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Exam 9: Reporting and Analyzing Liabilities

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Question 51

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A measure of a company's solvency is the

A) acid-test ratio.
B) current ratio.
C) times interest earned.
D) asset turnover ratio.

E) None of the above
F) C) and D)

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Question 52

Multiple Choice

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The interest expense recorded on an interest payment date is increased

A) by the amortization of premium on bonds payable.
B) by the amortization of discount on bonds payable.
C) only if the bonds were sold at face value.
D) only if the market rate of interest is less than the stated rate of interest on that date.

E) None of the above
F) A) and B)

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Question 53

Multiple Choice

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Most companies pay current liabilities

If a corporation issued $9,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

The interest charged on a $90,000 note payable, at the rate of 6%, on a 90-day note would be

Payroll taxes include the employer's share of Social Security taxes as well as state and federal unemployment taxes.

When the straight-line method of amortization is used for a bond premium, the amount of interest expense for an interest period is calculated by

A legal document that indicates the name of the issuer, the face value of the bond and such other data is called

Julie Lambert has a large consulting practice. New clients are required to pay one-half of the consulting fees up front. The balance is paid at the conclusion of the consultation. How does Lambert account for the cash received at the end of the engagement?

The effective-interest method of amortization of bond premiums and discounts is considered superior to the straight-line method because it results in a(n)

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that

Moss County Bank agrees to lend the Sadowski Brick Company $500,000 on January 1. Sadowski Brick Company signs a $500,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is

Which of the following is not a current liability on December 31, 2017?

Thayer Company purchased a building on January 2 by signing a long-term $3,360,000 mortgage with monthly payments of $30,800. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

Selected data from 2017 financial statements of Xi Corporation include the following (amount in millions) : $\begin{array}{lr}\text { Current assets } & ¥ 759 \\\text { Total assets } & 1,200 \\\text { Current liabilities } & 400 \\\text { Total liabilities } & 750 \\\text { Cash } & 80 \\\text { Interest expense } & 50 \\\text { income taxes } & 100 \\\text { Net income } & 160\end{array}$ The debt to assets ratio is

During the month, a company sells goods for a total of $106,000, which includes sales taxes of $6,000; therefore, the company should recognize $100,000 in Sales Revenue and $6,000 in Sales Tax Expense.

The present value of a bond is also known as its

The following partial amortization schedule is available for Courtney Company who sold $750,000, five-year, 10% bonds on January 1, 2017 for $780,000 and uses annual straight-line amortization. $\text { BOND AMORTIZATION SCHEDULE }$ $\begin{array}{|l|c|c|c|c|c|}\hline \text { Interest Periods } & \begin{array}{c}\text { Interest } \\\text { to be paid }\end{array} & \begin{array}{c}\text { Interest } \\\text { expense }\end{array} & \begin{array}{c}\text { Premium } \\\text { Amortization }\end{array} & \begin{array}{c}\text { Unamortized } \\\text { Premium }\end{array} & \begin{array}{c}\text { Bond Carrying } \\\text { Value }\end{array} \\\hline \text { January 1,2017 } & & & & \$ 30,000 & \$ 780,000 \\\hline \text { January } 1,2018 & \text { (i) } & \text { (ii) } & \text { (iii) } & \text { (iv) } & (\mathrm{v}) \\\hline\end{array}$ Which of the following amounts should be shown in cell (iv) ?

On January 1, 2017, Michelin Company, a calendar-year company, issued €9,000,000 of mortgage notes payable, of which €3,000,000 is due on January 1 for each of the next three years. The proper statement of financial position presentation on December 31, 2017, is

Bonds that may be exchanged for common stock at the option of the bondholders are called