Question 1

For a long-term note payable,repaying a portion of principal along with interest payments is called loan amortization.

Accepted Answer

A) True 
 B)False

Question 2

A line of credit typically has an interest rate that is fixed (constant)for the length of the agreement.

Accepted Answer

A) True 
 B)False

Question 3

[The following information applies to the questions displayed below.]
On January 1, Year 1, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at 102. Interest payments are due each December 31. Pierce uses the straight-line method to amortize bond discounts and premiums.
-Which of the following shows the effect of the interest payment and amortization on December 31,Year 1?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option DE) None of the above
F) B) and C)

Question 4

Bonds sold as separate components of a single issue may have different maturity dates.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following shows how the cash payment and recognition of interest expense affects the elements of the financial statements when a bond is issued at a discount?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option DE) B) and C)
F) B) and D)

Question 6

Regardless of the specific type of long-term debt,which of the following is normally an expectation with regards to debt transactions?

Accepted Answer

A)   Repayment of the debt
B)   Payment of dividends
C)   Payment of interest
D)   Payment of interest and repayment of the debtE) None of the above
F) B) and C)

Question 7

[The following information applies to the questions displayed below.]
On January 1, Year 1, Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums.
-Which of the following statements is true when bonds are issued at a premium?

Accepted Answer

A)   The carrying value decreases by equal amounts each year if straight-line amortization is used.
B)   The carrying value decreases by equal amounts each year if effective interest amortization is used.
C)   The carrying value decreases by larger and larger amounts each year if effective interest amortization is used.
D)   The carrying value decreases by equal amounts each year if straight-line amortization is used and decreases by increasing amounts each year if effective interest amortization is used.E) None of the above
F) A) and D)

Question 8

Which of the following is not a common restrictive covenant included in bond indentures to reduce risk to the investor?

Accepted Answer

A)   Restrictions on increases in executive salaries
B)   Restrictions on additional borrowing activities
C)   Requirements that the names and addresses of the bondholders be registered with the bond issuer
D)   Limitations on the payment of dividendsE) A) and C)
F) None of the above

Question 9

On January 1,Year 1,Williams Corporation issued $200,000 of callable bonds at face value.The bonds carried a 2% call premium.If Williams calls the bonds,how would this event affect the company's accounting equation?

Accepted Answer

A)   Decrease stockholders' equity by $4,000.
B)   Decrease liabilities by $200,000.
C)   Decrease assets by $204,000.
D)   All of these answer choices are correct.E) None of the above
F) A) and B)

Question 10

A company uses the effective interest method to amortize a bond discount.Which of the following statements is true regarding the interest expense that is recognized each year?

Accepted Answer

A)   It will be greater than the interest payment.
B)   It will increase from year to year.
C)   It will remain the same from year to year.
D)   It will be greater than the interest payment and it will also increase from year to year.E) A) and B)
F) B) and C)

Question 11

Match between columns Premises: Interest is deducted on the income statement but is ignored on the tax return. EBIT stands for earnings before income taxes. Dividends are deductible in the determination of taxable income. A low times-interest-earned ratio is a sign of a high-risk company.
EBIT can be used in the computation of the return-on-assets ratio.

Accepted Answer

The Answer of False and True is...

Question 12

Which of the following describes a callable bond?

Accepted Answer

A)   Can be called for early retirement at the option of the issuer
B)   Can be called for early retirement at the option of the bondholder
C)   Convertible to common stock at the option of the bondholder
D)   Convertible to common stock at the option of the issuerE) A) and B)
F) All of the above

Question 13

On January 1,Year 1,Bluestone Company issued bonds with a face value of $500,000 at 90.How will this transaction affect Bluestone company's cash account?

Accepted Answer

A)   Cash will increase by $450,000
B)   Cash will increase by $500,000
C)   Cash will increase by $470,000
D)   Cash will increase by $50,000E) All of the above
F) B) and D)

Question 14

What is another term used to describe unsecured bonds?

Accepted Answer

A)   Discount bonds
B)   Coupon bonds
C)   Debentures
D)   Par value bondsE) B) and C)
F) None of the above

Question 15

On January 1,Year 1,Daniels Company issued bonds with a face value of $500,000,receiving $496,000 cash.When the bonds mature,Daniels will have to pay the face value of the bonds to the bondholders.

Accepted Answer

A) True 
 B)False

Question 16

On January 1,Year 1,Daniels Company issued bonds with a face value of $500,000,receiving $496,000 cash.These bonds were issued at a discount.

Accepted Answer

A) True 
 B)False

Question 17

Match between columns Premises: The carrying value of a bond increases over time if the bond was issued at a premium.
At the end of the term of the bonds,the carrying value of a bond issue is equal to the issue price. If bonds are sold below face value,the difference between the issue price and the face value is called the bond discount. The payment of interest is an operating activity on the statement of cash flows.
The issuance of bonds does not appear on the statement of cash flows.

Accepted Answer

The Answer of False and True is...

Question 18

A company uses the effective interest method to amortize a bond premium.Which of the following statements is true regarding the carrying value of the bond?

Accepted Answer

A)   The carrying value will decrease by equal amounts each year.
B)   The carrying value will decrease by smaller amounts each year.
C)   The carrying value will decrease by larger amounts each year.
D)   The carrying value will be lower than the face value of the bond until maturity.E) A) and B)
F) None of the above

Question 19

[The following information applies to the questions displayed below.]
On January 1 Year 1, Gordon Corporation issued bonds with a face value of $70,000, a stated rate of interest of 6%, and a 5-year term to maturity. The bonds were issued at 98. Interest is payable in cash on December 31 each year. Gordon uses the straight-line method to amortize bond discounts and premiums.
-Which of the following shows the effect of the bond issuance on the elements of the financial statements?

Accepted Answer

A)   Option A
B)   Option B
C)   Option C
D)   Option DE) A) and D)
F) A) and C)

Question 20

[The following information applies to the questions displayed below.]
On January 1, Year 1, Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums.
-Assuming Wayne issued the bond for 102.5,what is the amount of interest expense that will be reported on the income statement for the year ending December 31,Year 1?

Accepted Answer

A)   $34,500
B)   $36,000
C)   $37,500
D)   $15,000E) B) and D)
F) B) and C)

Exam 10: Accounting for Long-Term Debt

For a long-term note payable,repaying a portion of principal along with interest payments is called loan amortization.

Correct Answer
verified

A line of credit typically has an interest rate that is fixed (constant)for the length of the agreement.

Correct Answer
verified

Correct Answer
verified

Which of the following describes a callable bond?

Correct Answer
verified

Indicate whether each of the following statements about bonds is true or false.

Correct Answer
verified

On January 1,Year 1,Bluestone Company issued bonds with a face value of $500,000 at 90.How will this transaction affect Bluestone company's cash account?

Correct Answer
verified

On January 1,Year 1,Williams Corporation issued $200,000 of callable bonds at face value.The bonds carried a 2% call premium.If Williams calls the bonds,how would this event affect the company's accounting equation?

Correct Answer
verified

A company uses the effective interest method to amortize a bond premium.Which of the following statements is true regarding the carrying value of the bond?

Correct Answer
verified

Indicate whether each of the following statements is true or false.

On January 1,Year 1,Daniels Company issued bonds with a face value of $500,000,receiving $496,000 cash.These bonds were issued at a discount.

Correct Answer
verified

Bonds sold as separate components of a single issue may have different maturity dates.

Correct Answer
verified

A company uses the effective interest method to amortize a bond discount.Which of the following statements is true regarding the interest expense that is recognized each year?

Correct Answer
verified

Correct Answer
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Which of the following shows how the cash payment and recognition of interest expense affects the elements of the financial statements when a bond is issued at a discount?

Correct Answer
verified

Which of the following is not a common restrictive covenant included in bond indentures to reduce risk to the investor?

Correct Answer
verified

Regardless of the specific type of long-term debt,which of the following is normally an expectation with regards to debt transactions?

Correct Answer
verified

On January 1,Year 1,Daniels Company issued bonds with a face value of $500,000,receiving $496,000 cash.When the bonds mature,Daniels will have to pay the face value of the bonds to the bondholders.

Correct Answer
verified

What is another term used to describe unsecured bonds?

Correct Answer
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Correct Answer
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Exam 10: Accounting for Long-Term Debt

For a long-term note payable,repaying a portion of principal along with interest payments is called loan amortization.

Correct AnswerverifiedShow Answer

A line of credit typically has an interest rate that is fixed (constant)for the length of the agreement.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following describes a callable bond?

Correct AnswerverifiedShow Answer

Indicate whether each of the following statements about bonds is true or false.

Correct AnswerverifiedShow Answer

On January 1,Year 1,Bluestone Company issued bonds with a face value of $500,000 at 90.How will this transaction affect Bluestone company's cash account?

Correct AnswerverifiedShow Answer

On January 1,Year 1,Williams Corporation issued $200,000 of callable bonds at face value.The bonds carried a 2% call premium.If Williams calls the bonds,how would this event affect the company's accounting equation?

Correct AnswerverifiedShow Answer

A company uses the effective interest method to amortize a bond premium.Which of the following statements is true regarding the carrying value of the bond?

Correct AnswerverifiedShow Answer

Indicate whether each of the following statements is true or false.

On January 1,Year 1,Daniels Company issued bonds with a face value of $500,000,receiving $496,000 cash.These bonds were issued at a discount.

Correct AnswerverifiedShow Answer

Bonds sold as separate components of a single issue may have different maturity dates.

Correct AnswerverifiedShow Answer

A company uses the effective interest method to amortize a bond discount.Which of the following statements is true regarding the interest expense that is recognized each year?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following shows how the cash payment and recognition of interest expense affects the elements of the financial statements when a bond is issued at a discount?

Correct AnswerverifiedShow Answer

Which of the following is not a common restrictive covenant included in bond indentures to reduce risk to the investor?

Correct AnswerverifiedShow Answer

Regardless of the specific type of long-term debt,which of the following is normally an expectation with regards to debt transactions?

Correct AnswerverifiedShow Answer

On January 1,Year 1,Daniels Company issued bonds with a face value of $500,000,receiving $496,000 cash.When the bonds mature,Daniels will have to pay the face value of the bonds to the bondholders.

Correct AnswerverifiedShow Answer

What is another term used to describe unsecured bonds?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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