Reference no: EM132326284

Question

1. Failure to record an accrued liability causes a company? to:

A. overstate expenses

B. overstate liabilities

C. overstate assets

D. overstate? owners' equity

2. A bond issued at a discount typically has a market price that decreases toward maturity value.

True

False

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

A. stated rate of interest

B. contract rate of interest

C. effective rate of interest

D. the stated or contract rate of interest

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

A. amount of interest expense less the cash paid

B. total amount of interest expense divided by the number of interest payments to be made

C. total discount divided by the number of interest payments to be made

D. amount of interest expense plus the cash paid

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

A. an operating lease

B. a finance lease

C. a lease in which title is transferred to the lessee at the end of the lease term

D. the present value of lease payments is? 90% or more of the market value of the leased asset

6. The market or effective rate of interest is used to calculate the actual amount of interest bondholders will receive from a company issuing bonds.

True

False

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

A. will increase

B. will decrease

C. will always remain unchanged

D. may increase or decrease depending on the face value of the bonds

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

A. carrying value of the bonds times the stated interest rate for the appropriate time period

B. carrying value of the bonds times the effective-interest rate for the appropriate time period

C. face value of the bonds times the stated interest rate for the appropriate time period

D. face value of the bonds times the effective-interest rate for the appropriate time period

9. A? $1,500 bond quoted at 98? 1/2 is selling? for:

A. ?$1,518

B. ?$1,478

C. ?$1,492

D. ?$1,500

10. How does a company account for the difference between interest expense and the cash payment of interest when bonds are issued at less than their face? value?

A. The difference is accounted for using Amortization of Bond Premium.

B. The difference is accounted for using Amortization of Bond Discount.

C. The difference is accounted for using Bonds Payable.

D. In this situation the cash payment of interest will exceed interest expense.

11. The interest rate that determines the amount of cash paid to the bondholder is referred to as? the:

A. contract rate of interest

B. effective rate of interest

C. market rate of interest

D. the effective or market rate of interest

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

A. effective-interest

B. contract interest

C. discount

D. premium

13. On a? bond's maturity? date, its carrying value will equal? the:

A. present value of the bond on its issuance date

B. maturity value

C. maturity value plus all interest payments

D. maturity value less all interest payments

14. Another name for the effective interest rate is the market interest rate.

True

False

15. Bonds with a face value of? $100,000 were sold at an effective rate of? 10% to yield cash proceeds in excess of? $100,000. It is apparent the bonds had? a:

A. stated rate less than? 10%

B. market rate less than? 10%

C. stated rate greater than? 10%

D. market rate greater than? 10%

16. On July? 1, 2016, the Jazz Corporation issues? $4,000,000 of 10-year bonds dated July? 1, 2016, 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, 2016, will include? a:

A. debit to Interest Expense for? $142,400

B. credit to Discount on Bonds Payable for? $284,800

C. debit to Premium on Bonds Payable for? $160,000

D. credit to Interest Payable for? $320,000

17. Under the effective-interest method of amortization for? bonds, the cash payment on each interest payment? date:

A. increases over the first half of the life of the? bond, and then decreases thereafter

B. decreases over the life of the bond

C. is constant

D. increases over the life of the bond

18. Under the effective-interest method of? amortization, interest expense each period can be calculated by multiplying? the:

A. carrying value of the bonds times the stated interest rate for the appropriate time period

B. carrying value of the bonds times the effective-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 period