When will bonds sell at a discount?

When will bonds sell at a discount?

A) The issuing company will be able to retire the bonds at less than face at maturity
B) The credit standing of the issuing company is not as good as other companies in a similar line of business
C) The state rate of interest is more than the market rate at the time of the issue
D) The stated rate of interest is less than the market rate of interest at the time of issue

Answer: D

The Kaplan group sold $200,000 of 10 year bonds for $190,000. The rate on the face of the bonds was 8% and interest is payable annually on December 1st. What entry would be made on December 1st when the interest is paid?

The Kaplan group sold $200,000 of 10 year bonds for $190,000. The rate on the face of the bonds was 8% and interest is payable annually on December 1st. What entry would be made on December 1st when the interest is paid?

A) Debit interest expense and scout on bonds payable; credit cash
B) Debit interest expense; credit cash and discount on bonds payable
C) Debit interest expense; credit bonds payable and cash
D) Debit interest expense; credit cash

Answer: B

If bonds were initially issued at a discount, the carrying value of the bonds on the issuer's books will

If bonds were initially issued at a discount, the carrying value of the bonds on the issuer's books will

A) Fluctuate throughout the bonds' life
B) Decrease as the bonds approach their maturity date
C) Remain constant throughout the bonds life
D) Increase as the bonds approach their maturity date

Answer: D

Which of the following lease conditions would result in a capital lease to the lessee?

Which of the following lease conditions would result in a capital lease to the lessee?

A) The fair market value of the property at the inception of the lease is $20,000; the greatest value of the lease payments is $17,600
B) The lease term is 70% of the property's economic life
C) The lessee will return the property to the lessor at the end of the term
D) Thee lessee can purchase the property for $1 at the end of the lease term

Answer: D

When will bonds sell at a premium?

When will bonds sell at a premium?

A) The state rate of interest is more than the market rate at the time of the issue
B) The credit standing of the issuing company is better than other companies in a similar line of business
C) The issuing company will be able to retire the bonds at more than face at maturity
D) The stated rate of interest is less than the market rate of interest at the time of issue

Answer: A

Which of the following would describe a callable bond?

Which of the following would describe a callable bond?

A) Borrower has the right to pay off the bonds prior to the due date
B) Borrower has the right to issue more bonds prior to the due date of existing bonds
C) Investor has the right to call off the interest payments on the bonds
D) Borrower has the right to call off the interest payments on the bonds

Answer: A

Long-term debt generally includes

Long-term debt generally includes 

A) Accounts payable, because they are interest bearing
B) Obligations that will be satisfied within one year
C) Accrued expenses
D) Obligations that extend beyond one year

Answer: D

A graphics deign company issued bonds in the same amount of $1,000,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what is the total amount of interest that would be paid over the life of the bonds?

A graphics deign company issued bonds in the same amount of $1,000,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what is the total amount of interest that would be paid over the life of the bonds?

A) $1,000,000
B) $80,000
C) $800,000
D) $400,000

Answer: C

If bonds were initially issued at a discount, the crying value of the bonds on the issuer's books will

If bonds were initially issued at a discount, the crying value of the bonds on the issuer's books will 

A) Increase as the bonds approach their maturity date
B) Remain constant throughout the bonds' life
C) Fluctuate throughout the bonds' life
D) Decrease at the bonds approach their maturity date

Answer: A

With the effective interest method of amortization, the amortization of a bond premium results in a(n)

With the effective interest method of amortization, the amortization of a bond premium results in a(n)

A) Increase in liabilities
B) Decrease of stockholders' equity
C) Increase in interest expense
D) Decrease in interest expense

Answer: D

With the effective interest method of amortization, the amortization of a bond discount results in a(n):

With the effective interest method of amortization, the amortization of a bond discount results in a(n): 

A) Increase in stockholders' equity
B) Decrease in liabilities
C) Increase in interest expense
D) Decrease in interest expense

Answer: C

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will:

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will:

A) Decrease as the bonds approach their maturity date
B) Increase as the bonds approach their maturity date
C) Remain constant throughout the bond's life
D) Fluctuate throughout the bonds' life

Answer: B

Which of the following statements about bond accounting under the effective interest method is correct?

Which of the following statements about bond accounting under the effective interest method is correct?

A) The cash interest paid is calculated as the bond face value u the market rate.
B) The interest expense is calculated as the carrying value u the market rate.
C) The difference between the cash interest paid and the interest expense is added to the carrying value of bonds sold at a premium.
D) The difference between the interest expense and the interest paid is deducted from the carrying value of bonds sold at a discount.

Answer: B

Under the effective inters method, the cash paid on each interest payment date will:

Under the effective inters method, the cash paid on each interest payment date will:

A) Decrease if bonds are issued at a premium
B) Increase if bonds are issued at a premium
C) Remain constant regardless of the issuance price
D) Increase if bonds are issued at a discount

Answer: C

The bond issue price is determined by calculating the:

The bond issue price is determined by calculating the:

A) Present value of the stream of interest payments and the future value of the maturity amount.
B) future value of the stream of interest payments and the future value of the maturity amount.
C) future value of the stream of interest payments and the present value of the maturity amount. D)present value of the stream of interest payments and the present value of the maturity amount.

Answer: D

Banister Company wishes to issue $600,000 of 10-year, 7% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the issue price of the bond?

Banister Company wishes to issue $600,000 of 10-year, 7% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the issue price of the bond?

A) The market rate of interest, the stated rate of interest, the bond rating, and the bond life.
B) The face value of the bonds, the stated rate of interest, the market rate of interest, and the bond life.
C) The life of the bonds, the market rate of interest, the bond rating, and the face value of the bonds.
D) The face value of the bonds, the market rate of interest, the purpose of the issue, and the bond life.

Answer: B

Which of the following statements regarding contingent liabilities is true?

Which of the following statements regarding contingent liabilities is true?

A) If they are probable and estimable, then they must be recorded even before the outcome of the future event.
B) If they are probable and estimable, then they should be disclosed in the notes to the financial statements.
C) The accounting principle that determines whether a contingent liability is to be recorded is that of historical cost.
D) Contingencies that are not estimable should not be recorded or disclosed in the financial statements even if they are probable.

Answer: A

Which of the following accounts would NOT appear on the balance sheet of a lessee company recording a capital lease?

Which of the following accounts would NOT appear on the balance sheet of a lessee company recording a capital lease?

A) Accumulated depreciation on the leased asset
B) Capital lease liability in the current liability section
C) Capital lease liability in the long-term liability section
D) Rent expense on the leased asset

Answer: D

Which of the following lease conditions would result in a capital lease to the lessee?

Which of the following lease conditions would result in a capital lease to the lessee?

A) The lessee will return the proper of the lessor at the end of the lease term
B) The lessee obtains enough rights to use the asset and is in substance the owner
C) The leased asset is not capitalized on the balance sheet
D) The lease term is 70% of the property's economic life

Answer: B

If a company's bonds are callable:

If a company's bonds are callable:

A) The bondholder has the right to sell an option on the bond
B) The issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest if 4%
C) The bonds are never allowed to remain outstanding until the maturity date
D) The investor never knows what the redemption price will be until the bonds are actually called

Answer: B

Which of the following would describe a callable bond?

Which of the following would describe a callable bond?

A) Borrower has the right to pay off the bonds prior to due date
B) Borrower has the right to issue more bonds prior to due date
C) Borrower has the right to call of the interest payments on the bonds
D) Investor has the right to call off the intent payments on the bonds

Answer: A

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount:

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount:

A) Less than face value
B) Equal to the face value
C) Greater than face value
D) That cannot be determined

Answer: C

If bonds are issued at 101.25, this means that:

If bonds are issued at 101.25, this means that:

A) A $1,000 bond sold for $101.25
B) The bonds sold at a discount
C) A $1,000 bonds sold for $1,012.50
D) The band rate of interest is 1-.125% of the market rate of interest

Answer: C

Which of the following statements regarding amortization is true?

Which of the following statements regarding amortization is true?

A) Amortization of the premium causes the premium on bonds payable account to increase
B) Amortization of the premium causes the amount of interest expense to increase
C) Cash inters payments on bonds equals interest expense on the income statement when there is amortization premium
D) Amortization of a premium continue over the life of the bond until the balance in the account is reduced to zero

Answer: D

If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will:

If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will:

A) Decrease as the bonds approach their maturity date
B) Increase as the bonds approach their maturity date
C) Remain constant throughout the bonds' life
D) Fluctuate throughout the bonds' life

Answer: A

When determining the amount of interest to be paid on a bond, which of the following information is necessary?

When determining the amount of interest to be paid on a bond, which of the following information is necessary?

A) The market value of the bonds after one year
B) The selling price of the bonds
C) The stated rate of interest on the bonds
D) The effective rate of interest of the bonds

Answer: C

The premium on bonds payable account is shown on the balance sheet as:

The premium on bonds payable account is shown on the balance sheet as:

A) A contra asset
B) A reduction of an expense
C) As an increase in equity for the premium provided
D) An addition to a long-term liability

Answer: D

The Discount on Bonds Payable account is shown on the balance sheet as:

The Discount on Bonds Payable account is shown on the balance sheet as:

A) An asset
B) An expense
C) A contra-liablity
D) As a reduction in equity for the discount provided

Answer: C

When bonds are sold for less than the face amount, this means that the:

When bonds are sold for less than the face amount, this means that the:

A) Maturity value will be less than the face amount
B) Maturity value will be greater than the face amount
C) Bonds are sold at premium
D) Stated rate of interest is less than the market rate of interest

Answer: D

When bonds are issued by a company, the accounting entry shows an:

When bonds are issued by a company, the accounting entry shows an:

A) Increase in liabilities and a decrease in equity
B) Increase in liabilities and an increase in equity
C) Increase in assets an an increase in liabilities
D) Increase in assets and an increase in equity

Answer: C

When will bonds sell at a discount?

When will bonds sell at a discount?

A) The credit standing of the issuing company is not as good as other companies in a similar line of business
B) The stated rate of interest is less than the market rate of intent at the time of the issue
C) The states rate of interest is more than the market rate of interest at the time of the issue
D) The stated rate of interest is same as the market rate of interest at the time of issue

Answer: B

Bonds are sold at a premium if the:

Bonds are sold at a premium if the:

A) Issuing company has a better reputation than other companies in the same business
B) Market rate of interest was less than the state rate at the time of the issue
C) Market rate of interest was more than the states rate at the time of the issue
D) Market rate of interest was the same as the stated rate at the time of the issue

Answer: B

Long-term liabilities generally include:

Long-term liabilities generally include:

A) Liabilities related to long-term assets
B) Accounts payable, because they are interest-bearing
C) Obligations that extend beyond one year
D) Accrued expenses

Answer: C

The portion of long-term debt due within one year should:

The portion of long-term debt due within one year should:

A) Be classified as a long-term liability
B) Not be separated from the long-term portion of debt
C) Be paid immediately
D) Be reclassified as a current liability

Answer: D

The amount of federal income taxes withheld from employee's gross pay is recorded as a:

The amount of federal income taxes withheld from employee's gross pay is recorded as a:

A) Payroll expense
B) Contra account
C) Current asset
D) Current liability

Answer: D

Which of the following would most likely be classified as a current liability?

Which of the following would most likely be classified as a current liability?

A) Two-year payable
B) Bonds payable
C) Mortgage payable
D) Portion of long-term debt due within one year

Answer: D

The interest charged by the bank, at the rate of 9%, on a 3-month, discounted notes payable for $100,000 is:

The interest charged by the bank, at the rate of 9%, on a 3-month, discounted notes payable for $100,000 is:

A) $9,000
B) $2,250
C) $750
D) $1,000

Answer: B

The journal entry to record the payment of an ordinary notes is:

The journal entry to record the payment of an ordinary notes is:

A) Debit cash; credit notes payable
B) Debit cash; credit accounts payable
C) Debit notes payable and interest expense; credit cash
D) Debit notes payable and interest receivable; credit cash

Answer: C

The journal entry to record the insurance of note for the purpose of borrowing funds is:

The journal entry to record the insurance of note for the purpose of borrowing funds is:

A) Debit accounts payable; credit notes payable
B) Debit cash; credit notes payable
C) Debit notes payable; credit cash
D) Debit cash and interest expense; credit notes payable

Answer: B

Current liabilities are:

Current liabilities are:

A) Due, but no receivable for more than one year
B) Due, but no payable for more than one year
C) Due and receivable within one year
D) Due and payable within one year

Answer: D