Question 1

Which of the following is not used to calculate the times interest earned ratio?

Accepted Answer

A)  Net income.
B)  Income tax expense.
C)  Interest earned on investments.
D)  Interest expense.E) A) and C)
F) C) and D)

Question 2

Match each term with the appropriate definition.Not all definitions will be used.
-Discount

Accepted Answer

A)  When a bond is issued for a price greater than its face value.
B)  Also known as the face value or par value of a bond.
C)  Rate of interest that investors demand from a bond.
D)  A bond with the feature that allows creditors to exchange the bond for company stock.
E)  The amount a company receives when it sells a bond;also known as issue price.F) The interest rate printed on the bond certificate.G) The time at which the face value of a bond must be paid to the lender.H) Is multiplied by the market interest rate to calculate the (effective) interest expense on a bond.I) A bond feature that changes the interest rate on the bond with market conditions.J) When a bond is issued for a price less than its face value.K) A bond with the feature that allows the borrowing company to pay off a bond whenever it wishes.L) A bond with the feature that lets creditors examine financial data and demand new loan conditions.M) C) and J)
N) C) and L)

Question 3

Your company is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15,2022.If interest rates rise in the economy so that similar financial investments pay 9%,your company will:

Accepted Answer

A)  not be able to issue the bonds because no one will buy them.
B)  receive a higher issue price to compensate buyers for the lower stated interest rate.
C)  have to accept a lower issue price to attract buyers.
D)  have to reprint the bond certificates to change the stated interest rate to 9%.E) A) and B)
F) A) and C)

Question 4

On January 1,ABC,Inc. ,issued $100,000 of 10%,5-year bonds on January 1,2018,for $92,280.Interest is due semiannually.When ABC records the first interest payment,which will be greater the debit to Interest Expense or the credit to Cash?

Accepted Answer

A)  The debit to Interest Expense will be greater because the market rate is greater than the stated interest rate.
B)  The debit to Interest Expense will be less because the market rate is greater than the stated interest rate.
C)  The debit to Interest Expense will be greater because the market rate is less than the stated interest rate.
D)  The debit to Interest Expense will be lower because the market rate is less than the stated interest rate.E) C) and D)
F) A) and D)

Question 5

A bond premium:

Accepted Answer

A)  arises when interest payments are higher than the cost of borrowing.
B)  is essentially free money.
C)  arises when the interest payments are less than the cost of borrowing.
D)  is reported on the income statement as a gain on the issuance of a bond.E) None of the above
F) All of the above

Question 6

Sayan,Inc.sold $200,000 of bonds for an issue price of 97.As a result of selling these bonds,its total assets increase by:

Accepted Answer

A)  $194,000 and its total liabilities increase by $194,000.
B)  $200,000 and its total liabilities increase by $200,000.
C)  $194,000 and its total liabilities increase by $200,000.
D)  $200,000 and its total liabilities increase by $194,000.E) B) and C)
F) A) and D)

Question 7

Which of the following statements about payroll liabilities is correct?

Accepted Answer

A)  Accrued payroll includes liabilities required by law or voluntarily requested by employees that have not yet been paid (or remitted) .
B)  Only employees are required to pay FICA taxes.
C)  Both employers and employees are required to pay unemployment taxes.
D)  Accrued payroll liabilities do not include any voluntary deductions by employees for charitable contributions or union dues.E) All of the above
F) B) and D)

Question 8

If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value,the transaction will be recorded with a:

Accepted Answer

A)  debit to Cash of $100,000 and a credit to Bonds Payable of $100,000.
B)  debit to Bonds Payable of $100,000 and a credit to Cash of $100,000.
C)  debit to Cash of $100,000 and a credit to Bonds Payable of $99,000 and to Premium on Bonds Payable of $1,000.
D)  debit to Bonds Payable of $100,000 and a credit to Cash of $99,000 and to Premium on Bonds Payable of $1,000.E) C) and D)
F) All of the above

Question 9

The entry to record the initial borrowing of cash by issuing a promissory note will include a debit to ________ and a credit to ________.

Accepted Answer

A)  Cash;Notes Payable
B)  Notes Payable;Cash
C)  Interest Expense;Cash
D)  Cash;Interest ExpenseE) B) and C)
F) All of the above

Question 10

When interest expense is calculated using the effective-interest amortization method,interest expense on a bond that pays interest annually is equal to the:

Accepted Answer

A)  actual amount of interest paid.
B)  carrying value of the bonds payable multiplied by the effective interest rate.
C)  maturity value of the bonds payable multiplied by the effective interest rate.
D)  carrying value of the bonds payable multiplied by the stated interest rate.E) A) and B)
F) None of the above

Question 11

Match each term with the appropriate definition.Not all definitions will be used.
-Contingent liability

Accepted Answer

A)  The total amount of money that a company owes in debt.
B)  This item is reported as a contra asset account.
C)  A bond feature that allows a creditor to seize assets if debt is not properly repaid.
D)  A prearranged agreement that allows a company to borrow at will up to a limit.
E)  The amount that the lender actually pays for a bond.F) The amount a company must repay creditors when a bond matures.G) When a company borrows money by issuing bonds in the financial markets.H) Debt features that,if violated,allow the lender to revise loan terms.I) The cost of issuing a bond.J) Total liabilities divided by total assets.K) Bond features that allow the issuer to repay the loan early.L) These are liabilities that have been incurred during the period but not yet paid.M) This type of liability is uncertain;it exists only if some other condition occurs.N) H) and J)
O) D) and K)

Question 12

The Discount on Bonds Payable account is:

Accepted Answer

A)  a contra account to Bonds Payable.
B)  a miscellaneous revenue account.
C)  an expense account.
D)  expensed only at the bond's maturity.E) B) and C)
F) A) and B)

Question 13

If the market rate of interest is 6%,a $10,000,10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Accepted Answer

A)  less than face value.
B)  equal to the face value.
C)  greater than face value.
D)  equal to the face value minus a discount.E) A) and C)
F) A) and B)

Question 14

Oasis Company received $391,800 for bonds having a total face value of $400,000. If the balance sheet date corresponded with the date of the bond issue,what carrying value would be reported on the balance sheet?

Accepted Answer

A)  $395,900
B)  $408,200
C)  $391,800
D)  $400,000E) A) and B)
F) A) and C)

Question 15

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ________ and a credit to ________.

Accepted Answer

A)  Cash;Bonds Payable
B)  Notes Payable;Cash
C)  Cash;Bonds Receivable
D)  Bonds Payable;CashE) B) and C)
F) C) and D)

Question 16

Which of the following must be paid by both the employee and the employer?

Accepted Answer

A)  FICA taxes
B)  State unemployment tax
C)  State withholding tax
D)  Federal unemployment taxE) A) and C)
F) A) and B)

Question 17

Acme Manufacturing retired an issue of bonds before they matured.The bonds had been issued at their face value of $500,000,and the cash paid for the retirement amounted to $503,250.What journal entry was made to record the bond retirement?

Accepted Answer

A)  Debit Bonds Payable for $500,000,debit Loss on Bond Retirement for $3,250,and credit Cash for $503,250
B)  Debit Bonds Payable for $503,250,credit Gain on Bond Retirement for $3,250,and credit Cash for $500,000
C)  Debit Bonds Payable and credit Cash for $503,250
D)  Debit Bonds Payable for $500,000,debit Gain on Bond Retirement for $3,250,and credit Cash for $503,250E) All of the above
F) None of the above

Question 18

On January 1,your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond was $10,866.Your company used the effective-interest method of amortization.At the end of the first year,your company should:

Accepted Answer

A)  debit Interest Expense for $543.30,debit Premium on Bonds Payable for $156.70,and credit Interest Payable for $700.
B)  debit Interest Expense for $700,credit Premium on Bonds Payable for $156.70,and credit Interest Payable for $543.30.
C)  debit Interest Expense for $700,debit Premium on Bonds Payable for $156.70,and credit Interest Payable for $543.30.
D)  debit Interest Expense for $543.30 and credit Interest Payable for $543.30.E) A) and B)
F) A) and D)

Question 19

When a company issues bonds that do not pay periodic interest,the bonds are called:

Accepted Answer

A)  convertible bonds.
B)  debenture bonds.
C)  serial bonds.
D)  zero-coupon bonds.E) A) and B)
F) None of the above

Question 20

Employees' gross earnings differ from their net pay because of:

Accepted Answer

A)  unemployment taxes.
B)  payroll deductions.
C)  accounts payable.
D)  corporate income taxes.E) None of the above
F) A) and D)

Exam 10: Liabilities

Match each term with the appropriate definition.Not all definitions will be used. -Contingent liability

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If the market rate of interest is 6%,a $10,000,10-year bond with a stated annual interest rate of 8% would be issued at an amount:

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The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ________ and a credit to ________.

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When interest expense is calculated using the effective-interest amortization method,interest expense on a bond that pays interest annually is equal to the:

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Sayan,Inc.sold $200,000 of bonds for an issue price of 97.As a result of selling these bonds,its total assets increase by:

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Oasis Company received $391,800 for bonds having a total face value of $400,000. If the balance sheet date corresponded with the date of the bond issue,what carrying value would be reported on the balance sheet?

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Match each term with the appropriate definition.Not all definitions will be used. -Discount

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A bond premium:

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If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value,the transaction will be recorded with a:

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Acme Manufacturing retired an issue of bonds before they matured.The bonds had been issued at their face value of $500,000,and the cash paid for the retirement amounted to $503,250.What journal entry was made to record the bond retirement?

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On January 1,ABC,Inc. ,issued $100,000 of 10%,5-year bonds on January 1,2018,for $92,280.Interest is due semiannually.When ABC records the first interest payment,which will be greater the debit to Interest Expense or the credit to Cash?

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When a company issues bonds that do not pay periodic interest,the bonds are called:

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Which of the following statements about payroll liabilities is correct?

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Which of the following must be paid by both the employee and the employer?

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On January 1,your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond was $10,866.Your company used the effective-interest method of amortization.At the end of the first year,your company should:

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Your company is planning to issue $1,000 bonds with a stated interest rate of 7% and a maturity date of July 15,2022.If interest rates rise in the economy so that similar financial investments pay 9%,your company will:

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Which of the following is not used to calculate the times interest earned ratio?

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Employees' gross earnings differ from their net pay because of:

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The Discount on Bonds Payable account is:

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The entry to record the initial borrowing of cash by issuing a promissory note will include a debit to ________ and a credit to ________.

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The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to and a credit to .

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The entry to record the initial borrowing of cash by issuing a promissory note will include a debit to and a credit to .

Correct Answer
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