Question 1

On February 28,2015,$5,000,000 of 6%,10-year bonds payable,dated December 31,2014,are issued.Interest on the bonds is payable semiannually each June 30 and December 31.If the total amount received (including accrued interest) by the issuing corporation is $5,060,000,which of the following is correct?

Accepted Answer

A)  The bonds were issued at a premium.
B)  The amount of cash paid to bondholders on the next interest date,June 30,2015,is $300,000.
C)  The amount of cash paid to bondholders on the next interest date,June 30,2015,is $50,000.
D)  The bonds were issued at a discount.E) B) and D)
F) A) and B)

Question 2

If a business ceases operations and liquidates,which of the following will be paid last?

Accepted Answer

A)  Owners.
B)  General creditors.
C)  Employees.
D)  Creditors who have collateral for their loans.E) A) and B)
F) B) and C)

Question 3

Sinking funds make a bond issue less attractive to the investor.

Accepted Answer

A) True 
 B)False

Question 4

Assets that have been pledged as security for a loan:

Accepted Answer

A)  Are reported as liabilities on the balance sheet.
B)  Must be sold when the loan matures.
C)  Become the property of the lender until the loan is paid in full.
D)  Are disclosed in the notes to the financial statements.E) C) and D)
F) All of the above

Question 5

The amortization of discount on bonds payable reduces the amount of interest expense recognized during the period.

Accepted Answer

A) True 
 B)False

Question 6

The current portion of long-term debt should be reported:

Accepted Answer

A)  Separately in the long-term liabilities section of the balance sheet.
B)  In the long-term liabilities section of the balance sheet,along with the other long-term debt.
C)  In the current liabilities section of the balance sheet.
D)  In a separate section of the balance sheet,between long-term liabilities and shareholders' equity.E) A) and B)
F) B) and C)

Question 7

Which of the following payroll taxes do not stop once an employee reaches a certain level of income:

Accepted Answer

A)  Medicare taxes.
B)  Social security taxes.
C)  Unemployment taxes.
D)  Medicare,Social security,and unemployment taxes.E) None of the above
F) B) and D)

Question 8

The interest coverage ratio:

Accepted Answer

A)  Is computed by dividing total liabilities by annual interest expense.
B)  Is computed by dividing liquid assets by annual required interest payment.
C)  Indicates the percentage of total assets that are financed with borrowed money.
D)  Measures the number of times the annual interest expense could be covered by annual income from operations.E) None of the above
F) A) and B)

Question 9

A $1,000 bond that sells for 104 has a selling price of:

Accepted Answer

A)  $1,004.
B)  $1,040.
C)  $1,400.
D)  $1,000.E) None of the above
F) A) and B)

Question 10

The account Discount on Bonds Payable actually represents interest expense and will be amortized over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 11

Working capital is equal to current assets less current liabilities.

Accepted Answer

A) True 
 B)False

Question 12

The future value will always be less than the present value.

Accepted Answer

A) True 
 B)False

Question 13

Bonds payable are a means of dividing a very large,long-term liability among many creditors,some of whom may participate in the loan only for a short period of time.

Accepted Answer

A) True 
 B)False

Question 14

The account Discount on Bonds Payable has a debit balance and should appear on the balance sheet as an asset; the account Premium on Bonds Payable has a credit balance and should be classified as a liability.

Accepted Answer

A) True 
 B)False

Question 15

Current liabilities are obligations that must be repaid within the shorter of one year or the operating cycle.

Accepted Answer

A) True 
 B)False

Question 16

A discount on bonds payable is best described as:

Accepted Answer

A)  An element of future interest expense.
B)  A bonus paid by the bondholders to the issuing corporation because of the unusually high interest rate stated in the bonds.
C)  The present value of the future interest payments of bond interest and principal.
D)  An amount below par which the bondholders may be called upon to make good.E) A) and B)
F) A) and C)

Question 17

Payments of pensions and other benefits to retired workers are recognized as expense in the period payment is made.

Accepted Answer

A) True 
 B)False

Question 18

The withholding of taxes from an employee's pay is a liability to the company.

Accepted Answer

A) True 
 B)False

Question 19

The interest coverage ratio is computed by dividing:

Accepted Answer

A)  Net income by interest expense.
B)  Operating income by interest expense.
C)  Interest expense by net income.
D)  Interest expense by operating income.E) None of the above
F) A) and C)

Question 20

When a corporation has a right to redeem bonds in advance of the maturity date,the bond is considered a:

Accepted Answer

A)  Convertible bond.
B)  Callable bond.
C)  Junk bond.
D)  Debenture bond.E) A) and D)
F) None of the above

Exam 10: Liabilities

Assets that have been pledged as security for a loan:

Correct Answer
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The future value will always be less than the present value.

Correct Answer
verified

The interest coverage ratio:

Correct Answer
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A discount on bonds payable is best described as:

Correct Answer
verified

The amortization of discount on bonds payable reduces the amount of interest expense recognized during the period.

Correct Answer
verified

The current portion of long-term debt should be reported:

Correct Answer
verified

Sinking funds make a bond issue less attractive to the investor.

Correct Answer
verified

The account Discount on Bonds Payable actually represents interest expense and will be amortized over the life of the bond.

Correct Answer
verified

Correct Answer
verified

Which of the following payroll taxes do not stop once an employee reaches a certain level of income:

Correct Answer
verified

The withholding of taxes from an employee's pay is a liability to the company.

Correct Answer
verified

A $1,000 bond that sells for 104 has a selling price of:

Correct Answer
verified

The account Discount on Bonds Payable has a debit balance and should appear on the balance sheet as an asset; the account Premium on Bonds Payable has a credit balance and should be classified as a liability.

Correct Answer
verified

Current liabilities are obligations that must be repaid within the shorter of one year or the operating cycle.

Correct Answer
verified

The interest coverage ratio is computed by dividing:

Correct Answer
verified

Bonds payable are a means of dividing a very large,long-term liability among many creditors,some of whom may participate in the loan only for a short period of time.

Correct Answer
verified

Working capital is equal to current assets less current liabilities.

Correct Answer
verified

When a corporation has a right to redeem bonds in advance of the maturity date,the bond is considered a:

Correct Answer
verified

If a business ceases operations and liquidates,which of the following will be paid last?

Correct Answer
verified

Payments of pensions and other benefits to retired workers are recognized as expense in the period payment is made.

Correct Answer
verified

Exam 10: Liabilities

Assets that have been pledged as security for a loan:

Correct AnswerverifiedShow Answer

The future value will always be less than the present value.

Correct AnswerverifiedShow Answer

The interest coverage ratio:

Correct AnswerverifiedShow Answer

A discount on bonds payable is best described as:

Correct AnswerverifiedShow Answer

The amortization of discount on bonds payable reduces the amount of interest expense recognized during the period.

Correct AnswerverifiedShow Answer

The current portion of long-term debt should be reported:

Correct AnswerverifiedShow Answer

Sinking funds make a bond issue less attractive to the investor.

Correct AnswerverifiedShow Answer

The account Discount on Bonds Payable actually represents interest expense and will be amortized over the life of the bond.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following payroll taxes do not stop once an employee reaches a certain level of income:

Correct AnswerverifiedShow Answer

The withholding of taxes from an employee's pay is a liability to the company.

Correct AnswerverifiedShow Answer

A $1,000 bond that sells for 104 has a selling price of:

Correct AnswerverifiedShow Answer

The account Discount on Bonds Payable has a debit balance and should appear on the balance sheet as an asset; the account Premium on Bonds Payable has a credit balance and should be classified as a liability.

Correct AnswerverifiedShow Answer

Current liabilities are obligations that must be repaid within the shorter of one year or the operating cycle.

Correct AnswerverifiedShow Answer

The interest coverage ratio is computed by dividing:

Correct AnswerverifiedShow Answer

Bonds payable are a means of dividing a very large,long-term liability among many creditors,some of whom may participate in the loan only for a short period of time.

Correct AnswerverifiedShow Answer

Working capital is equal to current assets less current liabilities.

Correct AnswerverifiedShow Answer

When a corporation has a right to redeem bonds in advance of the maturity date,the bond is considered a:

Correct AnswerverifiedShow Answer

If a business ceases operations and liquidates,which of the following will be paid last?

Correct AnswerverifiedShow Answer

Payments of pensions and other benefits to retired workers are recognized as expense in the period payment is made.

Correct AnswerverifiedShow Answer

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