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A company receives $102,000 when it issues a bond with a face value of $100,000 and a stated interest rate of 7%. Which of the following statements is true?


A) The annual interest expense is $7,000.
B) The market interest rate is 7%.
C) A contra account to bonds payable is not needed.
D) The carrying value of the bonds will be $100,000 at maturity.

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

Correct Answer

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Which of the following statements regarding payroll liabilities is true?


A) Accrued payroll includes such liabilities as retirement and health benefits not yet paid.
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) A) and D)

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Sales tax collected by a company is normally reported as


A) a current liability.
B) income tax expense.
C) an asset.
D) an operating expense.

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

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Which of the following statements regarding loan terminology is true?


A) Loan covenants are the collateral provided by a borrower to a lender as security on a loan.
B) secured loan means that the borrower has a pre-approved line of credit backing the debt.
C) loan covenant allows the lender to revise loan terms if a borrower's financial condition deteriorates significantly.
D) All companies are able to establish lines of credit which will allow them to borrow money as needed, up to a

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

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Some bonds mature in installments. If a bond issue contains this feature, they are known as:


A) secured bonds.
B) loan covenant bonds.
C) callable bonds.
D) serial bonds.

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

Correct Answer

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E.Flynn Company makes a sale and collects a total of $378, which includes an 8% sales tax. The amount to be credited to Sales Revenue is


A) $378
B) $350
C) $406
D) $348

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

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A company issues $200,000 in long-term bonds and buys $200,000 in inventory for cash. Which of the following statements is true?


A) The quick ratio will stay the same and the times interest earned ratio will fall.
B) The quick ratio will rise and the times interest earned ratio will rise.
C) The quick ratio will rise but the times interest earned ratio will fall.
D) The quick ratio will rise and the times interest earned ratio will stay the same.

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

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The entry to record a bond retirement at maturity usually involves no gain or loss.

A) True
B) False

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The entry to record the discount amortization and interest accrual on December 31, 2011, would include a


A) debit to Discount on Bonds Payable.
B) credit to Cash.
C) credit to Interest Payable.
D) debit to Bonds Ppayable.

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

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An entertainment company received $6 million in cash for advance season ticket sales. Prior to the beginning of the season, these sales should be recorded as a credit to unearned season ticket revenue.

A) True
B) False

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A 1-year, $15,000, 12 percent 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) All of the above
F) B) and D)

Correct Answer

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Employer payroll taxes:


A) represent the federal taxes withheld from the employees' paychecks.
B) are the amounts paid by the employee.
C) are an added payroll expense beyond the wages or salaries earned by employees
D) represent the FICA taxes withheld from employees' paychecks.

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

Correct Answer

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Which of the following is true regarding the account entitled, Premium on Bonds Payable?


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

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

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Brief Respite, Inc., sold underwear made from a fabric that gave many of its customers a serious rash. The customers are suing the company in a class action suit and Brief Respite's attorneys think it is probable that the case will cost the company $2 million, although the verdict is not yet in. The company should:


A) not include this information in its annual report.
B) record a liability and a gain for $2 million.
C) only explain the situation in the notes to the financial statements.
D) record a liability and a loss for $2 million.

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

Correct Answer

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Which of the following statements regarding bond terminology is true?


A) The face value of a bond is what it is currently worth in the market.
B) The stated interest rate is expressed as an annual interest rate even if the bonds pay semiannual interest payments.
C) The stated rate of interest always presents the amount that investors are willing to pay for the bond on the issue date.
D) The carrying value of the bond is always equal to the face value of the bond.

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

Correct Answer

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On October 1, you borrow $200,000 in order to build a new facility. The loan is for 10 years, at 7% interest, and semiannual interest payments are due each April and October. The journal entry to record the issuance of the promissory note should:


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

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

Correct Answer

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What would be the amount of Darin's payroll check for the first week of January?


A) $683.80
B) $741.80
C) $628.80
D) $800.00

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

Correct Answer

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The times interest earned ratio shows the amount of interest earned for each dollar of interest expense.

A) True
B) False

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

Correct Answer

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Arid Company has a quick ratio of 0.90. Which of the following, if it occurred on the last day of the accounting period, would increase Arid's quick ratio?


A) Borrowing with a short-term promissory note.
B) Paying off some accounts payable.
C) Accruing interest payable on its promissory notes.
D) Purchasing inventory on account.

E) All of the above
F) C) and D)

Correct Answer

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