Question 1

Kosovo Company has $45 million in long- term debt, payable in annual installments of $15 million. How much of the debt should be reported as current and as long- term liabilities? Current Liabilities Long- Term Liabilities

Accepted Answer

A)  $45 million $0
B)  $7.5 million $40 million
C)  $15 million $30 million
D)  $0 $45 millionE) B) and C)
F) None of the above

Question 2

The journal entry to record accrued interest on a short- term note payable must include a debit to:

Accepted Answer

A)  Interest Payable and a credit to Notes Payable.
B)  Interest Expense and a credit to Notes Payable.
C)  Interest Payable and a credit to Interest Expense.
D)  Interest Expense and a credit to Interest Payable.E) All of the above
F) None of the above

Question 3

Great Peaks, Inc., has $3,600,000 of bonds outstanding with an unamortized discount of $160,000 immediately following the last interest payment. At that time, the bonds were converted into $350,000 shares of $10 par common stock. As a result of this conversion:

Accepted Answer

A)  liabilities decreased by $3,440,000 and stockholders' equity increased by $3,440,000.
B)  liabilities decreased by $3,440,000 and stockholders' equity increased by $3,400,000.
C)  liabilities decreased by $3,600,000 and stockholders' equity increased by $3,600,000.
D)  liabilities decreased by $3,600,000 and stockholders' equity increased by $3,400,000.E) A) and B)
F) A) and C)

Question 4

Which is the preferred method to use when amortizing a bond discount or premium?

Accepted Answer

A)  Straight- line method of amortization
B)  Market- interest rate method of amortization
C)  Effective interest method of amortization
D)  Both straight- line and market- interest rate methods of amortization are equally preferableE) A) and C)
F) A) and B)

Question 5

A company wishing to expand can obtain the necessary funds by borrowing on a long- term note payable or by issuing 50,000 shares of $10 par value common stock. Net income is estimated at $302,500 if the company borrows the funds, and $330,000 if the company issues stock. The company currently has 250,000 shares of common stock outstanding. If the company issues stock instead of borrowing funds, earnings per share would

Accepted Answer

A)  increase by $0.11.
B)  decrease by $0.11.
C)  decrease by $0.21.
D)  increase by $0.21.E) A) and B)
F) B) and D)

Question 6

Under the effective- interest method of amortization, the cash payment on each interest payment date will:

Accepted Answer

A)  increase if bonds are issued at a discount.
B)  increase if bonds are issued at par.
C)  remain the same for each interest period.
D)  decrease if bonds are issued at a premium.E) A) and D)
F) All of the above

Question 7

The premium on bonds payable:

Accepted Answer

A)  increases the amount of cash paid to bondholders over the stated rate of interest.
B)  decreases the amount of cash paid to bondholders over the stated rate of interest.
C)  increases interest expense on the income statement.
D)  reduces interest expense on the income statement.E) A) and D)
F) C) and D)

Question 8

Amortizing the premium on bonds payable is reported as additional revenue when the bond matures.

Accepted Answer

A) True 
 B)False

Question 9

The interest rate that investors demand for loaning their money is referred to as the:

Accepted Answer

A)  effective rate of interest.
B)  contract rate of interest.
C)  stated rate of interest.
D)  both B and C are correct.E) A) and B)
F) A) and C)

Question 10

Secured bonds are also called:

Accepted Answer

A)  callable bonds.
B)  mortgage bonds.
C)  convertible bonds.
D)  debenture bonds.E) B) and D)
F) A) and D)

Question 11

Under the effective- interest method of amortizing bond premium, the interest expense recorded for each semiannual interest payment:

Accepted Answer

A)  is at the same percentage of the bond's carrying value for every interest payment.
B)  will equal the amount of cash paid for each semiannual interest payment.
C)  is equal to the carrying value of the bond times the contract rate of interest for each semiannual interest period.
D)  will increase over the life of the bond.E) B) and C)
F) All of the above

Question 12

The principal on a callable bond must be paid upon the demand of the bond holder.

Accepted Answer

A) True 
 B)False

Question 13

Contingent gains are reported on the income statement.

Accepted Answer

A) True 
 B)False

Question 14

Current liabilities are reported separately from long- term liabilities.

Accepted Answer

A) True 
 B)False

Question 15

Bonds with an 8% interest rate were issued when the market rate of interest was 9%. The quoted bond price will be:

Accepted Answer

A)  greater than 100.
B)  100.
C)  less than 100.
D)  the price cannot be determined.E) A) and C)
F) B) and C)

Question 16

Warranty expense is recognized in the same period that the sales revenue is recognized because of the conservatism principle.

Accepted Answer

A) True 
 B)False

Question 17

Current Liabilities are obligations due within one year or within the company's normal operating cycle if it is longer than one year.

Accepted Answer

A) True 
 B)False

Question 18

A bond issued at a price below its maturity or par value is sold at a discount.

Accepted Answer

A) True 
 B)False

Question 19

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30- day, 9% note payable. The total cash paid on the maturity date of the note is:

Accepted Answer

A)  $13,000.
B)  $13,065.
C)  $13,750.
D)  $13,097.50.E) None of the above
F) B) and C)

Question 20

Revision Company has just made the interest payment on its $3,000,000 of outstanding bonds. The unamortized discount is currently $127,400. Revision decided to retire the bonds by purchasing the bonds when the bonds were priced at 97. Which statement regarding the retirement is true?

Accepted Answer

A)  Revision paid $2,910,000 to purchase the bond and recognized a $164,800 loss.
B)  Revision paid $2,910,000 to purchase the bond and recognized a $37,400 loss.
C)  Revision paid $2,872,600 to purchase the bond and recognized a $127,400 loss.
D)  Revision paid $3,000,000 to purchase the bond and recognized a $164,800 loss.E) A) and B)
F) B) and C)

Exam 8: Liabilities

Revision Company has just made the interest payment on its $3,000,000 of outstanding bonds. The unamortized discount is currently $127,400. Revision decided to retire the bonds by purchasing the bonds when the bonds were priced at 97. Which statement regarding the retirement is true?

Correct Answer
verified

Current Liabilities are obligations due within one year or within the company's normal operating cycle if it is longer than one year.

Correct Answer
verified

A bond issued at a price below its maturity or par value is sold at a discount.

Correct Answer
verified

Secured bonds are also called:

Correct Answer
verified

Current liabilities are reported separately from long- term liabilities.

Correct Answer
verified

The journal entry to record accrued interest on a short- term note payable must include a debit to:

Correct Answer
verified

Warranty expense is recognized in the same period that the sales revenue is recognized because of the conservatism principle.

Correct Answer
verified

Correct Answer
verified

Contingent gains are reported on the income statement.

Correct Answer
verified

Bonds with an 8% interest rate were issued when the market rate of interest was 9%. The quoted bond price will be:

Correct Answer
verified

The interest rate that investors demand for loaning their money is referred to as the:

Correct Answer
verified

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30- day, 9% note payable. The total cash paid on the maturity date of the note is:

Correct Answer
verified

Which is the preferred method to use when amortizing a bond discount or premium?

Correct Answer
verified

Under the effective- interest method of amortizing bond premium, the interest expense recorded for each semiannual interest payment:

Correct Answer
verified

Under the effective- interest method of amortization, the cash payment on each interest payment date will:

Correct Answer
verified

The premium on bonds payable:

Correct Answer
verified

Kosovo Company has $45 million in long- term debt, payable in annual installments of $15 million. How much of the debt should be reported as current and as long- term liabilities? Current Liabilities Long- Term Liabilities

Correct Answer
verified

Amortizing the premium on bonds payable is reported as additional revenue when the bond matures.

Correct Answer
verified

Great Peaks, Inc., has $3,600,000 of bonds outstanding with an unamortized discount of $160,000 immediately following the last interest payment. At that time, the bonds were converted into $350,000 shares of $10 par common stock. As a result of this conversion:

Correct Answer
verified

The principal on a callable bond must be paid upon the demand of the bond holder.

Correct Answer
verified

Exam 8: Liabilities

Revision Company has just made the interest payment on its $3,000,000 of outstanding bonds. The unamortized discount is currently $127,400. Revision decided to retire the bonds by purchasing the bonds when the bonds were priced at 97. Which statement regarding the retirement is true?

Correct AnswerverifiedShow Answer

Current Liabilities are obligations due within one year or within the company's normal operating cycle if it is longer than one year.

Correct AnswerverifiedShow Answer

A bond issued at a price below its maturity or par value is sold at a discount.

Correct AnswerverifiedShow Answer

Secured bonds are also called:

Correct AnswerverifiedShow Answer

Current liabilities are reported separately from long- term liabilities.

Correct AnswerverifiedShow Answer

The journal entry to record accrued interest on a short- term note payable must include a debit to:

Correct AnswerverifiedShow Answer

Warranty expense is recognized in the same period that the sales revenue is recognized because of the conservatism principle.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Contingent gains are reported on the income statement.

Correct AnswerverifiedShow Answer

Bonds with an 8% interest rate were issued when the market rate of interest was 9%. The quoted bond price will be:

Correct AnswerverifiedShow Answer

The interest rate that investors demand for loaning their money is referred to as the:

Correct AnswerverifiedShow Answer

On December 12, the G. Baker Corporation purchases $13,000 of equipment by issuing a 30- day, 9% note payable. The total cash paid on the maturity date of the note is:

Correct AnswerverifiedShow Answer

Which is the preferred method to use when amortizing a bond discount or premium?

Correct AnswerverifiedShow Answer

Under the effective- interest method of amortizing bond premium, the interest expense recorded for each semiannual interest payment:

Correct AnswerverifiedShow Answer

Under the effective- interest method of amortization, the cash payment on each interest payment date will:

Correct AnswerverifiedShow Answer

The premium on bonds payable:

Correct AnswerverifiedShow Answer

Kosovo Company has $45 million in long- term debt, payable in annual installments of $15 million. How much of the debt should be reported as current and as long- term liabilities? Current Liabilities Long- Term Liabilities

Correct AnswerverifiedShow Answer

Amortizing the premium on bonds payable is reported as additional revenue when the bond matures.

Correct AnswerverifiedShow Answer

Great Peaks, Inc., has $3,600,000 of bonds outstanding with an unamortized discount of $160,000 immediately following the last interest payment. At that time, the bonds were converted into $350,000 shares of $10 par common stock. As a result of this conversion:

Correct AnswerverifiedShow Answer

The principal on a callable bond must be paid upon the demand of the bond holder.

Correct AnswerverifiedShow Answer

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