Question 1

Convertible bonds:

Accepted Answer

A)  Provide potential benefits only to the issuer.
B)  Provide potential benefits only to the investor.
C)  Provide potential benefits to both the issuer and the investor.
D)  Provide no potential benefits.E) A) and C)
F) All of the above

Question 2

Use the following information to answer the next 6 questions:
X2 issued callable bonds on January 1,2015.The bonds pay interest annually on December 31 each year.X2's accountant has projected the following amortization schedule from issuance until maturity:
 
-What is the annual market interest rate on the bonds?

Accepted Answer

A)  3%.
B)  3.5%.
C)  6%.
D)  7%.E) A) and B)
F) A) and C)

Question 3

Bonds payable should be reported as a long-term liability in the balance sheet at:

Accepted Answer

A)  Face Value.
B)  Current bond market price.
C)  Carrying value.
D)  Face value less accrued interest since the last interest payment date.E) All of the above
F) A) and C)

Question 4

As a company's default risk increases,investors demand a higher market interest rate on their bond investments.

Accepted Answer

A) True 
 B)False

Question 5

The mixture of liabilities and stockholders' equity a business uses is called its capital structure.

Accepted Answer

A) True 
 B)False

Question 6

The entry to record a monthly payment on an installment note such as a car loan:

Accepted Answer

A)  Increases expense,decreases liabilities,and decreases assets.
B)  Increases expense,increases liabilities,and increases assets.
C)  Increases expense,decreases liabilities,and increases assets.
D)  Increases expense,increases liabilities,and decreases assets.E) None of the above
F) A) and C)

Question 7

Monthly installment payments on a note payable include both an amount that represents interest and an amount that represents a reduction of the outstanding loan balance.

Accepted Answer

A) True 
 B)False

Question 8

The Raptor retires a $20 million bond issue when the carrying value of the bonds is $18 million,but the market value of the bonds is $15 million.The entry to record the retirement will include:

Accepted Answer

A)  A debit of $3 million to a loss account.
B)  A credit of $3 million to a gain account.
C)  No gain or loss on retirement.
D)  A credit to cash for $18 million.E) B) and C)
F) A) and D)

Question 9

An amortization schedule for a bond issued at a premium:

Accepted Answer

A)  Has a carrying value that increases over time.
B)  Is contained in the balance sheet.
C)  Is a schedule that reflects the changes in bonds payable over its term to maturity.
D)  All of the other answers are correct.E) B) and C)
F) None of the above

Question 10

Bonds issued below face amount are said to be issued at a discount.

Accepted Answer

A) True 
 B)False

Question 11

The cash interest payment each period is calculated as the:

Accepted Answer

A)  Face amount times the stated interest rate.
B)  Face amount times the market interest rate.
C)  Carrying value times the market interest rate.
D)  Carrying value times the stated interest rate.E) All of the above
F) A) and B)

Question 12

When bonds are issued at a discount,what happens to the carrying value and interest expense over the life of the bonds?

Accepted Answer

A)  Carrying value and interest expense increase.
B)  Carrying value and interest expense decrease.
C)  Carrying value decreases and interest expense increases.
D)  Carrying value increases and interest expense decreases.E) B) and C)
F) None of the above

Question 13

Leverage enables a company to earn a higher return using debt than without debt.

Accepted Answer

A) True 
 B)False

Question 14

Return on assets is calculated as net income divided by the ending balance for total assets.

Accepted Answer

A) True 
 B)False

Question 15

Use the following information to answer the next 6 questions:
Tony Hawk's Adventure (THA) issued callable bonds on January 1,2015.THA's accountant has projected the following amortization schedule from issuance until maturity:
 
-The THA bonds have a life of:

Accepted Answer

A)  2 years.
B)  3 years.
C)  6 years.
D)  Cannot be determined from the given information.E) A) and C)
F) A) and D)

Question 16

We can calculate the issue price of a bond as the face amount plus the total periodic interest payments.

Accepted Answer

A) True 
 B)False

Question 17

Operating leases are contractual agreements where the lessor owns the asset and the lessee simply uses the asset temporarily.

Accepted Answer

A) True 
 B)False

Question 18

For a bond issue that sells for less than the bond face amount,the stated interest rate is:

Accepted Answer

A)  The actual yield rate.
B)  The prime rate.
C)  More than the market rate.
D)  Less than the market rate.E) None of the above
F) A) and B)

Question 19

Gains/losses on the early extinguishment of debt are reported as part of operating income in the income statement.

Accepted Answer

A) True 
 B)False

Question 20

A $500,000 bond issue sold for $510,000.Therefore,the bonds:

Accepted Answer

A)  Sold at a premium because the stated interest rate was higher than the market rate.
B)  Sold for the $500,000 face amount plus $10,000 of accrued interest.
C)  Sold at a discount because the stated interest rate of was higher than the market rate.
D)  Sold at a premium because the market interest rate was higher than the stated rate.E) B) and D)
F) A) and D)

Exam 9: Long-Term Liabilities

An amortization schedule for a bond issued at a premium:

Correct Answer
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Gains/losses on the early extinguishment of debt are reported as part of operating income in the income statement.

Correct Answer
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Monthly installment payments on a note payable include both an amount that represents interest and an amount that represents a reduction of the outstanding loan balance.

Correct Answer
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The Raptor retires a $20 million bond issue when the carrying value of the bonds is $18 million,but the market value of the bonds is $15 million.The entry to record the retirement will include:

Correct Answer
verified

For a bond issue that sells for less than the bond face amount,the stated interest rate is:

Correct Answer
verified

As a company's default risk increases,investors demand a higher market interest rate on their bond investments.

Correct Answer
verified

Return on assets is calculated as net income divided by the ending balance for total assets.

Correct Answer
verified

A $500,000 bond issue sold for $510,000.Therefore,the bonds:

Correct Answer
verified

The cash interest payment each period is calculated as the:

Correct Answer
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The entry to record a monthly payment on an installment note such as a car loan:

Correct Answer
verified

Convertible bonds:

Correct Answer
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When bonds are issued at a discount,what happens to the carrying value and interest expense over the life of the bonds?

Correct Answer
verified

Bonds issued below face amount are said to be issued at a discount.

Correct Answer
verified

Correct Answer
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Operating leases are contractual agreements where the lessor owns the asset and the lessee simply uses the asset temporarily.

Correct Answer
verified

Leverage enables a company to earn a higher return using debt than without debt.

Correct Answer
verified

We can calculate the issue price of a bond as the face amount plus the total periodic interest payments.

Correct Answer
verified

The mixture of liabilities and stockholders' equity a business uses is called its capital structure.

Correct Answer
verified

Bonds payable should be reported as a long-term liability in the balance sheet at:

Correct Answer
verified

Use the following information to answer the next 6 questions: Tony Hawk's Adventure (THA) issued callable bonds on January 1,2015.THA's accountant has projected the following amortization schedule from issuance until maturity: -The THA bonds have a life of:

Correct Answer
verified

Exam 9: Long-Term Liabilities

An amortization schedule for a bond issued at a premium:

Correct AnswerverifiedShow Answer

Gains/losses on the early extinguishment of debt are reported as part of operating income in the income statement.

Correct AnswerverifiedShow Answer

Monthly installment payments on a note payable include both an amount that represents interest and an amount that represents a reduction of the outstanding loan balance.

Correct AnswerverifiedShow Answer

The Raptor retires a $20 million bond issue when the carrying value of the bonds is $18 million,but the market value of the bonds is $15 million.The entry to record the retirement will include:

Correct AnswerverifiedShow Answer

For a bond issue that sells for less than the bond face amount,the stated interest rate is:

Correct AnswerverifiedShow Answer

As a company's default risk increases,investors demand a higher market interest rate on their bond investments.

Correct AnswerverifiedShow Answer

Return on assets is calculated as net income divided by the ending balance for total assets.

Correct AnswerverifiedShow Answer

A $500,000 bond issue sold for $510,000.Therefore,the bonds:

Correct AnswerverifiedShow Answer

The cash interest payment each period is calculated as the:

Correct AnswerverifiedShow Answer

The entry to record a monthly payment on an installment note such as a car loan:

Correct AnswerverifiedShow Answer

Convertible bonds:

Correct AnswerverifiedShow Answer

When bonds are issued at a discount,what happens to the carrying value and interest expense over the life of the bonds?

Correct AnswerverifiedShow Answer

Bonds issued below face amount are said to be issued at a discount.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Operating leases are contractual agreements where the lessor owns the asset and the lessee simply uses the asset temporarily.

Correct AnswerverifiedShow Answer

Leverage enables a company to earn a higher return using debt than without debt.

Correct AnswerverifiedShow Answer

We can calculate the issue price of a bond as the face amount plus the total periodic interest payments.

Correct AnswerverifiedShow Answer

The mixture of liabilities and stockholders' equity a business uses is called its capital structure.

Correct AnswerverifiedShow Answer

Bonds payable should be reported as a long-term liability in the balance sheet at:

Correct AnswerverifiedShow Answer

Use the following information to answer the next 6 questions: Tony Hawk's Adventure (THA) issued callable bonds on January 1,2015.THA's accountant has projected the following amortization schedule from issuance until maturity: -The THA bonds have a life of:

Correct AnswerverifiedShow Answer

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