Question 1

All of the following statements regarding accounting treatments for liabilities under U.S. GAAP and IFRS are true except:

Accepted Answer

A)  Accounting for bonds and notes under U.S. GAAP and IFRS is similar.
B)  Both U.S. GAAP and IFRS require companies to record costs of retirement benefits as employees work and earn them.
C)  Both U.S. GAAP and IFRS require companies to distinguish between operating leases and capital leases.
D)  The criteria for identifying a lease as a capital lease are more general under IFRS.
E)  Use of the fair value option to account for bonds and notes is not acceptable under U.S. GAAP or IFRS.F) A) and B)
G) D) and E)

Question 2

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

Accepted Answer

A) True 
 B)False

Question 3

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity factor at 8% for 5 years is 3.9927.The present value of a single sum at 8% for 5 years is .6806. Each annual payment equals $75,000. The present value of the note is:

Accepted Answer

A)  $299,452.50.
B)  $110,196.89.
C)  $56,352.84.
D)  $375,000.00
E)  $18,784.28.F) B) and E)
G) D) and E)

Question 4

Which of the following statements is true?

Accepted Answer

A)  Interest on bonds is not tax deductible.
B)  Dividends to stockholders are tax deductible.
C)  Interest on bonds is tax deductible.
D)  Bonds do not have to be repaid.
E)  Bonds always increase return on equity.F) All of the above
G) D) and E)

Question 5

A bondholder that owns a $1,000, 10%, 10-year bond has:

Accepted Answer

A)  The right to receive $10,000 at maturity.
B)  Ownership rights in the issuing company.
C)  The right to receive dividends of $1,000 per year.
D)  The right to receive $10 per year until maturity.
E)  The right to receive $1,000 at maturity.F) A) and B)
G) A) and C)

Question 6

A company may retire bonds by all but which of the following means?

Accepted Answer

A)  Paying them off at maturity.
B)  The holders converting them to stock.
C)  Purchasing the bonds on the open market.
D)  Paying all future interest and cancelling the debt.
E)  Exercising a call option.F) A) and C)
G) D) and E)

Question 7

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

Accepted Answer

A)  $3,673.01.
B)  $3,705.30.
C)  $7,000.00.
D)  $7,346.03.
E)  $3,500.00.F) A) and B)
G) A) and C)

Question 8

A pension plan is a contractual agreement between an employer and its employees to provide benefits to employees after they retire.

Accepted Answer

A) True 
 B)False

Question 9

A bond traded at 102½ means that:

Accepted Answer

A)  The market rate of interest is 2½% above the contract rate.
B)  The bonds were retired at $1,025 each.
C)  The bond traded at 102.5% of its par value.
D)  The bond pays 2.5% interest.
E)  The market rate of interest is 2.5%.F) A) and D)
G) C) and E)

Question 10

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Accepted Answer

A) True 
 B)False

Question 11

When the contract rate is above the market rate, a bond sells at a discount.

Accepted Answer

A) True 
 B)False

Question 12

Interest on bonds is tax deductible.

Accepted Answer

A) True 
 B)False

Question 13

Match between columns
                        Premises: The contract between the bond issuer and the bondholder(s) that identifies the rights and obligations of the parties.
The net amount at which bonds are reported on the balance sheet.
Bonds that have specific assets of the issuer pledged as collateral.
Bonds that give the issuer an option of retiring them at a stated dollar amount prior to maturity.
The amount by which the bond issue (selling) price exceeds the bond par value.
Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity.
The ratio of total liabilities to total stockholders' equity.
The interest rate specified in the bond indenture.
The amount by which the bond par value exceeds the bond issue (selling) price
A series of equal payments at equal time intervals.

Accepted Answer

The Answer of Premium on bonds and Discount on bonds is...

Question 14

Debentures always have specific assets of the issuing company pledged as collateral.

Accepted Answer

A) True 
 B)False

Question 15

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A)  Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.
B)  Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00.
C)  Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.
D)  Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00.
E)  Debit Interest Payable $13,500; credit Cash $13,500.00.F) A) and E)
G) None of the above

Question 16

Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals) :

Accepted Answer

A)  1.80
B)  0.56
C)  1.25
D)  0.80
E)  0.44F) A) and B)
G) A) and C)

Question 17

Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

Accepted Answer

A) True 
 B)False

Question 18

The relationship between the market rate of a bond and the rate of return on the borrowed funds affects the company's return on equity.

Accepted Answer

A) True 
 B)False

Question 19

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Accepted Answer

A)  Sinking fund bonds.
B)  Callable bonds.
C)  Convertible bonds.
D)  Serial bonds.
E)  Junk bonds.F) A) and B)
G) B) and D)

Question 20

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Accepted Answer

A) True 
 B)False

Exam 14: Long-Term Liabilities

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

Correct Answer
verified

Debentures always have specific assets of the issuing company pledged as collateral.

Correct Answer
verified

Correct Answer
verified

The relationship between the market rate of a bond and the rate of return on the borrowed funds affects the company's return on equity.

Correct Answer
verified

Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

Correct Answer
verified

A bondholder that owns a $1,000, 10%, 10-year bond has:

Correct Answer
verified

A pension plan is a contractual agreement between an employer and its employees to provide benefits to employees after they retire.

Correct Answer
verified

Interest on bonds is tax deductible.

Correct Answer
verified

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Correct Answer
verified

When the contract rate is above the market rate, a bond sells at a discount.

Correct Answer
verified

Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals) :

Correct Answer
verified

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Correct Answer
verified

A company may retire bonds by all but which of the following means?

Correct Answer
verified

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

Correct Answer
verified

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity factor at 8% for 5 years is 3.9927.The present value of a single sum at 8% for 5 years is .6806. Each annual payment equals $75,000. The present value of the note is:

Correct Answer
verified

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

A bond traded at 102½ means that:

Correct Answer
verified

All of the following statements regarding accounting treatments for liabilities under U.S. GAAP and IFRS are true except:

Correct Answer
verified

Match each of the appropriate definitions with terms.

Exam 14: Long-Term Liabilities

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

Correct AnswerverifiedShow Answer

Debentures always have specific assets of the issuing company pledged as collateral.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The relationship between the market rate of a bond and the rate of return on the borrowed funds affects the company's return on equity.

Correct AnswerverifiedShow Answer

Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

Correct AnswerverifiedShow Answer

A bondholder that owns a $1,000, 10%, 10-year bond has:

Correct AnswerverifiedShow Answer

A pension plan is a contractual agreement between an employer and its employees to provide benefits to employees after they retire.

Correct AnswerverifiedShow Answer

Interest on bonds is tax deductible.

Correct AnswerverifiedShow Answer

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

Correct AnswerverifiedShow Answer

When the contract rate is above the market rate, a bond sells at a discount.

Correct AnswerverifiedShow Answer

Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals) :

Correct AnswerverifiedShow Answer

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Correct AnswerverifiedShow Answer

A company may retire bonds by all but which of the following means?

Correct AnswerverifiedShow Answer

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

Correct AnswerverifiedShow Answer

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity factor at 8% for 5 years is 3.9927.The present value of a single sum at 8% for 5 years is .6806. Each annual payment equals $75,000. The present value of the note is:

Correct AnswerverifiedShow Answer

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

A bond traded at 102½ means that:

Correct AnswerverifiedShow Answer

All of the following statements regarding accounting treatments for liabilities under U.S. GAAP and IFRS are true except:

Correct AnswerverifiedShow Answer

Match each of the appropriate definitions with terms.

Correct Answer
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