Question 1

Accepted Answer

On January 1, 2021, Carter Corporation issued $5,000,000, 10-year, 8% bonds at 102.Interest is payable annually on January 1.The journal entry to record this transaction on January 1, 2021 is  ) undefined
 ) undefined

Question 2

If bonds are issued at a discount, it means that the

Accepted Answer

A)  financial strength of the issuer is suspect.
B)  market interest rate is higher than the contractual interest rate.
C)  market interest rate is lower than the contractual interest rate.
D)  bondholder will receive effectively less interest than the contractual interest rate.E) A) and D)
F) B) and D)

Question 3

When an interest-bearing note matures, the balance in the Notes Payable account is

Accepted Answer

A)  less than the total amount repaid by the borrower.
B)  the difference between the market value of the note and the face value of the note.
C)  equal to the total amount repaid by the borrower.
D)  greater than the total amount repaid by the borrower.E) A) and B)
F) A) and C)

Question 4

A current liability must be paid out of current earnings.

Accepted Answer

A) True 
 B)False

Question 5

Notes payable usually require the borrower to pay interest.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following amounts increases each period when accounting for long-term notes payable?

Accepted Answer

A)  Cash payment
B)  Interest expense
C)  Principal balance
D)  Reduction of principalE) A) and B)
F) B) and D)

Question 7

The effective-interest method of amortization results in varying amounts of amortization and interest expense per period but a constant interest rate.

Accepted Answer

A) True 
 B)False

Question 8

Companies generally report current liabilities on the balance sheet in

Accepted Answer

A)  alphabetical order.
B)  order of maturity.
C)  random order.
D)  order of magnitude.E) C) and D)
F) All of the above

Question 9

The loss on bond redemption is equal to

Accepted Answer

A)  the balance in discount on bonds payable.
B)  the excess of the redemption price over the face value of the bonds.
C)  the excess of the redemption price over the carrying value of the bonds.
D)  the balance in premium on bonds payable.E) A) and D)
F) All of the above

Question 10

In the balance sheet, mortgage notes payable are reported as

Accepted Answer

A)  a current liability only.
B)  a long-term liability only.
C)  both a current and a long-term liability.
D)  a current liability except for the reduction in principal amount.E) A) and B)
F) A) and C)

Question 11

An amount that is expected to be paid within one year through the creation of long-term debt is a current liability.

Accepted Answer

A) True 
 B)False

Question 12

A note payable is in the form of

Accepted Answer

A)  a contingency that is reasonably likely to occur.
B)  a written promissory note.
C)  an oral agreement.
D)  a standing agreement.E) A) and B)
F) All of the above

Question 13

On January 1, 2021, $2,000,000 of 10-year, 10% bonds, were issued for $1,946,000.Interest is paid annually on January 1.If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is

Accepted Answer

A)  $19,460.
B)  $5,400.
C)  $1,454.
D)  $450.E) A) and B)
F) All of the above

Question 14

Lake Company received proceeds of $188,000 on 10-year, 6% bonds issued on January 1, 2021.The bonds had a face value of $200,000, pay interest annually on January 1, and have a call price of 101.What is the amount of interest Lake must pay the bondholders on January 1, 2022?

Accepted Answer

A)  $11,200
B)  $12,000
C)  $13,200
D)  $10,800E) B) and D)
F) C) and D)

Question 15

Bond discount should be amortized to comply with

Accepted Answer

A)  the historical cost principle.
B)  the expense recognition principle.
C)  the revenue recognition principle.
D)  conservatism.E) All of the above
F) None of the above

Question 16

Bond interest paid by a corporation is an expense, whereas dividends paid are not anexpense of the corporation.

Accepted Answer

A) True 
 B)False

Question 17

A corporation issues $500,000 of 8%, 5-year bonds on January 1, 2021, for $479,000.Interest is paid annually on January 1.If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2021's adjusting entry is

Accepted Answer

A)  $44,200.
B)  $40,000.
C)  $35,800.
D)  $4,200.E) C) and D)
F) B) and C)

Question 18

During the month, a company sells goods for a total of $108,000, which includes sales taxes of $8,000; therefore, the company should recognize $100,000 in Sales Revenues and $8,000 in Sales Tax Expense.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The current ratio permits analysts to compare the liquidity of different sized companies.

Accepted Answer

A) True 
 B)False

Exam 10: Liabilities

Bond interest paid by a corporation is an expense, whereas dividends paid are not anexpense of the corporation.

Correct Answer
verified

Lake Company received proceeds of $188,000 on 10-year, 6% bonds issued on January 1, 2021.The bonds had a face value of $200,000, pay interest annually on January 1, and have a call price of 101.What is the amount of interest Lake must pay the bondholders on January 1, 2022?

Correct Answer
verified

The current ratio permits analysts to compare the liquidity of different sized companies.

Correct Answer
verified

The loss on bond redemption is equal to

Correct Answer
verified

Bond discount should be amortized to comply with

Correct Answer
verified

Correct Answer
verified

An amount that is expected to be paid within one year through the creation of long-term debt is a current liability.

Correct Answer
verified

During the month, a company sells goods for a total of $108,000, which includes sales taxes of $8,000; therefore, the company should recognize $100,000 in Sales Revenues and $8,000 in Sales Tax Expense.

Correct Answer
verified

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

Correct Answer
verified

A note payable is in the form of

Correct Answer
verified

On January 1, 2021, $2,000,000 of 10-year, 10% bonds, were issued for $1,946,000.Interest is paid annually on January 1.If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is

Correct Answer
verified

In the balance sheet, mortgage notes payable are reported as

Correct Answer
verified

Notes payable usually require the borrower to pay interest.

Correct Answer
verified

Which one of the following amounts increases each period when accounting for long-term notes payable?

Correct Answer
verified

If bonds are issued at a discount, it means that the

Correct Answer
verified

Companies generally report current liabilities on the balance sheet in

Correct Answer
verified

A corporation issues $500,000 of 8%, 5-year bonds on January 1, 2021, for $479,000.Interest is paid annually on January 1.If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2021's adjusting entry is

Correct Answer
verified

The effective-interest method of amortization results in varying amounts of amortization and interest expense per period but a constant interest rate.

Correct Answer
verified

When an interest-bearing note matures, the balance in the Notes Payable account is

Correct Answer
verified

A current liability must be paid out of current earnings.

Correct Answer
verified

Exam 10: Liabilities

Bond interest paid by a corporation is an expense, whereas dividends paid are not anexpense of the corporation.

Correct AnswerverifiedShow Answer

Lake Company received proceeds of $188,000 on 10-year, 6% bonds issued on January 1, 2021.The bonds had a face value of $200,000, pay interest annually on January 1, and have a call price of 101.What is the amount of interest Lake must pay the bondholders on January 1, 2022?

Correct AnswerverifiedShow Answer

The current ratio permits analysts to compare the liquidity of different sized companies.

Correct AnswerverifiedShow Answer

The loss on bond redemption is equal to

Correct AnswerverifiedShow Answer

Bond discount should be amortized to comply with

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An amount that is expected to be paid within one year through the creation of long-term debt is a current liability.

Correct AnswerverifiedShow Answer

During the month, a company sells goods for a total of $108,000, which includes sales taxes of $8,000; therefore, the company should recognize $100,000 in Sales Revenues and $8,000 in Sales Tax Expense.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A note payable is in the form of

Correct AnswerverifiedShow Answer

On January 1, 2021, $2,000,000 of 10-year, 10% bonds, were issued for $1,946,000.Interest is paid annually on January 1.If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is

Correct AnswerverifiedShow Answer

In the balance sheet, mortgage notes payable are reported as

Correct AnswerverifiedShow Answer

Notes payable usually require the borrower to pay interest.

Correct AnswerverifiedShow Answer

Which one of the following amounts increases each period when accounting for long-term notes payable?

Correct AnswerverifiedShow Answer

If bonds are issued at a discount, it means that the

Correct AnswerverifiedShow Answer

Companies generally report current liabilities on the balance sheet in

Correct AnswerverifiedShow Answer

A corporation issues $500,000 of 8%, 5-year bonds on January 1, 2021, for $479,000.Interest is paid annually on January 1.If the corporation uses the straight-line method of amortization of bond discount, the amount of bond interest expense to be recognized in December 31, 2021's adjusting entry is

Correct AnswerverifiedShow Answer

The effective-interest method of amortization results in varying amounts of amortization and interest expense per period but a constant interest rate.

Correct AnswerverifiedShow Answer

When an interest-bearing note matures, the balance in the Notes Payable account is

Correct AnswerverifiedShow Answer

A current liability must be paid out of current earnings.

Correct AnswerverifiedShow Answer

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