, the equation is
Total Liabilities/Total Assets
Vertical Analysis
Total Liabilities/Total Liabilities and Equity
If bonds are issued at 101.25 this means that,
a 1000 bond sold for 1, 012.50
Which of the following statements regarding amortization is true
amortization of a premium continues over the life of the bond until the balance in the account is reduced to zero
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
_____ Bonds may be retired by the issuing company before their specified due date
callable
Portion of long term debt due within one year is
current liability
The amount of federal income taxes withheld from an employees gross pay is recorded as a
current liability
The journal entry to record the issuance of a note for the purpose of borrowing funds is
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 users 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 an
decrease in interest expense
if the market rate of interest is greater than the stated rate, then the bonds are issued at a
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
Which of the following statements regarding contingent liabilities is true
if they are probable and estimable, then they must be recorded even before the outcome of the future event
If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will:
increase as the bonds approach their maturity date
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 results in an
increase in interest expense
Obligations that extend beyond one year are referred to as
long term liabilities
Under the effective interest method, the cash paid on each interest payment date will
remain constant regardless of the issuance price
Under the _______ method of amortization, an equal amount of discount or premium is amortized each time interest is paid
straight line
If a company bonds are callable,
the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of the interest is 4%
When will bonds sell at a 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, which of the following information is necessary?
the stated rate of interest on the bonds
