Question 1

All of the following are advantages of issuing bonds except:

Accepted Answer

A)   less risky to the issuing corporation
B)   does not dilute control of the corporation
C)   interest expense reduces income tax
D)   generally results in higher earnings per shareE) B) and C)
F) A) and C)

Question 2

Dreams Take Flight Ltd. includes the sales tax in the amount recorded in the Sales account. The adjusting entry at the end of the period includes a:

Accepted Answer

A)   debit to Sales
B)   debit to Sales Tax Expense
C)   debit to Sales Tax Payable
D)   credit to SalesE) None of the above
F) A) and C)

Question 3

Under the effective-interest method of amortization, the cash payment on each interest payment date is calculated by multiplying the:

Accepted Answer

A)   carrying value of the bonds times the effective-interest rate for the appropriate time period
B)   carrying value of the bonds times the stated interest rate for the appropriate time period
C)   face value of the bonds times the effective-interest rate for the appropriate time period
D)   face value of the bonds times the stated interest rate for the appropriate time periodE) B) and C)
F) C) and D)

Question 4

The adjusting entry to accrue interest on a note payable requires a credit to Interest Payable.

Accepted Answer

A) True 
 B)False

Question 5

A $10,000 bond quoted at

Accepted Answer

A)   $9,897
B)   $9,662
C)   $10,104
D)   $10,350E) A) and B)
F) A) and C)

Question 6

The interest rate that investors demand for loaning their money is referred to as the:

Accepted Answer

A)   effective interest rate
B)   coupon interest rate
C)   contract interest rate
D)   stated interest rateE) A) and D)
F) A) and B)

Question 7

Arrowplan Inc. prepares its financial statements in accordance with ASPE. It issued $800,000 of 7.5%, 15-year bonds dated March 1, 2020, on May 1, 2020, at 97 1/2 plus accrued interest. If Arrowplan Inc. uses the straight-line method of amortization, the entry to retire the bonds on the maturity date would include a:

Accepted Answer

A)   credit to Discount on Bonds Payable for $20,000
B)   credit to Cash for $800,000
C)   debit to Bonds Payable for $780,000
D)   debit to Premium on Bonds Payable for $20,000E) None of the above
F) All of the above

Question 8

Under the effective-interest method of amortization, the amount of discount amortized each interest period is equal to the:

Accepted Answer

A)   total discount divided by the number of interest payments to be made
B)   amount of interest expense plus the cash paid
C)   amount of interest expense less the cash paid
D)   total amount of interest expense divided by the number of interest payments to be madeE) B) and C)
F) A) and D)

Question 9

Which type of lease will not increase a company's assets or liabilities?

Accepted Answer

A)   an operating lease
B)   a lease that splits the obligations into their current and long-term portions
C)   a lease in which title is transferred to the lessee at the end of the lease term
D)   a finance leaseE) A) and C)
F) A) and B)

Question 10

Using the effective-interest method of amortization, interest expense is based on the carrying amount of the bonds times the effective-interest rate for the interest period.

Accepted Answer

A) True 
 B)False

Question 11

One advantage of borrowing from bondholders is that they have no vote in the management of the company.

Accepted Answer

A) True 
 B)False

Question 12

The excess of a bond's issue price over its face value is known as the:

Accepted Answer

A)   effective-interest
B)   discount
C)   premium
D)   contract interestE) None of the above
F) B) and C)

Question 13

A good credit rating makes it easier to issue shares.

Accepted Answer

A) True 
 B)False

Question 14

Market conditions may force a company to issue its bonds at less than the face value of the bonds. The Discount on Bonds Payable account is used in this situation. This account:

Accepted Answer

A)   is a contra liability account
B)   is a liability account
C)   is an expense account
D)   is a contra asset accountE) B) and C)
F) None of the above

Question 15

When the discount on bonds payable is amortized, the carrying value of the bonds:

Accepted Answer

A)   will decrease
B)   will always remain unchanged
C)   will increase
D)   may increase or decrease depending on the face value of the bondsE) A) and D)
F) A) and C)

Question 16

A company's payroll deductions of income tax, Canada Pension Plan, Employment Insurance, and benefits are all classified as current liabilities.

Accepted Answer

A) True 
 B)False

Question 17

Aviation Holdings Corporation's sales for the day totalled $10,552. Jensen collected an additional

Accepted Answer

A)   credit to Sales Tax Expense
B)   credit to Sales Tax Payable
C)   debit to Sales Tax Payable
D)   debit to Sales Tax ExpenseE) C) and D)
F) B) and C)

Question 18

On July 1, 2020, the Jazz Corporation issues $4,000,000 of 10-year bonds dated July 1, 2020, at 89 when the market rate of interest was 8%. Jazz Corporation uses the effective-interest method of amortization. Interest is paid each June 30 and December 31. The entry to record the first semi-annual interest payment on December 31, 2020, will include a:

Accepted Answer

A)   credit to Discount on Bonds Payable for $284,800
B)   debit to Premium on Bonds Payable for $160,000
C)   credit to Interest Payable for $320,000
D)   debit to Interest Expense for $142,400E) A) and C)
F) B) and D)

Question 19

The carrying amount of bonds issued at a premium is calculated by:

Accepted Answer

A)   subtracting Interest Payable from Bonds Payable
B)   adding Premium on Bonds Payable to Bonds Payable
C)   adding Interest Payable to Bonds Payable
D)   subtracting Premium on Bonds Payable from Bonds PayableE) None of the above
F) C) and D)

Question 20

Current liabilities are obligations due within one year or within the company's normal operating cycle if it is longer than one year.

Accepted Answer

A) True 
 B)False

Exam 7: Liabilities

Market conditions may force a company to issue its bonds at less than the face value of the bonds. The Discount on Bonds Payable account is used in this situation. This account:

Correct Answer
verified

One advantage of borrowing from bondholders is that they have no vote in the management of the company.

Correct Answer
verified

The interest rate that investors demand for loaning their money is referred to as the:

Correct Answer
verified

Under the effective-interest method of amortization, the amount of discount amortized each interest period is equal to the:

Correct Answer
verified

Current liabilities are obligations due within one year or within the company's normal operating cycle if it is longer than one year.

Correct Answer
verified

A company's payroll deductions of income tax, Canada Pension Plan, Employment Insurance, and benefits are all classified as current liabilities.

Correct Answer
verified

Aviation Holdings Corporation's sales for the day totalled $10,552. Jensen collected an additional

Correct Answer
verified

The excess of a bond's issue price over its face value is known as the:

Correct Answer
verified

Dreams Take Flight Ltd. includes the sales tax in the amount recorded in the Sales account. The adjusting entry at the end of the period includes a:

Correct Answer
verified

A good credit rating makes it easier to issue shares.

Correct Answer
verified

Under the effective-interest method of amortization, the cash payment on each interest payment date is calculated by multiplying the:

Correct Answer
verified

Correct Answer
verified

Which type of lease will not increase a company's assets or liabilities?

Correct Answer
verified

The adjusting entry to accrue interest on a note payable requires a credit to Interest Payable.

Correct Answer
verified

Correct Answer
verified

Using the effective-interest method of amortization, interest expense is based on the carrying amount of the bonds times the effective-interest rate for the interest period.

Correct Answer
verified

When the discount on bonds payable is amortized, the carrying value of the bonds:

Correct Answer
verified

All of the following are advantages of issuing bonds except:

Correct Answer
verified

The carrying amount of bonds issued at a premium is calculated by:

Correct Answer
verified

A $10,000 bond quoted at

Correct Answer
verified

Exam 7: Liabilities

Market conditions may force a company to issue its bonds at less than the face value of the bonds. The Discount on Bonds Payable account is used in this situation. This account:

Correct AnswerverifiedShow Answer

One advantage of borrowing from bondholders is that they have no vote in the management of the company.

Correct AnswerverifiedShow Answer

The interest rate that investors demand for loaning their money is referred to as the:

Correct AnswerverifiedShow Answer

Under the effective-interest method of amortization, the amount of discount amortized each interest period is equal to the:

Correct AnswerverifiedShow Answer

Current liabilities are obligations due within one year or within the company's normal operating cycle if it is longer than one year.

Correct AnswerverifiedShow Answer

A company's payroll deductions of income tax, Canada Pension Plan, Employment Insurance, and benefits are all classified as current liabilities.

Correct AnswerverifiedShow Answer

Aviation Holdings Corporation's sales for the day totalled $10,552. Jensen collected an additional

Correct AnswerverifiedShow Answer

The excess of a bond's issue price over its face value is known as the:

Correct AnswerverifiedShow Answer

Dreams Take Flight Ltd. includes the sales tax in the amount recorded in the Sales account. The adjusting entry at the end of the period includes a:

Correct AnswerverifiedShow Answer

A good credit rating makes it easier to issue shares.

Correct AnswerverifiedShow Answer

Under the effective-interest method of amortization, the cash payment on each interest payment date is calculated by multiplying the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which type of lease will not increase a company's assets or liabilities?

Correct AnswerverifiedShow Answer

The adjusting entry to accrue interest on a note payable requires a credit to Interest Payable.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Using the effective-interest method of amortization, interest expense is based on the carrying amount of the bonds times the effective-interest rate for the interest period.

Correct AnswerverifiedShow Answer

When the discount on bonds payable is amortized, the carrying value of the bonds:

Correct AnswerverifiedShow Answer

All of the following are advantages of issuing bonds except:

Correct AnswerverifiedShow Answer

The carrying amount of bonds issued at a premium is calculated by:

Correct AnswerverifiedShow Answer

A $10,000 bond quoted at

Correct AnswerverifiedShow Answer

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