ACCT 229 Final Theory Questions

Clarke company has among its long-term debt a bond due in 2035 that carries a coupon rate of 8.25 percent. Recently, this bond sold for 102.5. Assuming the bond was originally issued at 98.75, have interest rate increased, decreased or remained the same?

Decreased

T or F: Only companies using the periodic system require a physical inventory count at year end

F

Which inventory pricing method results in the highest inventory balance during a period of declining prices?

LIFO

Mays co decided to raise 100k by issuing bonds. The bond certificate were printed at an interest bearing rate of 6%, which was equal to the market rate of interest. But before the bonds could be issued economic conditions forced the market rate up to 8%. If the life of the bonds is 6 years and interest is paid annually on Dec 31st, how much will Mays receive from the sale of the bonds

Less than the 100k because the market rate at 8% was greater than the face rate

Accruing interest revenue at year end, recording bad debt expense at year end by using the income statement method to estimate bad debt expense, recording depreciation expense at year end, recording bad debt expense at year end using accounts receivable to estimate

None of the above policies violate the matching principle

How would the carrying value of bonds payable change over time issued at a premium and at a discount?

P- Decrease D- Increase

Which is false regarding closing entries?

Permanent accounts are closed by debiting an account that has a normal credit balance (*permanent accounts never close)

Which of the following may appear on an after closing trial balance?

Prepaid insurance expense, unearned revenue, notes payable

In 2016, Sally Corp. paid $500 to have the carpets of their office building steam cleaned (routine maintenance). Sally's accountant treated the cost as a capital expenditure. Was the treatment an error, and if so what will be the effect on the financial statements?

The error overstated assets and net income in 2016

Depreciable base of an asset is equal to

assets historical cost minus anticipated salvage value

Bonds are a popular source of financing because

bond interest expense is deductible for tax purposes, while dividends and stock are not; issuing debt does not dilute current stockholder's ownership interest in the company

The system of accounting where there are at least two accounts affected in every transaction so that the accounting equation stays in balance is

double entry system

The purpose of an audit and audit report is to

provide an opinion about wether or not the financial statements fairly represent the company's financial position and results of operations

A convertible bond is one where

the holder can convert the bond into common stock at a future time

Which of the following statements correctly describes the accounting for bonds that were issued at a discount?

the interest expense over the life of the bonds increases as the bonds mature when the effective interest method is used