CH 14 Adaptive Assignment- Accounting

The 12% bonds payable of Tegan Industries had a carrying amount of $3,120,000 on December 31, 2020. The bonds, which had a face value of $3,000,000, were issued at a premium to yield 10%. Tegan uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2021, several years before their maturity, Tegan retired the bonds at 104 plus accrued interest. Ignoring taxes, which of the following is the loss on retirement? $120,000 loss $0 loss $24,000 loss $37,200 loss

$24,000 loss

Jolly Industries issued a $1.8 million note payable to Beckman Construction in exchange for construction services. Similar notes have an interest rate of 12 percent. Beckman Construction plans to construct the building with equal costs over the life of the note, thus equaling three annual payments of $600,000. What should Beckman record as their Discount on Notes Payable when the note is issued?Assume that the PVF-OA3, 10% = 2.48685, PVF-OA3, 12% = 2.40183, PVF3, 10% = 0.75131, and PVF3, 12% = 0.71178. $307,890 $518,796 $358,902 $447,642

$358,902

The Rose Company issues $20,000,000 face value of bonds at 96 on January 1, 2020. The bonds are dated January 1, 2020, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2023, $12,000,000 of the bonds are called at 102, plus accrued interest. The gain or loss that will be recognized on the called bonds on September 1, 2023, is $544,000 loss. $907,000 loss. $720,000 loss. $1,200,000 loss.

$544,000 loss

Earlier in the year, Oliver Industries issued $1 million of 7% bonds at face value. Oliver decided to use the fair value option for these bonds. Now, on December 31, the value of the bonds has dropped to $925,000 due to an increase in interest rates. In this situation, Oliver should record a ________ in its Bonds Payable account. $925,000 credit $925,000 debit $75,000 credit $75,000 debit

$75,000 debit

Yankee Industries uses the fair value option to value its bonds payable. Last year, Yankee experienced a slight decline in its creditworthiness. During that same period, overall interest rates remained constant. Given this information, which of the following entries would you expect to see recorded in Yankee's books? A credit to the Unrealized Holding Gain or Loss—Income account A debit to the Gain on Restructuring of Debt account A credit to the Bonds Payable account A debit to the Net Income account

A credit to the Unrealized Holding Gain or Loss—Income account

How should long-term debt be reported if it will be converted into stock within the next year? As a non-current liability and accompanied with a note explaining the method to be used in its liquidation. In a special section between liabilities and stockholders' equity. As a non-current liability. As a current liability.

As a non-current liability and accompanied with a note explaining the method to be used in its liquidation.

Which of the following businesses would be most likely to issue only notes payable as their long-term debt instruments? Parham Enterprises, a corporation with multiple brand labels that sells their products internationally. Valdez Mexican Grille, a regional chain of restaurants found in the southwestern United States. Nugent Lumber, a company that cuts and ships lumber and other wood materials to home improvement stores across the country. Betty's Bakery, a small hometown bakery with a single location.

Betty's Bakery, a small hometown bakery with a single location.

Which of the following formulas is used to compute the debt to assets ratio? Divide long-term liabilities by total assets. Divide total assets by total liabilities. Divide current liabilities by total assets. Divide total liabilities by total assets.

Divide total liabilities by total assets.

Under which of the following circumstances would a long-term note payable be classified as a current liability? If the balance is due within one year or the current operating cycle, whichever is longer If the note payable was issued at a discount or premium If the note payable has an effective interest rate of zero If the balance is due within one year or the current operating cycle, whichever is shorter

If the balance is due within one year or the current operating cycle, whichever is longer

Over the past year, the value of Bridge Technology's bonds payable has dropped from $1,000,000 to $950,000. How does this decline affect Bridge's stockholders? It is detrimental to the firm's stockholders, because it means the firm's bond liability has increased. It is beneficial to the firm's stockholders, because it means the firm's bond liability has increased. It is detrimental to the firm's stockholders, because it means the firm's bond liability has decreased. It is beneficial to the firm's stockholders, because it means the firm's bond liability has decreased.

It is beneficial to the firm's stockholders, because it means the firm's bond liability has decreased.

Which of the following companies exhibits the lowest ability to pay their interest expenses? Latimer Industries has net income of $346,000, income tax of $186,000, and interest expense of $321,000. Thorn Enterprises has net income of $618,000, income tax of $333,000, and interest expense of $468,000. Easton Restaurants has net income of $942,000, income tax of $507,000, and interest expense of $694,000. Wicker Baskets has net income of $437,000, income tax of $235,000, and interest expense of $192,000.

Latimer Industries has net income of $346,000, income tax of $186,000, and interest expense of $321,000.

Which of the following is not generally included in the note disclosures for long-term debt? Assets pledged as security. Restrictions imposed by the creditor. Names of specific creditors. Call provisions and conversion privileges.

Names of specific creditors.

Which of the following would likely be most successful at preventing off-balance-sheet financing? Reporting assets at fair value Reporting common stocks at market value Reporting long-term liabilities at fair value Reporting current liabilities at fair value

Reporting assets at fair value

When long-term debt and sinking fund requirements are present in the financial statements, what must be disclosed? The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years. The present value of scheduled interest payments on long-term debt during each of the next five years. The present value of future payments for sinking fund requirements and long-term debt maturities during each of the next five years. The amount of scheduled interest payments on long-term debt during each of the next five years.

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

Which of the following is not a characteristic of a project financing arrangement? The new entity borrows money to finance the project and repays the debt from the proceeds received from the project. Two or more entities form a new entity to construct an operating plant that will be used by both parties. The project must be one that neither entity could enter into on its own. Payment of the debt is guaranteed by the companies that formed the new entity.

The project must be one that neither entity could enter into on its own.

Which of the following scenarios would be most beneficial for a firm's shareholders, assuming overall interest rates remain constant and the firm uses the fair value option to value its bonds? The value of the firm's bonds payable increases while the value of its assets decreases. The value of the firm's bonds payable increases while the value of its assets remains constant. The value of the firm's bonds payable decreases while the value of its assets decreases. The value of the firm's bonds payable decreases while the value of its assets remains constant.

The value of the firm's bonds payable decreases while the value of its assets remains constant.

On the December 31, 2020 balance sheet, Broome Agency reported assets of $3,288,000 and liabilities of $1,293,000. In 2021, Broome increased assets by $512,000 and increased liabilities by $249,000. How would this change affect their ability to repay their maturing debts in 2022? They would likely be unable to pay their maturing debts. Their ability to repay maturing debts would decrease. Their ability to repay maturing debts would increase. Their ability to repay maturing debts would stay the same.

Their ability to repay maturing debts would decrease.

On March 18, 2021, Jarius Resources issued common stock with a par value of $500,000. On March 23, 2021, they called an issue of bonds with a par value of $500,000 using the cash raised from the sale of common stock. On the balance sheet dated December 31, 2020, they would have likely reported the bonds as an asset. stockholders' equity. a noncurrent liability. a current liability.

a noncurrent liability.

DeHart Tools reported assets of $5,647,000 and liabilities of $3,472,000 on their December 31, 2020, balance sheet. DeHart increased assets by $1,486,000 and decreased liabilities by $183,000 in 2021. In 2022, DeHart would likely be unable to repay their maturing debts. be less able to repay their maturing debts. be more able to repay their maturing debts. have no change in their ability to repay their maturing debts.

be more able to repay their maturing debts.

If a firm uses the fair value option to record the value of a liability, the firm will record a gain when its creditworthiness declines. The FASB says this is acceptable because the company's income will increase as the size of its interest payments decreases. the debt holders' loss is the shareholders' gain. the shareholders' loss is the debt holders' gain. the decrease in market rate will increase the value of the firm's equity shares.

the debt holders' loss is the shareholders' gain.

Hinds Enterprises issued bonds at a premium. They traditionally use the effective interest method of amortization. Therefore, you would expect the earlier years of the bonds to have an interest expense that is greater than the amount of the interest payments. greater than if the straight-line method were used. less than if the straight-line method were used. the same as if the straight-line method were used.

greater than if the straight-line method were used.

*Blank* is the replacement of an existing bond with a new one.

refunding