Question 1

Bonds that are issued in the name of the owner are

Accepted Answer

A)   coupon bonds.
B)   bearer bonds.
C)   serial bonds.
D)   registered bonds.

Question 2

On January 1, Martinez Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond discount. At the end of the first year, Martinez should report unamortized bond discount of:

Accepted Answer

A)   $164,700.
B)   $171,300.
C)   $154,830.
D)   $153,000.

Question 3

The market interest rate is often called the

Accepted Answer

A)   stated rate.
B)   effective rate.
C)   coupon rate.
D)   contractual rate.

Question 4

Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization.  Which of the following amounts should be shown in cell (iii) ?

Accepted Answer

A)   $4,000
B)   $8,000
C)   $1,600
D)   $800

Question 5

The carrying value of bonds at maturity should be equal to the face value of the bonds.

Accepted Answer

A) True 
 B)False

Question 6

If the market interest rate is greater than the contractual interest rate, bonds will sell

Accepted Answer

A)   at a premium.
B)   at face value.
C)   at a discount.
D)   only after the stated interest rate is increased. C

Question 7

A bond discount must

Accepted Answer

A)   always be amortized using straight-line amortization.
B)   always be amortized using the effective-interest method.
C)   be amortized using the effective-interest method if it yields annual amounts that are materially different than the straight-line method.
D)   be amortized using the straight-line method if it yields annual amounts that are materially different than the effective-interest method.

Question 8

Eby Corporation entered into the following transactions:

Accepted Answer

1. On January 1, 2010 Gant Car Rental le...

Question 9

A 10% stock dividend is the equivalent of a $1,000 par value bond paying annual interest of 10%.

Accepted Answer

A) True 
 B)False

Question 10

The adjusted trial balance for Payne Corporation at the end of the current year contained the following accounts:  
Instructions
(a) Prepare the long-term liabilities section of the balance sheet.
(b) Indicate the proper balance sheet classification for the accounts listed above that do not belong in the long-term liabilities section.

Accepted Answer

(a) Long-term liabilities

(b...

Question 11

Herman Company received proceeds of $188,500 on 10-year, 8% bonds issued on January 1, 2009. The bonds had a face value of $200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Herman uses the straight-line method of amortization.
What is the amount of interest Herman must pay the bondholders in 2009?

Accepted Answer

A)   $15,080
B)   $16,000
C)   $17,150
D)   $14,850

Question 12

Under a capital lease, the lease/asset is reported on the balance sheet under plant assets.

Accepted Answer

A) True 
 B)False

Question 13

The terms of the bond issue are set forth in a formal legal document called a bond indenture.

Accepted Answer

A) True 
 B)False  True

Question 14

If bonds have been issued at a discount, over the life of the bonds, the

Accepted Answer

A)   carrying value of the bonds will decrease.
B)   carrying value of the bonds will increase.
C)   interest expense will increase, if the discount is being amortized on a straight-line basis.
D)   unamortized discount will increase.

Question 15

In a recent year Cey Corporation had net income of $250,000, interest expense of $50,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year?

Accepted Answer

A)   $500,000
B)   $450,000
C)   $400,000
D)   None of the above.

Question 16

United Health is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are:

Accepted Answer

1. Issue 50,000 shares of $10 par value common stock at $50 per share.
2. Issue $2,500,000, 10%, 10-year bonds at par.
It is estimated that the company will earn $900,000 before interest and taxes as a result of acquiring the medical equipment. The company has an estimated tax rate of 30% and has 100,000 shares of common stock outstanding prior to the new financing.
Instructions
Determine the effect on net income and earnings per share for these two methods of financing.

Question 17

Over the term of the bonds, the balance in the Discount on Bonds Payable account will

Accepted Answer

A)   fluctuate up and down if the market is volatile.
B)   decrease.
C)   increase.
D)   be unaffected until the bonds mature.

Question 18

The contractual interest rate is always equal to the market interest rate on the date that bonds are issued.

Accepted Answer

A) True 
 B)False

Question 19

Each of the following is correct regarding bonds except they are

Accepted Answer

A)   a form of interest-bearing notes payable.
B)   attractive to many investors.
C)   issued by corporations and governmental agencies.
D)   sold in large denominations.

Question 20

The following exhibit is for Kmart bonds.  The contractual interest rate of the K mart bonds is

Accepted Answer

A)   greater than the market interest rate.
B)   less than the market interest rate.
C)   equal to the market interest rate.
D)   not determinable.

Exam 15: Long-Term Liabilities

Bonds that are issued in the name of the owner are

Correct Answer
verified

Correct Answer
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The market interest rate is often called the

Correct Answer
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Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization. Which of the following amounts should be shown in cell (iii) ?

Correct Answer
verified

The carrying value of bonds at maturity should be equal to the face value of the bonds.

Correct Answer
verified

If the market interest rate is greater than the contractual interest rate, bonds will sell

Correct Answer
verified
C

A bond discount must

Correct Answer
verified

Eby Corporation entered into the following transactions:

Correct Answer
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1. On January 1, 2010 Gant Car Rental le...
View Answer

A 10% stock dividend is the equivalent of a $1,000 par value bond paying annual interest of 10%.

Correct Answer
verified

Correct Answer
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(a) Long-term liabilities
(b...
View Answer

Correct Answer
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Under a capital lease, the lease/asset is reported on the balance sheet under plant assets.

Correct Answer
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The terms of the bond issue are set forth in a formal legal document called a bond indenture.

Correct Answer
verified
True

If bonds have been issued at a discount, over the life of the bonds, the

Correct Answer
verified

In a recent year Cey Corporation had net income of $250,000, interest expense of $50,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year?

Correct Answer
verified

United Health is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are:

Over the term of the bonds, the balance in the Discount on Bonds Payable account will

Correct Answer
verified

The contractual interest rate is always equal to the market interest rate on the date that bonds are issued.

Correct Answer
verified

Each of the following is correct regarding bonds except they are

Correct Answer
verified

The following exhibit is for Kmart bonds. The contractual interest rate of the K mart bonds is

Correct Answer
verified

Exam 15: Long-Term Liabilities

Bonds that are issued in the name of the owner are

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The market interest rate is often called the

Correct AnswerverifiedShow Answer

Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization. Which of the following amounts should be shown in cell (iii) ?

Correct AnswerverifiedShow Answer

The carrying value of bonds at maturity should be equal to the face value of the bonds.

Correct AnswerverifiedShow Answer

If the market interest rate is greater than the contractual interest rate, bonds will sell

Correct AnswerverifiedC

A bond discount must

Correct AnswerverifiedShow Answer

Eby Corporation entered into the following transactions:

Correct Answerverified1. On January 1, 2010 Gant Car Rental le...View AnswerShow Answer

A 10% stock dividend is the equivalent of a $1,000 par value bond paying annual interest of 10%.

Correct AnswerverifiedShow Answer

Correct Answerverified(a) Long-term liabilities (b...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Under a capital lease, the lease/asset is reported on the balance sheet under plant assets.

Correct AnswerverifiedShow Answer

The terms of the bond issue are set forth in a formal legal document called a bond indenture.

Correct AnswerverifiedTrue

If bonds have been issued at a discount, over the life of the bonds, the

Correct AnswerverifiedShow Answer

In a recent year Cey Corporation had net income of $250,000, interest expense of $50,000, and a times interest earned ratio of 9. What was Cey Corporation's income before taxes for the year?

Correct AnswerverifiedShow Answer

United Health is considering two alternatives for the financing of some high technology medical equipment. These two alternatives are:

Over the term of the bonds, the balance in the Discount on Bonds Payable account will

Correct AnswerverifiedShow Answer

The contractual interest rate is always equal to the market interest rate on the date that bonds are issued.

Correct AnswerverifiedShow Answer

Each of the following is correct regarding bonds except they are

Correct AnswerverifiedShow Answer

The following exhibit is for Kmart bonds. The contractual interest rate of the K mart bonds is

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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C

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1. On January 1, 2010 Gant Car Rental le...
View Answer

Correct Answer
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Correct Answer
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(a) Long-term liabilities
(b...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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True

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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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