ACCT C101 Financial Accounting Chapter 10

Tanner, Inc. issued a 10%, 5-year, $100,000 bond when the market rate of interest was 12%. At what value will the bond sell? A. A premium B. Par C. Face value D. A discount

D. A discount

Cuso Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, what does this indicate? A. The contractual interest rate exceeds the market interest rate. B. The market interest rate exceeds the contractual interest rate. C. The contractual interest rate and the market interest rate are the same. D. No relationship exists between the market and contractual rates.

A. The contractual interest rate exceeds the market interest rate.

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called A. a bond certificate. B. trading on the equity. C. a convertible bond. D. a bond debenture.

A. a bond certificate.

If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at A. a discount. B. par. C. either discount or premium. D. a premium.

A. a discount.

Unearned Rent Revenue is A. reported as a current liability. B. debited when rent is received in advance. C. a contra account to Rent Revenue. D. a revenue account.

A. reported as a current liability.

Which one of the following is not a typical current liability? A. FICA taxes payable B. Bonds payable C. Unearned revenue D. Sales taxes payable

B. Bonds payable

The current portion of long-term debt should A. be paid immediately. B. be reclassified as a current liability. C. not be separated from the long-term portion of debt. D. be classified as a long-term liability.

B. be reclassified as a current liability.

A current liability is a debt that can reasonably be expected to be paid A. out of currently recognized revenues. B. within one year, or the operating cycle, whichever is longer. C. out of cash currently on hand. D. between 6 months and 18 months.

B. within one year, or the operating cycle, whichever is longer.

The interest charged on a $250,000 note payable, at the rate of 6%, for a year would be A. $7,500. B. $3,750. C. $15,000. D. $1,250.

C. $15,000. $250,000 × .06 = $15,000

The interest charged on a $70,000 note payable, at the rate of 6%, on a 60-day note would be A. $1,050. B. $2,100. C. $700. D. $4,200.

C. $700. $70,000 × .06 × 60/360 = $700

Hanlin Enterprises issued 2,000 bonds with a face value of $1,000 each at 97. What is the entry to record the issuance? A. Cash 2,000,000 Discount on Bonds Payable 60,000 Bonds Payable 1,940,000 B. Cash 2,060,000 Discount on Bonds Payable 60,000 Bonds Payable 2,00,000 C. Cash 1,940,000 Discount on Bonds Payable 60,000 Bonds Payable 2,000,000 D. Cash 1,940,000 Bonds Payable 1,940,000

C. Cash 1,940,000 Discount on Bonds Payable 60,000 Bonds Payable 2,000,000 The debit to Cash is $1,000 × 2,000 bonds × 97%, which is $1,940,000. Discount on Bonds Payable is debited for $60,000, and Bonds Payable is credited for $2,000,000, the face amount of the bonds.

Four thousand bonds with a face value of $1,000 each, are sold at 97. The entry to record the issuance is A. Cash 3,880,000 Premium on Bonds Payable 120,000 Bonds Payable 4,000,000 B. Cash 3,880,000 Bonds Payable 3,880,000 C. Cash 3,880,000 Discount on Bonds Payable 120,000 Bonds Payable 4,000,000 D. Cash 4,000,000 Discount on Bonds Payable 120,000 Bonds Payable 3,880,000

C. Cash 3,880,000 Discount on Bonds Payable 120,000 Bonds Payable 4,000,000

Mohling Company typically sells subscriptions on an annual basis, and publishes eight times a year. The magazine sells 45,000 subscriptions in January at $10 each. What entry is made in January to record the sale of the subscriptions? A. Subscriptions Receivable 450,000 Subscription Revenue 450,000 B. Prepaid Subscriptions 450,000 Cash 450,000 C. Cash 450,000 Unearned Subscription Revenue 450,000 D. Subscriptions Receivable 56,250 Unearned Subscription Revenue 56,250

C. Cash 450,000 Unearned Subscription Revenue 450,000 $45,000 × $10 = $450,000

All of the following statements regarding convertible bonds are true except A. bondholders with convertible bonds receive interest on the bonds until conversion. B. convertible bonds sell at a higher price and pay a low rate of interest than those without the conversion option. C. convertible bonds can be converted into common stock at the option of the issuing company. D. if the market price of common stock increases substantially, bondholders with convertible bonds benefit.

C. convertible bonds can be converted into common stock at the option of the issuing company.

Bonds that may be exchanged for common stock at the option of the bondholders are called A. options. B. stock bonds. C. convertible bonds. D. callable bonds.

C. convertible bonds.

In the balance sheet, the account Discount on Bonds Payable is A. classified as a stockholders' equity account. B. classified as a revenue account. C. deducted from bonds payable. D. added to bonds payable.

C. deducted from bonds payable.

Four thousand bonds with a face value of $1,000 each, are sold at 102. The entry to record the issuance is A. Cash 4,080,000 Bonds Payable 4,080,000 B. Cash 4,080,000 Discount on Bonds Payable 80,000 Bonds Payable 4,000,000 C. Cash 4,000,000 Premium on Bonds Payable 80,000 Bonds Payable 4,080,000 D. Cash 4,080,000 Premium on Bonds Payable 80,000 Bonds Payable 4,000,000

D. Cash 4,080,000 Premium on Bonds Payable 80,000 Bonds Payable 4,000,000 (4,000 × $1,000) × 1.02 = $4,080,000

Which of the following is not a commonly used method of presenting current liabilities on the balance sheet? A. Listing currently maturing long-term debt first B. In order of magnitude or size C. In order of their maturity D. Listing current debt in the order of oldest first and then chronologically

D. Listing current debt in the order of oldest first and then chronologically

What term is used for bonds that have specific assets pledged as collateral? A. Callable bonds B. Discount bonds C. Convertible bonds D. Secured bonds

D. Secured bonds

In the balance sheet, the account Premium on Bonds Payable is A. classified as a stockholders' equity account. B. deducted from bonds payable. C. classified as a revenue account. D. added to bonds payable.

D. added to bonds payable.

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called A. debentures. B. early retirement bonds. C. options. D. callable bonds.

D. callable bonds.

Liabilities are classified as current or long-term based on their A. payment terms. B. amount. C. description. D. due date.

D. due date.

Secured bonds are bonds that A. can be converted into common stock. B. are in the possession of a bank. C. mature in installments. D. have specific assets of the issuer pledged as collateral.

D. have specific assets of the issuer pledged as collateral.

Liabilities are classified on the balance sheet as current or A. accrued. B. earned. C. deferred. D. long-term.

D. long-term.

Most companies pay current liabilities A. by issuing interest-bearing notes payable. B. by issuing stock. C. by creating long-term liabilities. D. out of current assets.

D. out of current assets.