Question 1

Interest on bonds is tax deductible.

Accepted Answer

A) True 
 B)False

Question 2

A disadvantage of an operating lease is the inability to deduct rental payments in computing taxable income.

Accepted Answer

A) True 
 B)False

Question 3

Clabber Company has bonds outstanding with a par value of $100,000 and a carrying value of $97,300. If the company calls these bonds at a price of $95,000, the gain or loss on retirement is:

Accepted Answer

A)   $2,700 loss.
B)   $2,300 loss.
C)   $2,300 gain.
D)   $5,000 loss.
E)   $2,700 gain.F) C) and D)
G) B) and E)

Question 4

On January 1, the Rodrigues Corporation leased some equipment on a 2-year lease, paying $15,000 per year each December 31. The lease is considered to be an operating lease. Prepare the general journal entry to record the first lease payment on December 31.

Accepted Answer

None...

Question 5

Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

Accepted Answer

A) True 
 B)False

Question 6

Seedly Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000. Management is considering issuing $5,000,000 of par value bonds (at par)  with a maturity date of ten years and a contract rate of 7%. What effect, if any, would issuing the bonds have on the company's debt-to-equity ratio?

Accepted Answer

A)   Issuing the bonds would cause the firm's debt-to-equity ratio to remain unchanged.
B)   Issuing the bonds would cause the firm's debt-to-equity ratio to improve from 1.0 to 1.3.
C)   Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from .5 to .8.
D)   Issuing the bonds would cause the firm's debt-to-equity ratio to improve from .5 to .8.
E)   Issuing the bonds would cause the firm's debt-to-equity ratio to worsen from 1.0 to 1.3.F) B) and E)
G) None of the above

Question 7

When the contract rate of a bond is greater than the market rate on the date of issuance, the bond sells at a discount.

Accepted Answer

A) True 
 B)False

Question 8

A discount reduces the interest expense of a bond over its life.

Accepted Answer

A) True 
 B)False

Question 9

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) B) and C)
G) C) and E)

Question 10

The effective interest amortization method:

Accepted Answer

A)   Allocates bond interest expense over the bond's life using a constant interest rate.
B)   Allocates bond interest expense over the bond's life using a changing interest rate.
C)   Allocates bond interest expense using the current market rate for each interest period.
D)   Allocates a decreasing amount of interest over the life of a discounted bond.
E)   Is not allowed by the FASB.F) A) and B)
G) D) and E)

Question 11

The present value of an annuity is equal to the sum of the individual future values for each payment.

Accepted Answer

A) True 
 B)False

Question 12

On January 1, Haymark Corporation leased a truck, agreeing to pay $15,252 every December 31 for the six-year life of the lease. The present value of the lease payments, at 6% interest, is $75,000. The lease is considered a capital lease.
(a) Prepare the general journal entry to record the acquisition of the truck with the capital lease.
(b) Prepare the general journal entry to record the first lease payment on December 31.
(c) Record straight-line depreciation on the truck on December 31, assuming a 6-year life and no salvage value.

Accepted Answer

The answer of On January 1, Haymark Corporation leased a...

Question 13

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Accepted Answer

A) True 
 B)False

Question 14

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. 
-What is the appropriate journal entry to record the issuance of the note?

Accepted Answer

A)   Debit Cash $250,000; debit Interest Expense $37,258; credit Notes Payable $287,258.
B)   Debit Cash $37,258; credit Notes Payable $37,258.
C)   Debit Cash $287,258; credit Interest Payable $37,258; credit Notes Payable $250,000.
D)   Debit Cash $250,000; credit Notes Payable $250,000.
E)   Debit Notes Payable $250,000; credit Cash $250,000.F) A) and B)
G) B) and E)

Question 15

Wasp Corporation has a loan agreement that provides it with cash today, and the company must pay
$25,000 one year from today, $15,000 two years from today, and $5,000 three years from today. Wasp agrees to pay 10% interest. The following are factors from a present value table:
 $$\begin{array} { l | l } 
& \text { Interest rate } \
\hline \text { Periods } & 10 \% \
\hline 1 & 0.9091 \
\hline 2 & 0.8264 \
\hline 3 & 0.7513
\end{array}$$ What is the amount of cash that Wasp receives today?

Accepted Answer

\[\begin{array} { l | c | l | l }
\text...

Question 16

A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest. The present value of an annuity factor for 6 years at 7% is 4.7665.The present value of a single sum factor for 6 years at 7% is 0.6663. The annual annuity payments equal:

Accepted Answer

A)   $8,391.90.
B)   $40,000.00.
C)   $60,033.02.
D)   $190,660.00.
E)   $26,652.00.F) B) and E)
G) A) and E)

Question 17

A company issued 8%, 15-year bonds with a par value of $550,000 that pay interest semiannually. The market rate on the date of issuance was 8%. The journal entry to record each semiannual interest payment is:

Accepted Answer

A)   No entry is needed, since no interest is paid until the bond is due.
B)   Debit Bond Interest Expense $22,000; credit Cash $22,000.
C)   Debit Bond Interest Payable $22,000; credit Cash $22,000.
D)   Debit Bond Interest Expense $550,000; credit Cash $550,000.
E)   Debit Bond Interest Expense $44,000; credit Cash $44,000.F) C) and E)
G) B) and D)

Question 18

When the contract rate on a bond issue is less than the market rate, the bonds sell at a discount.

Accepted Answer

A) True 
 B)False

Question 19

On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7%, bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized using the straight-line method at a rate of $10,087 every six months. The life of these bonds is:

Accepted Answer

A)   30 years.
B)   26.5 years.
C)   35 years.
D)   32 years
E)   15 years.F) A) and B)
G) A) and E)

Question 20

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity factor for 7 years at 9% is 5.0330.The present value of a single sum factor for 7 years at 9% is 0.5470. The present value of the loan is:

Accepted Answer

A)   $4,923.
B)   $63,000.
C)   $9,000.
D)   $45,297.
E)   $16,453.F) B) and D)
G) B) and C)

Exam 14: Long-Term Liabilities

Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

Correct Answer
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When the contract rate on a bond issue is less than the market rate, the bonds sell at a discount.

Correct Answer
verified

A company issued 8%, 15-year bonds with a par value of $550,000 that pay interest semiannually. The market rate on the date of issuance was 8%. The journal entry to record each semiannual interest payment is:

Correct Answer
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The effective interest amortization method:

Correct Answer
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Clabber Company has bonds outstanding with a par value of $100,000 and a carrying value of $97,300. If the company calls these bonds at a price of $95,000, the gain or loss on retirement is:

Correct Answer
verified

A disadvantage of an operating lease is the inability to deduct rental payments in computing taxable income.

Correct Answer
verified

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity factor for 7 years at 9% is 5.0330.The present value of a single sum factor for 7 years at 9% is 0.5470. The present value of the loan is:

Correct Answer
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Correct Answer
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View Answer

A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest. The present value of an annuity factor for 6 years at 7% is 4.7665.The present value of a single sum factor for 6 years at 7% is 0.6663. The annual annuity payments equal:

Correct Answer
verified

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

A discount reduces the interest expense of a bond over its life.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The present value of an annuity is equal to the sum of the individual future values for each payment.

Correct Answer
verified

Interest on bonds is tax deductible.

Correct Answer
verified

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Correct Answer
verified

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. -What is the appropriate journal entry to record the issuance of the note?

Correct Answer
verified

On January 1, the Rodrigues Corporation leased some equipment on a 2-year lease, paying $15,000 per year each December 31. The lease is considered to be an operating lease. Prepare the general journal entry to record the first lease payment on December 31.

Correct Answer
verified
None...
View Answer

When the contract rate of a bond is greater than the market rate on the date of issuance, the bond sells at a discount.

Correct Answer
verified

Exam 14: Long-Term Liabilities

Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

Correct AnswerverifiedShow Answer

When the contract rate on a bond issue is less than the market rate, the bonds sell at a discount.

Correct AnswerverifiedShow Answer

A company issued 8%, 15-year bonds with a par value of $550,000 that pay interest semiannually. The market rate on the date of issuance was 8%. The journal entry to record each semiannual interest payment is:

Correct AnswerverifiedShow Answer

The effective interest amortization method:

Correct AnswerverifiedShow Answer

Clabber Company has bonds outstanding with a par value of $100,000 and a carrying value of $97,300. If the company calls these bonds at a price of $95,000, the gain or loss on retirement is:

Correct AnswerverifiedShow Answer

A disadvantage of an operating lease is the inability to deduct rental payments in computing taxable income.

Correct AnswerverifiedShow Answer

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity factor for 7 years at 9% is 5.0330.The present value of a single sum factor for 7 years at 9% is 0.5470. The present value of the loan is:

Correct AnswerverifiedShow Answer

Correct Answerverified\[\begin{array} { l | c | l | l } \text...View AnswerShow Answer

A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest. The present value of an annuity factor for 6 years at 7% is 4.7665.The present value of a single sum factor for 6 years at 7% is 0.6663. The annual annuity payments equal:

Correct AnswerverifiedShow Answer

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

A discount reduces the interest expense of a bond over its life.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The present value of an annuity is equal to the sum of the individual future values for each payment.

Correct AnswerverifiedShow Answer

Interest on bonds is tax deductible.

Correct AnswerverifiedShow Answer

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Correct AnswerverifiedShow Answer

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. -What is the appropriate journal entry to record the issuance of the note?

Correct AnswerverifiedShow Answer

On January 1, the Rodrigues Corporation leased some equipment on a 2-year lease, paying $15,000 per year each December 31. The lease is considered to be an operating lease. Prepare the general journal entry to record the first lease payment on December 31.

Correct AnswerverifiedNone...View AnswerShow Answer

When the contract rate of a bond is greater than the market rate on the date of issuance, the bond sells at a discount.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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View Answer

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None...
View Answer

Correct Answer
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