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


A) convertible bonds.
B) debenture bonds.
C) serial bonds.
D) zero-coupon bonds.

E) B) and C)
F) A) and D)

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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:


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 C)
F) B) and D)

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A company retires its bonds with a face value of $100,000 at 105.The carrying value of the bonds at the retirement date is $103,745.The journal entry to record this retirement will include a:


A) debit to Premium on Bonds Payable.
B) credit to Gain on Bond Retirement.
C) credit to Bonds Payable.
D) debit to Discount on Bonds Payable.

E) All of the above
F) A) and B)

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Some bonds allow the borrower to repay the bond by issuing stock.These bonds are known as:


A) convertible bonds.
B) debenture bonds.
C) callable bonds.
D) coupon bonds.

E) All of the above
F) A) and B)

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On October 1,Angelica Inc.signs a note for $200,000 to provide the funds needed to build a new facility.The note is due in 10 years,includes an annual interest rate at 7%,and requires semiannual interest payments each April and October.The journal entry to record the issuance of the promissory note should debit:


A) Notes Payable for $200,000, debit Interest Expense for $14,000, credit Cash for $200,000, and credit Interest Payable for $14,000.
B) Accrued Interest and credit Cash for $14,000.
C) Cash and credit Notes Payable for $200,000.
D) Cash for $200,000, debit Interest Expense for $14,000, credit Notes Payable for $200,000, and credit Interest Payable $14,000.

E) A) and B)
F) B) and C)

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On January 1,XYZ Corporation issued $200,000 of 8%,5year bonds when the market rate of interest was 6%.The bonds were issued for $216,849 and interest will be paid annually on December 31.How much premium amortization will XYZ record on the first interest payment date using the effective-interest method?


A) $0
B) $13,011
C) $16,000
D) $2,989

E) A) and D)
F) None of the above

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On October 1,2015,United Co.negotiates with its bank to borrow $10,000 cash on a one-year note.The bank charges 5% interest.Interest payments are to be made in two installments,on March 31 and September 30.The principal is to be repaid on September 30,2016,the maturity date.What adjusting entry needs to be recorded of December 31,2015?


A) Debit Interest Expense and credit Interest Payable for $250
B) Debit Interest Expense and credit Interest Payable for $125
C) Debit Interest Expense and credit Interest Payable for $500
D) Debit Interest Payable and credit Interest Expense for $500

E) None of the above
F) B) and C)

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Bobby Darling is the only employee of Atlantic Records, Inc.During the first week of January, Darling earned $800 and had federal and state income tax withholdings of $40 and $15, respectively.FICA taxes are 7.65% on earnings up to $117,000.State and federal unemployment taxes for the period are $50 and $8, respectively. -Use the information above to answer the following question.What is the employer's payroll tax expense for the week?


A) $113.00
B) $119.20
C) $174.20
D) $235.40

E) C) and D)
F) B) and C)

Correct Answer

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A company had total assets of $400,000 and a debt-to-assets ratio was 0.35.Which of the following statements is not true?


A) Total liabilities are $140,000.
B) The debt-to-assets ratio of 0.35 indicates that the company relies less on equity financing than on debt financing.
C) If other companies in the same industry are used as benchmarks and report a lower debt-to-assets ratio, this indicates that this company has a more risky financing strategy.
D) If the ratio this year is lower than it was last year for this company, it indicates that the company is relying less on debt financing this year.

E) A) and B)
F) C) and D)

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The account entitled Premium on Bonds Payable:


A) increases when amortization entries are made.
B) appears on the balance sheet of the issuer as a deduction from bonds payable.
C) decreases when amortization entries are made and its balance is equal to zero at the maturity date of the bond.
D) is a contra account with a normal debit balance.

E) None of the above
F) C) and D)

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American Co.sold $100,000 of bonds for an issue price of 98.As a result of selling these bonds,its total assets increase by:


A) $98,000 and its total liabilities increase by $98,000.
B) $100,000 and its total liabilities increase by $100,000.
C) $98,000 and its total liabilities increase by $100,000.
D) $100,000 and its total liabilities increase by $98,000.

E) All of the above
F) None of the above

Correct Answer

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Which of the following misstatements would cause the debt-to-assets ratio to be overstated?


A) Capitalizing costs that should have been expensed as assets.
B) Failing to adjust for depreciation in the current period.
C) Failing to accrue income taxes of the current period.
D) Failing to accrue interest earned of the current period.

E) B) and D)
F) None of the above

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The issue price of a bond is:


A) always equal to $1,000.
B) based on a present value calculation.
C) determined by the company issuing the bonds.
D) determined by the financial advisers.

E) A) and D)
F) B) and C)

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A company receives $95 for merchandise sold to a consumer of which $5 is for sales tax.The $5 of sales tax:


A) increases sales revenue.
B) increases current liabilities.
C) increases selling expenses.
D) is not recorded until it is forwarded to the state government.

E) A) and B)
F) A) and C)

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A company issues a 5-year bond with a $7,500 discount.Using straight-line amortization,the company should:


A) debit Discount on Bonds Payable for $1,500 per year.
B) credit Discount on Bonds Payable for $1,500 per year.
C) debit Interest Payable for $1,500 per year.
D) credit Interest Expense for $1,500 per year.

E) All of the above
F) None of the above

Correct Answer

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When a company issues bonds that include no periodic interest payments,the bonds are referred to as "zero-coupon" bonds.

A) True
B) False

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A one-year,$15,000,12% note is signed on April 1.If the note is repaid on September 1 of the same year,how much interest expense is incurred?


A) $1,800
B) $900
C) $750
D) $600

E) A) and D)
F) A) and B)

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Which of the following statements about payroll liabilities is correct?


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) B) and C)
F) C) and D)

Correct Answer

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On January 1,2016,a company issues 3-year bonds with a face value of $200,000 and a stated interest rate of 8%.Because the market interest rate is higher than the stated interest rate,the company receives $194,000 for the bond. Required: Part a.Determine the amount of the discount that will be amortized during the year ending December 31,2016. Part b.Prepare the journal entry to record the first interest payment on December 31,2016.

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Part a
Discount on bonds payab...

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ABC Corp.issued $100,000 of bonds at a premium; as a result,the company:


A) received more than $100,000.
B) received less than $100,000.
C) received $100,000.
D) will pay the bondholders more money on the maturity date than it received on the issue date.

E) A) and D)
F) C) and D)

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