Question 1

Pearly Gates Inc.has a debt-to-assets ratio of 0.55.This means that:

Accepted Answer

A)   stockholders' equity is 55% of total assets.
B)   stockholders' equity is 45% of total assets.
C)   investors provide 55% of the company's financing.
D)   liabilities are 55% of equity.E) All of the above
F) A) and D)

Question 2

On January 1,2016,Effron Inc.sells $2 million of 8% bonds at face value with interest to be paid at the end of each year.Effron accrues interest at the end of each quarter during the year.
Required:
Part a.Prepare the journal entry to record the bond issuance.
Part b.Prepare the required adjusting journal entry as of March 31,2016.
Part c.Assume the required adjusting journal entries were recorded on June 30 and September 30,2016.Prepare the journal entry to record the payment of interest to bondholders on December 31,2016.

Accepted Answer

Part a<br> <img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> <br>...

Question 3

A company receives $102,000 when it issues a bond with a face value of $100,000 and a stated interest rate of 7%.Which of the following statements is correct?

Accepted Answer

A)   The entry to record the issuance will include a credit to Bonds Payable for $102,000.
B)   The market interest rate is 7%.
C)   The annual interest expense is $7,000.
D)   The carrying value of the bonds will be $100,000 at maturity.E) B) and C)
F) A) and D)

Question 4

ABC Airlines collects $300 for a roundtrip ticket from Chicago to Los Angeles.The flights will not occur until the next accounting period.How does ABC Airlines record the $300 collected in advance?

Accepted Answer

A)   A debit to Cash of $300 and a credit to Unearned Revenue of $300
B)   A debit to Unearned Revenue of $300 and a credit to Cash of $300
C)   A debit to Cash of $300 and a credit to Revenue of $300
D)   A debit to Revenue of $300 and a credit to Cash of $300E) A) and D)
F) B) and C)

Question 5

When the amount of a contingent liability can be reasonably estimated and its likelihood is possible but not probable,the company should:

Accepted Answer

A)   include a description in the notes to the financial statements.
B)   record the amount of the liability times the probability of its occurrence.
C)   accrue the amount of the liability as a long-term liability.
D)   exclude any information about the contingent liability from its financial statements and notes.E) C) and D)
F) All of the above

Question 6

If the market rate exceeds the stated interest rate,a bond will sell at a premium.

Accepted Answer

A) True 
 B)False

Question 7

On December 31,2015,Newco borrowed $100,000 from First National Bank,and signed a 12% note payable due in two years.Interest on the note is due at maturity.
Required:
Part a.Prepare the journal entry to record the borrowing transaction.
Part b.Describe how the note should be reported on Newco's classified balance sheets at December 31,2015 and December 31,2016.
Part c.Prepare the required adjusting entry on December 31,2016.
Part d.Prepare the journal entry to record the payment of the interest on December 31,2017.
Part e.Prepare the journal entry to record the payment of the note on December 31,2017.

Accepted Answer

Part a

Part b
The note should be clas...

Question 8

The law requires ______ to pay FICA taxes.

Accepted Answer

A)   both employee and employer
B)   the employee
C)   the employer
D)   only retailersE) B) and D)
F) A) and B)

Question 9

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______:

Accepted Answer

A)   Cash; Bonds Payable
B)   Notes Payable; Cash
C)   Cash; Bonds Receivable
D)   Bonds Payable; CashE) None of the above
F) B) and C)

Question 10

Which of the following statements about loan terminology is correct?

Accepted Answer

A)   Loan covenants are the collateral provided by a borrower to a lender as security on a loan.
B)   A secured loan means that the borrower has a pre-approved line of credit backing the debt.
C)   Lenders can revise loan terms if a borrower violates a loan covenant.
D)   All companies are able to establish lines of credit which will allow them to borrow money as needed, up to a prearranged limit.E) None of the above
F) All of the above

Question 11

A company purchased equipment by issuing a $200,000,one-year,8% note payable.The transaction would be recorded in the accounting records with a credit to Notes Payable for:

Accepted Answer

A)   $200,000.
B)   $216,000.
C)   $184,000.
D)   $208,000.E) B) and C)
F) B) and D)

Question 12

If the market rate of interest is 6%,a $10,000,10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Accepted Answer

A)   less than face value.
B)   equal to the face value.
C)   greater than face value.
D)   equal to the face value minus a discount.E) C) and D)
F) A) and C)

Question 13

When bonds are issued at a premium,the bond issuer receives more cash on the issue date than it repays at maturity.The difference,a premium,is a reduction in the cost of borrowing,which has to be:

Accepted Answer

A)   amortized.
B)   depreciated.
C)   ignored.
D)   capitalized.E) B) and C)
F) A) and C)

Question 14

A company issued $100,000 5-year,7% bonds and received $101,137 in cash.The market rate of interest when the bonds were issued was 6.5%.What is the amount of interest expense to be recorded for the first annual interest period if the company uses simplified effective-interest amortization?

Accepted Answer

A)   $6,573.91
B)   $7,000.00
C)   $6,500.00
D)   $7,079.59E) B) and C)
F) All of the above

Question 15

Amortizing a bond discount will ______ the discount balance and ______ the carrying value of the bond so that when the bond matures the carrying value will ______ the face value.

Accepted Answer

A)   decrease; increase; equal
B)   decrease; increase; be greater than
C)   increase; decrease; be greater than
D)   decrease; decrease; equalE) A) and D)
F) All of the above

Question 16

If a company forgets to record the journal entry to accrue interest expense,then its net income is too ______ and its liabilities are too ______:

Accepted Answer

A)   high; high
B)   low; high
C)   low; low
D)   high; lowE) B) and C)
F) All of the above

Question 17

Which one of the following accounts would not necessarily be classified as a current liability?

Accepted Answer

A)   Accounts payable
B)   Accrued liabilities
C)   Contingent liabilities
D)   Current portion of long-term debtE) C) and D)
F) A) and B)

Question 18

The following 12%,$1,000 notes were issued on December 1.Which of the following is the correct method of calculation for the interest accrued as of December 31 of the same year on each of the notes described?

Accepted Answer

A)   Interest on a 4-month note is calculated as: $1,000 x 12% x 1/12.
B)   Interest on a 3-month note is calculated as: $1,000 x 12% x 1/3.
C)   Interest on a 4-month note is calculated as: $1,000 x 12% x 1/4.
D)   Interest on a 2-year note is calculated as: $1,000 x 12% x 1/24.E) B) and C)
F) A) and D)

Question 19

If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value,the transaction will be recorded with a:

Accepted Answer

A)   debit to Cash of $100,000 and a credit to Bonds Payable of $100,000.
B)   debit to Bonds Payable of $100,000 and a credit to Cash of $100,000.
C)   debit to Cash of $100,000 and a credit to Bonds Payable of $99,000 and to Premium on Bonds Payable of $1,000.D) A) and B)
E) B) and C)

Question 20

A company would record an entry with a debit to Bonds Payable and a credit to Cash on a bond's:

Accepted Answer

A)   issuance date.
B)   stated date.
C)   market date.
D)   maturity date.E) C) and D)
F) All of the above

Exam 10: Reporting and Interpreting Liabilities

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to and a credit to :

Correct Answer
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A company issued $100,000 5-year,7% bonds and received $101,137 in cash.The market rate of interest when the bonds were issued was 6.5%.What is the amount of interest expense to be recorded for the first annual interest period if the company uses simplified effective-interest amortization?

Correct Answer
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A company would record an entry with a debit to Bonds Payable and a credit to Cash on a bond's:

Correct Answer
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If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value,the transaction will be recorded with a:

Correct Answer
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If the market rate of interest is 6%,a $10,000,10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Correct Answer
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Correct Answer
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Part a

...
View Answer

The law requires ______ to pay FICA taxes.

Correct Answer
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Pearly Gates Inc.has a debt-to-assets ratio of 0.55.This means that:

Correct Answer
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Which of the following statements about loan terminology is correct?

Correct Answer
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The following 12%,$1,000 notes were issued on December 1.Which of the following is the correct method of calculation for the interest accrued as of December 31 of the same year on each of the notes described?

Correct Answer
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A company receives $102,000 when it issues a bond with a face value of $100,000 and a stated interest rate of 7%.Which of the following statements is correct?

Correct Answer
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If a company forgets to record the journal entry to accrue interest expense,then its net income is too and its liabilities are too :

Correct Answer
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When bonds are issued at a premium,the bond issuer receives more cash on the issue date than it repays at maturity.The difference,a premium,is a reduction in the cost of borrowing,which has to be:

Correct Answer
verified

A company purchased equipment by issuing a $200,000,one-year,8% note payable.The transaction would be recorded in the accounting records with a credit to Notes Payable for:

Correct Answer
verified

ABC Airlines collects $300 for a roundtrip ticket from Chicago to Los Angeles.The flights will not occur until the next accounting period.How does ABC Airlines record the $300 collected in advance?

Correct Answer
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Correct Answer
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Part a

Part b
The note should be clas...
View Answer

When the amount of a contingent liability can be reasonably estimated and its likelihood is possible but not probable,the company should:

Correct Answer
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Amortizing a bond discount will the discount balance and the carrying value of the bond so that when the bond matures the carrying value will __ the face value.

Correct Answer
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If the market rate exceeds the stated interest rate,a bond will sell at a premium.

Correct Answer
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Which one of the following accounts would not necessarily be classified as a current liability?

Correct Answer
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Exam 10: Reporting and Interpreting Liabilities

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______:

Correct AnswerverifiedShow Answer

A company issued $100,000 5-year,7% bonds and received $101,137 in cash.The market rate of interest when the bonds were issued was 6.5%.What is the amount of interest expense to be recorded for the first annual interest period if the company uses simplified effective-interest amortization?

Correct AnswerverifiedShow Answer

A company would record an entry with a debit to Bonds Payable and a credit to Cash on a bond's:

Correct AnswerverifiedShow Answer

If ABC Company receives $100,000 cash in exchange for issuing 100 bonds at their $1,000 face value,the transaction will be recorded with a:

Correct AnswerverifiedShow Answer

If the market rate of interest is 6%,a $10,000,10-year bond with a stated annual interest rate of 8% would be issued at an amount:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPart a ...View AnswerShow Answer

The law requires ______ to pay FICA taxes.

Correct AnswerverifiedShow Answer

Pearly Gates Inc.has a debt-to-assets ratio of 0.55.This means that:

Correct AnswerverifiedShow Answer

Which of the following statements about loan terminology is correct?

Correct AnswerverifiedShow Answer

The following 12%,$1,000 notes were issued on December 1.Which of the following is the correct method of calculation for the interest accrued as of December 31 of the same year on each of the notes described?

Correct AnswerverifiedShow Answer

A company receives $102,000 when it issues a bond with a face value of $100,000 and a stated interest rate of 7%.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If a company forgets to record the journal entry to accrue interest expense,then its net income is too ______ and its liabilities are too ______:

Correct AnswerverifiedShow Answer

When bonds are issued at a premium,the bond issuer receives more cash on the issue date than it repays at maturity.The difference,a premium,is a reduction in the cost of borrowing,which has to be:

Correct AnswerverifiedShow Answer

A company purchased equipment by issuing a $200,000,one-year,8% note payable.The transaction would be recorded in the accounting records with a credit to Notes Payable for:

Correct AnswerverifiedShow Answer

ABC Airlines collects $300 for a roundtrip ticket from Chicago to Los Angeles.The flights will not occur until the next accounting period.How does ABC Airlines record the $300 collected in advance?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPart a Part bThe note should be clas...View AnswerShow Answer

When the amount of a contingent liability can be reasonably estimated and its likelihood is possible but not probable,the company should:

Correct AnswerverifiedShow Answer

Amortizing a bond discount will ______ the discount balance and ______ the carrying value of the bond so that when the bond matures the carrying value will ______ the face value.

Correct AnswerverifiedShow Answer

If the market rate exceeds the stated interest rate,a bond will sell at a premium.

Correct AnswerverifiedShow Answer

Which one of the following accounts would not necessarily be classified as a current liability?

Correct AnswerverifiedShow Answer

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to and a credit to :

Correct Answer
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Part a

...
View Answer

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If a company forgets to record the journal entry to accrue interest expense,then its net income is too and its liabilities are too :

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Part a

Part b
The note should be clas...
View Answer

Correct Answer
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Amortizing a bond discount will the discount balance and the carrying value of the bond so that when the bond matures the carrying value will __ the face value.

Correct Answer
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Correct Answer
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Correct Answer
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