Exam 4- Question Pool (Cornett)

If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will: a. decrease as the bonds approach their maturity date. b. increase as the bonds approach their maturity date. c. remain constant throughout the bonds' life. d. fluctuate throughout the bonds' life.

a. decrease as the bonds approach their maturity date.

When bonds are issued by a company, the accounting entry shows an: a. increase in liabilities and a decrease in equity. b. increase in liabilities and an increase in equity. c. increase in assets and an increase in liabilities. d. increase in assets and an increase in equity.

c. increase in assets and an increase in liabilities.

If bonds are issued at 101.25, this means that: a. a $1,000 bond sold for $101.25. b. the bonds sold at a discount. c. a $1,000 bond sold for $1,012.50. d. the bond rate of interest is 10.125% of the market rate of interest.

c. a $1,000 bond sold for $1,012.50.

If a company's current ratio is 3.0 and the current liabilities are $100,000, then the current assets are: a. $400,000. b. $300,000. c. $103,000. d. $ 33,333.

b. $300,000.

If current assets amount to $150, total assets are $350, current liabilities are $65, and total liabilities are $100, then the current ratio: a. 3.50 b. 3.03 c. 2.31 d. 2.12

c. 2.31

When determining the amount of interest to be paid on a bond, which of the following information is necessary? a. The market value of the bonds after one year. b. The selling price of the bonds. c. The stated rate of interest on the bonds. d. The effective rate of interest on the bonds.

c. The stated rate of interest on the bonds.

On January 2, 2012, Tech Metals Co. leased a mining machine from BX Leasing Corporation. The lease qualifies as an operating lease. The annual payments are $50,000 at the end of each year, and the life of the lease is 10 years. What entry would Tech Metals Co. make when the machine is delivered by BX Leasing Corporation.?

No entry is necessary

Jensen Company has the following information for the pay period of December 15 - 31, 2012: Salaries: $10,000 State Income Taxes: $1,200 Federal Income tax: $1,500 FICA: $565 Refer to the information provided for Jensen Company. Salaries are paid on December 31, 2012. On December 31st, Salaries Expense would be recorded for: a. $10,000 b. $8,500 c. $6,735 d. $7,750

a. $10,000

Moore Company has the following information for the pay period of December 15 - 31, 2012: Salaries: $18,000 State Income Taxes: $2,160 Federal Income tax: $2,700 FICA: $1,017 Salaries are paid on December 31, 2012. On December 31st, Salaries Expense would be recorded for: a. $18,000 b. $13,140 c. $12,123 d. $15,300

a. $18,000

International Corporation leased a building from Domestic Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true? a. Depreciation expense of $6,710 will be recorded each year by International Corporation. b. Depreciation expense of $10,000 will be recorded each year by International Corporation. c. No depreciation expense will be recorded by International Corporation. d. No rent expense will be recorded by International Corporation.

a. Depreciation expense of $6,710 will be recorded each year by International Corporation.

Use the information provided for Tyson Construction Inc. to answer the following question(s) using the effective interest method. On January 2, 2012, Tyson Construction Inc. issued $1,000,000, 10-year bonds for $1,135,915. The bonds pay interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%. Refer to the information provided for Tyson Construction Inc. What is the carrying value of the bonds after the first interest payment is made on June 30, 2012? a. $1,135,915.00 b. $1,131,351.60 c. $1,140,478.40 d. $1,000,000.00

b. $1,131,351.60

Moore Company has the following information for the pay period of December 15 - 31, 2012: Salaries: $18,000 State Income Taxes: $2,160 Federal Income tax: $2,700 FICA: $1,017 Salaries are paid on December 31, 2012. On December 31st, Cash would be recorded for: a. $18,000 b. $13,140 c. $12,123 d. $15,300

c. $12,123

The Discount on Bonds Payable account is shown on the balance sheet as: a. an asset. b. an expense. c. a contra-liability. d. as a reduction in equity for the discount provided.

c. a contra-liability.

Pointe Corporation's balance sheet showed the following amounts for its liability accounts: Notes payable, $130,000; Bonds Payable, $800,000; Accrued Expenses, $20,000; and Deferred Income Tax Liability, $120,000. Total assets was $1,470,000. The debt to assets ratio is: a. 0.27 b. 1.37 c. 0.65 d. 0.73

d. 0.73

Bonds with a face amount $1,000,000, are sold at 98. The entry to record the issuance is:

debit: Cash 980,000 Discount on Bonds Payable 20,000 credit: 1,000,000

The Collins Company sold $200,000 of 10-year bonds for $190,000. The stated rate on the bonds was 8% and interest is paid annually on December 31. What entry would be made on December 31 when the interest is paid? (Numbers are omitted.)

debit: Interest Expense credit: Discount on bonds payable credit: Cash

The following question(s) are based on items that might appear on the balance sheet of a company like the Creative Products Company. Identify how each item would be most likely classified on its balance sheet. Refer to the information provided for Creative Products Company. Premium on Bonds Payable will appear as: a. an addition to a long-term liability. b. a revenue. c. a long-term asset. d. a contra-liability.

a. an addition to a long-term liability.

The journal entry to record the issuance of a note for the purpose of borrowing funds is: a. debit Accounts Payable; credit Notes Payable. b. debit Cash; credit Notes Payable. c. debit Notes Payable; credit Cash. d. debit Cash and Interest Expense; credit Notes Payable.

b. debit Cash; credit Notes Payable.

On the issuance date, the Bonds Payable account had a balance of $80,000,000 and Premium on Bonds Payable had a balance of $5,000,000. What was the issue price of the bonds? a. $80,000,000 b. $79,000,000 c. $85,000,000 d. $75,000,000

c. $85,000,000

Use the information provided for Tyson Construction Inc. to answer the following question(s) using the effective interest method. On January 2, 2012, Tyson Construction Inc. issued $1,000,000, 10-year bonds for $1,135,915. The bonds pay interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%. Refer to the information provided for Tyson Construction Inc. Determine the cash interest to be paid on June 30, 2012. a. $50,000 b. $40,000 c. $42,400 d. $46,000

a. $50,000

Use the information provided for Flounder Inc. to answer the question(s) using the effective interest method. On January 1, 2012, Flounder Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Flounder Inc. What is the carrying value of the bonds at the end of the ten years before the final maturity payment is made? a. $800,000 b. $662,356 c. $137,643 d. $0

a. $800,000

Which of the following would describe a callable bond? a. Borrower has the right to pay off the bonds prior to due date. b. Borrower has the right to issue more bonds prior to due date. c. Borrower has the right to call off the interest payments on the bonds. d. Investor has the right to call off the interest payments on the bonds.

a. Borrower has the right to pay off the bonds prior to due date.

Which of the following statements regarding contingent liabilities is true? a. If they are probable and estimable, then they must be recorded even before the outcome of the future event. b. If they are probable and estimable, then they should be disclosed in the notes to the financial statements. c. The accounting principle that determines whether a contingent liability is to be recorded is that of historical cost. d. Contingencies that are not estimable should not be recorded or disclosed in the financial statements even if they are probable.

a. If they are probable and estimable, then they must be recorded even before the outcome of the future event.

The following question(s) are based on items that might appear on the balance sheet of a company like the Creative Products Company. Identify how each item would be most likely classified on its balance sheet. Refer to the information provided for Creative Products Company. Current portion of long-term debt will appear as a: a. current liability. b. long-term liability. c. current asset. d. long-term asset.

a. current liability.

The Miracle Corporation issues $1,000,000, 10-year, 8% bonds at 96. The journal entry to record the issuance will show a: a. debit to Discount on Bonds Payable for $40,000. b. debit to Cash of $1,000,000. c. credit to Bonds Payable for $960,000. d. credit to Cash for $960,000.

a. debit to Discount on Bonds Payable for $40,000.

Bassell Enterprises has long-term assets of $800, current liabilities of $500, and long-term liabilities of $600. If the current ratio is 2.5, then current assets must be:Bassell Enterprises has long-term assets of $800, current liabilities of $500, and long-term liabilities of $600. If the current ratio is 2.5, then current assets must be: a. $2,000. b. $1,250. c. $ 625. d. $ 200.

b. $1,250.

On January 1, 2012, Action Inc. issued $1,000,000 of 10% bonds at face value. These bonds are due in 10 years with interest payable semi-annually on June 30 and December 31. What is the amount of interest paid in 2012? a. $10,000 b. $100,000 c. $25,000 d. $50,000

b. $100,000

On January 2, 2012, Senate Inc. issued $10,000,000 of 10-year, 9% bonds at 87. How much of the discount will be amortized in the first year under the straight-line method? a. $870,000 b. $130,000 c. $1,300,000 d. $600,000

b. $130,000

The interest charged by the bank, at the rate of 9%, on a 3-month, discounted note payable for $100,000 is: a. $9,000 b. $2,250 c. $750 d. $1,000

b. $2,250

Use the information provided for Tyson Construction Inc. to answer the following question(s) using the effective interest method. On January 2, 2012, Tyson Construction Inc. issued $1,000,000, 10-year bonds for $1,135,915. The bonds pay interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%. Refer to the information provided for Tyson Construction Inc. The interest expense on the bonds at June 30, 2012 is: a. $50,000.00. b. $45,436.60. c. $57,135.75. d. $90,873.20.

b. $45,436.60.

Use the information provided for Flounder Inc. to answer the question(s) using the effective interest method. On January 1, 2012, Flounder Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Flounder Inc. What is the carrying value of the bonds after the first interest payment is made on June 30, 2012? a. $662,356.40 b. $666,097.78 c. $670,063.65 d. $133,902.22

b. $666,097.78

IBD Corporation has Current Assets of $200,000, Long Term Assets of $300,000, Current Liabilities of $100,000, Long Term Liabilities of $200,000, Paid in Capital of $150,000, and Retained Earnings of $50,000. Calculate IBD's debt to assets ratio? a. .40 b. .60 c. .20 d. .90

b. .60

Banister Company wishes to issue $600,000 of 10-year, 7% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the issue price of the bond? a. The market rate of interest, the stated rate of interest, the bond rating, and the bond life. b. The face value of the bonds, the stated rate of interest, the market rate of interest, and the bond life. c.The life of the bonds, the market rate of interest, the bond rating, and the face value of the bonds. d. The face value of the bonds, the market rate of interest, the purpose of the issue, and the bond life.

b. The face value of the bonds, the stated rate of interest, the market rate of interest, and the bond life.

Which of the following statements about bond accounting under the effective interest method is correct? a. The cash interest paid is calculated as the bond face value u the market rate. b. The interest expense is calculated as the carrying value u the market rate. c. The difference between the cash interest paid and the interest expense is added to the carrying value of bonds sold at a premium. d. The difference between the interest expense and the interest paid is deducted from the carrying value of bonds sold at a discount.

b. The interest expense is calculated as the carrying value u the market rate.

Which of the following lease conditions would result in a capital lease to the lessee? a. The lessee will return the property to the lessor at the end of the lease term. b. The lessee obtains enough rights to use the asset and is in substance the owner. c. The leased asset is not capitalized on the balance sheet. d. The lease term is 70% of the property's economic life.

b. The lessee obtains enough rights to use the asset and is in substance the owner.

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will: a. decrease as the bonds approach their maturity date. b. increase as the bonds approach their maturity date. c. remain constant throughout the bonds' life. d. fluctuate throughout the bonds' life.

b. increase as the bonds approach their maturity date.

When will bonds sell at a discount? a. issuing company has a better reputation than other companies in the same business. b. market rate of interest was less than the stated rate at the time of issue. c. market rate of interest was more than the stated rate at the time of issue. d. market rate of interest was same as the stated rate at the time of issue.

b. market rate of interest was less than the stated rate at the time of issue.

If a company's bonds are callable: a. the bondholder has the right to sell an option on the bond. b. the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest is 4%. c. the bonds are never allowed to remain outstanding until the maturity date. d. the investor never knows what the redemption price will be until the bonds are actually called.

b. the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest is 4%.

Use the information provided for Tyson Construction Inc. to answer the following question(s) using the effective interest method. On January 2, 2012, Tyson Construction Inc. issued $1,000,000, 10-year bonds for $1,135,915. The bonds pay interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%. Refer to the information provided for Tyson Construction Inc. What amount besides the interest payment would Tyson repay its bondholders on the maturity date? a. $ 850,000 b. $1,150,000 c. $1,000,000 d. only the last interest payment

c. $1,000,000

Use the information provided for Tyson Construction Inc. to answer the following question(s) using the effective interest method. On January 2, 2012, Tyson Construction Inc. issued $1,000,000, 10-year bonds for $1,135,915. The bonds pay interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%. Refer to the information provided for Tyson Construction Inc. What is the carrying value of the bonds at the end of ten years before the final maturity payment is made? a. $ 850,000 b. $1,200,000 c. $1,000,000 d. $1,150,000

c. $1,000,000

Use the information provided for Flounder Inc. to answer the question(s) using the effective interest method. On January 1, 2012, Flounder Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Flounder Inc. The interest expense on the bonds at June 30, 2012, is: a. $79,482.77. b. $36,000.00. c. $39,741.38. d. $29,806.04.

c. $39,741.38.

Paris Company issued bonds in the amount of $500,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what would be the total amount of interest paid over the life of the bonds? a. $500,000 b. $200,000 c. $400,000 d. $40,000

c. $400,000

Jensen Company has the following information for the pay period of December 15 - 31, 2012: Salaries: $10,000 State Income Taxes: $1,200 Federal Income tax: $1,500 FICA: $565 Refer to the information provided for Jensen Company. Salaries are paid on December 31, 2012. On December 31st, Cash would be recorded for: a. $8,500 b. $10,000 c. $6,735 d. $7,300

c. $6,735

Barnes Company issued $500,000 of bonds for $498,351. Interest is paid semiannually. The bond markets and the financial press are likely to report the bond issue price as: a. 498.35. b. 100.00. c. 99.67. d. 49.84.

c. 99.67.

On January 2, 2012, Golden Corporation sold $800,000 of bonds for $785,000. The bonds will mature in 10 years and pay interest annually on December 31. Golden properly recorded the payment of interest and amortization of the discount using the effective interest method. Which of the following statements is true about the carrying value of the bonds and/or the unamortized discount at the end of 2012? a. The carrying value will be less than $785,000. b. The carrying value will be $785,000. c. The carrying value will be greater than $785,000. d. The unamortized premium will be more than $15,000.

c. The carrying value will be greater than $785,000.

The journal entry to record the payment of an ordinary note is: a. debit Cash; credit Notes Payable. b. debit Cash; credit Accounts Payable. c. debit Notes Payable and Interest Expense; credit Cash. d. debit Notes Payable and Interest Receivable; credit Cash.

c. debit Notes Payable and Interest Expense; credit Cash.

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount: a. less than face value. b. equal to the face value. c. greater than face value. d. that cannot be determined.

c. greater than face value.

With the effective interest method of amortization, the amortization of a bond discount results in a(n): a. increase in stockholders' equity. b. decrease in liabilities. c. increase in interest expense. d. decrease in interest expense.

c. increase in interest expense.

Bonds are sold at a premium if the: a. issuing company has a better reputation than other companies in the same business. b. market rate of interest was less than the stated rate at the time of issue. c. market rate of interest was more than the stated rate at the time of issue. d. market rate of interest was same as the stated rate at the time of issue.

c. market rate of interest was more than the stated rate at the time of issue.

Long-term liabilities generally include: a. liabilities related to long-term assets. b. accounts payable, because they are interest-bearing. c. obligations that extend beyond one year. d. accrued expenses.

c. obligations that extend beyond one year.

Under the effective interest method, the cash paid on each interest payment date will: a. decrease if bonds are issued at a premium. b. increase if bonds are issued at a premium. c. remain constant regardless of the issuance price. d. increase if bonds are issued at a discount.

c. remain constant regardless of the issuance price.

Use the information provided for Flounder Inc. to answer the question(s) using the effective interest method. On January 1, 2012, Flounder Inc. issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Flounder Inc. The interest payment on June 30, 2012, is: a. $30,000 b. $32,237 c. $31,740 d. $36,000

d. $36,000

Rating Corporation's balance sheet showed the following amounts for its liability accounts: Accounts Payable, $100,000; Bonds Payable, $150,000; Taxes Payable, $20,000; and Deferred Income Tax Liability, $5,000. Total assets was $500,000. The debt to assets ratio is: a. 0.20 b. 0.35 c. 1.22 d. 0.55

d. 0.55

Which of the following statements regarding amortization is true? a. Amortization of the premium causes the Premium on Bonds Payable account to increase. b. Amortization of the premium causes the amount of interest expense to increase. c. Cash interest payments on bonds equals interest expense on the income statement when there is amortization of bond premium. d. Amortization of a premium continues over the life of the bond until the balance in the account is reduced to zero.

d. Amortization of a premium continues over the life of the bond until the balance in the account is reduced to zero.

Which of the following would most likely be classified as a current liability? a. Two-year notes payable b. Bonds payable c. Mortgage payable d. Portion of long-term debt due within one year

d. Portion of long-term debt due within one year

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease? a. Accumulated depreciation on the leased asset. b. Capital lease liability in the current liability section. c. Capital lease liability in the long-term liability section. d. Rent expense on the leased asset.

d. Rent expense on the leased asset.

The Premium on Bonds Payable account is shown on the balance sheet as: a. a contra asset. b. a reduction of an expense. c. as an increase in equity for the premium provided. d. an addition to a long-term liability.

d. an addition to a long-term liability.

The portion of long-term debt due within one year should: a. be classified as a long-term liability. b. not be separated from the long-term portion of debt. c. be paid immediately. d. be reclassified as a current liability.

d. be reclassified as a current liability.

The amount of federal income taxes withheld from an employee's gross pay is recorded as a: a. payroll expense b. contra account c. current asset d. current liability

d. current liability

Victor Corporation issues $1,000,000, 10-year, 8% bonds at 96. The journal entry to record the issuance will show a: a. debit to Cash of $1,000,000. b. credit to Discount on Bonds Payable for $40,000. c. credit to Bonds Payable for $960,000. d. debit to Cash for $960,000.

d. debit to Cash for $960,000.

With the effective interest method of amortization, the amortization of a bond premium results in a(n): a. increase in liabilities. b. decrease of stockholders' equity. c. increase in interest expense. d. decrease in interest expense.

d. decrease in interest expense

Current liabilities are: a. due, but not receivable for more than one year. b. due, but not payable for more than one year. c. due and receivable within one year. d. due and payable within one year.

d. due and payable within one year.

The bond issue price is determined by calculating the: a. present value of the stream of interest payments and the future value of the maturity amount. b. future value of the stream of interest payments and the future value of the maturity amount. c. future value of the stream of interest payments and the present value of the maturity amount. d. present value of the stream of interest payments and the present value of the maturity amount.

d. 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: a. maturity value will be less than the face amount. b. maturity value will be greater than the face amount. c. bonds are sold at a premium. d. stated rate of interest is less than the market rate of interest

d. stated rate of interest is less than the market rate of interest

Bonds with a face amount $1,000,000, are sold at 106. The entry to record the issuance is:

debit: Cash 1,060,000 credit: premium on bonds payable 60,000 bonds payable 1,000,000

Grayson Bank agrees to lend the Trust Company $100,000 on January 1. Trust Company signs a $100,000, 12%, 9-month note. What entry will Trust Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?

debit: Notes Payable $100,000, Interest Payable $9,000 credit: Cash $109,000