Question 1

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of principal will be included in the first annual payment?

Accepted Answer

A)  $17,258
B)  $232,742
C)  $20,000
D)  $37,258
E)  $25,000F) D) and E)
G) None of the above

Question 2

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

Accepted Answer

A) True 
 B)False

Question 3

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

Accepted Answer

A) True 
 B)False

Question 4

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

Accepted Answer

A)  Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.
B)  Debit Notes Payable $11,250; credit Cash $11,250.
C)  Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.
D)  Debit Notes Payable $32,136; credit Cash $32,136.
E)  Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.F) A) and E)
G) C) and D)

Question 5

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

Accepted Answer

A) True 
 B)False

Question 6

The contract rate on previously issued bonds changes as the market rate of interest changes.

Accepted Answer

A) True 
 B)False

Question 7

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.

Accepted Answer

A) True 
 B)False

Question 8

Identify the advantages and disadvantages of bond financing.

Accepted Answer

The advantages of bond financing include...

Question 9

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Accepted Answer

A) True 
 B)False

Question 10

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Accepted Answer

A) True 
 B)False

Question 11

An advantage of bonds is:

Accepted Answer

A)  Bond payments can be burdensome when income and cash flow are low.
B)  Bonds require payment of par value at maturity.
C)  Bonds require payment of periodic interest.
D)  Bonds can decrease return on equity.
E)  Bonds do not affect owner control.F) A) and B)
G) A) and C)

Question 12

On January 1, Year 1, Stratton Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years. The required general journal entry to record the payment on the note on December 31, Year 2 is:

Accepted Answer

A)  Debit Interest Expense $6,493; debit Notes Payable $7,745; credit Cash $14,238.
B)  Debit Notes Payable $14,238; credit Cash $14,238.
C)  Debit Interest Expense $7,000; debit Notes Payable $7,238; credit Cash $14,238.
D)  Debit Notes Payable $10,000; debit Interest Expense $4,238; credit Cash $14,238.
E)  Debit Notes Payable $7,000; debit Interest Expense $7,238; credit Cash $14,238.F) C) and D)
G) A) and C)

Question 13

A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is:

Accepted Answer

A)  $10,000 loss.
B)  $22,000 gain.
C)  $0.
D)  $10,000 gain.
E)  $22,000 loss.F) All of the above
G) None of the above

Question 14

A discount on bonds payable:

Accepted Answer

A)  Is not allowed in many states to protect creditors.
B)  Increases the Bond Payable account.
C)  Occurs when a company issues bonds with a contract rate more than the market rate.
D)  Occurs when a company issues bonds with a contract rate less than the market rate.
E)  Decreases the total bond interest expense.F) C) and E)
G) B) and D)

Question 15

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Accepted Answer

A) True 
 B)False

Question 16

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

Accepted Answer

A) True 
 B)False

Question 17

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

Accepted Answer

A bond is a written promise to pay an am...

Question 18

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Accepted Answer

A)  $1,500 loss.
B)  $3,000 loss.
C)  $3,000 gain.
D)  $0 gain or loss.
E)  $1,500 gain.F) None of the above
G) A) and B)

Question 19

Sharmer Company issues 5%, 5-year bonds with a par value of $1,000,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling) price, assuming the following factors:   Present Value of an n=i= Annuity  Present value of $155%4.32950.7835103%8.75210.781256%4.21240.7473103%8.53070.7441\begin{array}{rlll}&&	ext { Present Value of an }\n=&i=&	ext { Annuity }&	ext { Present value of } \mathbb{\$1}\5 & 5 \% & 4.3295 & 0.7835 \10 & 3 \% & 8.7521 & 0.7812 \5 & 6 \% & 4.2124 & 0.7473 \10 & 3 \% & 8.5307 & 0.7441\end{array}n=510510​i=5%3%6%3%​ Present Value of an  Annuity 4.32958.75214.21248.5307​ Present value of $10.78350.78120.74730.7441​

Accepted Answer

A)  $1,213,255
B)  $957,355
C)  $1,000,000
D)  $786,745
E)  $1,250,000 F) D) and E)
G) None of the above

Question 20

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

Accepted Answer

A) True 
 B)False

Exam 14: Long-Term Liabilities

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

Correct Answer
verified

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Correct Answer
verified

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.

Correct Answer
verified

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Correct Answer
verified

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

Correct Answer
verified

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

Correct Answer
verified

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Correct Answer
verified

An advantage of bonds is:

Correct Answer
verified

Correct Answer
verified

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

Correct Answer
verified

Correct Answer
verified

A discount on bonds payable:

Correct Answer
verified

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of principal will be included in the first annual payment?

Correct Answer
verified

The contract rate on previously issued bonds changes as the market rate of interest changes.

Correct Answer
verified

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

Correct Answer
verified

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Correct Answer
verified

Identify the advantages and disadvantages of bond financing.

Correct Answer
verified
The advantages of bond financing include...
View Answer

Correct Answer
verified

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

Correct Answer
verified
A bond is a written promise to pay an am...
View Answer

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

Correct Answer
verified

Exam 14: Long-Term Liabilities

The effective interest method assigns a bond interest expense amount that increases over the life of a premium bond.

Correct AnswerverifiedShow Answer

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Correct AnswerverifiedShow Answer

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.

Correct AnswerverifiedShow Answer

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Correct AnswerverifiedShow Answer

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

Correct AnswerverifiedShow Answer

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

Correct AnswerverifiedShow Answer

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Correct AnswerverifiedShow Answer

An advantage of bonds is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A discount on bonds payable:

Correct AnswerverifiedShow Answer

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What amount of principal will be included in the first annual payment?

Correct AnswerverifiedShow Answer

The contract rate on previously issued bonds changes as the market rate of interest changes.

Correct AnswerverifiedShow Answer

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

Correct AnswerverifiedShow Answer

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Correct AnswerverifiedShow Answer

Identify the advantages and disadvantages of bond financing.

Correct AnswerverifiedThe advantages of bond financing include...View AnswerShow Answer

Correct AnswerverifiedShow Answer

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

Correct AnswerverifiedA bond is a written promise to pay an am...View AnswerShow Answer

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The advantages of bond financing include...
View Answer

Correct Answer
verified

Correct Answer
verified
A bond is a written promise to pay an am...
View Answer

Correct Answer
verified