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Exam 10: Liabilities

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Question 41

Multiple Choice

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Corporations are granted the power to issue bonds through

A) tax laws.
B) state laws.
C) federal security laws.
D) bond debentures.

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Question 42

Multiple Choice

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226. Which of the following statements regarding the effective-interest method of accounting for bonds characteristics is false?

A) GAAP always requires use of the effective interest method.
B) The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective-interest method is used.
C) Over the life of the bonds, the carrying value increases for discounted bonds when using the effective-interest method.
D) The effective-interest method applies a constant percentage to the bond carrying value to compute interest expense.

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Question 43

Multiple Choice

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201. On January 1, Health Corporation issues $3,000,000, 10-year, 8% bonds at 96 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a

The debt to assets ratio is computed by dividing

Long-term liabilities are reported in a separate section of the balance sheet immediately following current liabilities.

Stockholders of a company may be reluctant to finance expansion through issuing more equity because

Fresh Corporation reports the following selected financial statement information at December 31, 2015: Instructions Calculate the debt to assets and times interest earned ratios.

The market value (present value) of a bond is a function of all of the following except the

Ward Corporation issues 5,000, 10-year, 8%, $1,000 bonds dated January 1, 2018, at 103. The journal entry to record the issuance will show a

The discount on bonds payable or premium on bonds payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriate addition or subtraction to bonds payable:

Golf Pro Publications publishes a golf magazine for women. The magazine sells for $3 a copy on the newsstand. Yearly subscriptions to the magazine cost $24 per year (12 issues). During December 2017, Golf Pro Publications sells 12,000 copies of the golf magazine at newsstands and receives payment for 25,000 subscriptions for 2018. Financial statements are prepared monthly. Instructions (a) Prepare the December 2017 journal entries to record the newsstand sales and subscriptions received. (b) Prepare the necessary adjusting entry on January 31, 2018. The January 2018 issue has been mailed to subscribers.

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

The entry to record the payment of an interest-bearing note at maturity after all interest expense has been recognized is

A current liability is a debt that can reasonably be expected to be paid

The 2018 financial statements of Marker Co. contain the following selected data (in millions) . $\begin{array} { l r } \text { Current Assets } & \$ 75 \\\text { Total Assets } & 140 \\\text { Current Liabilities } & 40 \\\text { Total Liabilities } & 90 \\\text { Cash } & 8\end{array}$ The debt to assets ratio is

Prepare the necessary journal entries for the following transactions: (a) On September 1, Cole Company borrowed $300,000 from National Bank on a 6-month, 8% note. (b) On December 31, Cole Company accrued interest (assume adjusting entries are only made at the end of the year).

Four thousand bonds with a face value of $1,000 each, are sold at 105. The entry to record the issuance is

A note payable is in the form of

A current liability is a debt the company reasonably expects to pay from existing current assets within

Match the items below by entering the appropriate code letter in the space provided.