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A bond discount is:


A) a result of the interest payments being less than the cost of borrowing.
B) essentially free money.
C) a result of the interest payments being more than the cost of borrowing.
D) reported on the income statement as a loss on the issuance of a bond.

E) B) and C)
F) C) and D)

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Using the simplified effective-interest amortization,the credit to Cash each interest payment is calculated as:


A) Bonds Payable, Net x Market Interest Rate x Time.
B) Bonds Payable, Net x Stated Interest Rate x Time.
C) Face Value x Stated Interest Rate x Time.
D) Face Value x Market Interest Rate x Time.

E) A) and D)
F) A) and C)

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On January 1,2016,a company issues 3-year bonds with a face value of $50,000 and a stated interest rate of 7%.Because the market interest rate is 9%,the company receives $47,469 for the bond. Required: Part a.Determine the interest expense,the cash payment for interest,and the amount of the premium that will be amortized during the year ending December 31,2016. Part b.Prepare the journal entry to record the first interest payment on December 31,2016.

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Part a
Interest expense = Carrying value...

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Using the simplified effective-interest amortization,interest expense is calculated as:


A) Bonds Payable, Net x Market Interest Rate x Time.
B) Bonds Payable, Net x Stated Interest Rate x Time.
C) Face Value x Stated Interest Rate x Time.
D) Face Value x Market Interest Rate x Time.

E) None of the above
F) B) and C)

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During the year,a $1,000,000 lawsuit was filed against a US company for unsafe working conditions.Management and the attorneys feel that it is not likely that the company will lose the case.The plaintiff who filed the lawsuit has offered to settle for $600,000.Management estimates that lawsuits for unsafe working conditions are generally settled for $300,000.What amount of contingent liability would be recorded for this lawsuit on the current balance sheet?


A) $100,000
B) $600,000
C) $300,000
D) $0

E) None of the above
F) A) and B)

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Which of the following events does not create a liability?


A) Buying goods and services on credit
B) Obtaining a short-term loan
C) Issuing long-term debt
D) Remitting sales tax to the government

E) A) and D)
F) A) and C)

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The Discount on Bonds Payable account is:


A) a contra account to Bonds Payable.
B) a miscellaneous revenue account.
C) an expense account.
D) expensed only at the bond's maturity.

E) All of the above
F) A) and D)

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A company has current assets of $5 million and net income of $10 million.Current liabilities total $2.5 million,interest expense is $2 million,and income tax expense is $3 million.What is the times interest earned ratio for this company?


A) 0.5
B) 7.5
C) 0.3
D) 2.0

E) None of the above
F) B) and C)

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Use the information above to answer the following question.Assuming Disco World adjusts its accounts only at its December 31 year end,what entry must Disco World make to account for the services provided through that date?


A) Debit Cash and credit Dance Lessons Revenue for $3,000
B) Debit Unearned Revenue and credit Dance Lessons Revenue for $4,500
C) Debit Unearned Revenue and credit Dance Lessons Revenue for $3,000
D) Debit Dance Lessons Revenue and credit Unearned Revenue for $3,000

E) C) and D)
F) All of the above

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Bonds with a stated interest rate of 9% and a face value totaling $600,000 were issued for $624,000 on January 1,2016,when the market interest rate was 8%.The company uses effective-interest bond amortization. Required: Determine the carrying value of the bonds at December 31,2017.

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At the beginning of the year,a firm had $120,000 in total assets and a debt-to-assets ratio of 0.5 or 50%.During the year,the firm's assets increased by $40,000,and its liabilities increased by $36,000.What is the debt-to-assets ratio at the end of the year?


A) 0.6 or 60%
B) 0.4 or 40%
C) 0.9 or 90%
D) 1.7 or 170%

E) A) and D)
F) A) and C)

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Which type of contingent liability would most likely be reported on a balance sheet prepared in accordance with GAAP?


A) Remote contingent liability
B) Reasonably possible contingent liability
C) Probable contingent liability that can be estimated
D) Quite likely contingent liability

E) C) and D)
F) A) and B)

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Travis County Bank agrees to lend Brickyard Corporation $200,000 on January 1.Brickyard signs a $200,000, 4%, 9-month note.Interest is due at maturity on September 30.The company's fiscal year ends June 30 and adjusting entries are recorded at that time only. -Use the information above to answer the following question.What adjusting entry should Brickyard make on June 30 before preparing its annual financial statements? Debit Interest Expense and credit Interest Payable for $4,000

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Debit Interest Expen...

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When interest expense is calculated using the effective-interest amortization method,interest expense on a bond that pays interest annually is equal to the:


A) actual amount of interest paid.
B) carrying value of the bonds payable multiplied by the effective interest rate.
C) maturity value of the bonds payable multiplied by the effective interest rate.
D) carrying value of the bonds payable multiplied by the stated interest rate.

E) B) and C)
F) A) and C)

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Travis County Bank agrees to lend Brickyard Corporation $200,000 on January 1.Brickyard signs a $200,000, 4%, 9-month note.Interest is due at maturity on September 30.The company's fiscal year ends June 30 and adjusting entries are recorded at that time only. -Use the information above to answer the following question.On January 1,which of the following journal entries will be made by Brickyard to record the issuance of the note?


A) Debit Interest Expense for $6,000, debit Cash $194,000, and credit Notes Payable for $200,000
B) Debit Cash and credit Notes Payable for $200,000
C) Debit Cash for $200,000, debit Interest Expense for $6,000, and credit Notes Payable for $206,000
D) Debit Cash for $200,000, debit Interest Expense for $6,000, credit Notes Payable for $200,000, and credit Interest Payable for $6,000

E) A) and C)
F) All of the above

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The following data came from the financial statements of a company: The following data came from the financial statements of a company: What is the company's times interest earned ratio? A) 130 B) 129 C) 122 D) 139 What is the company's times interest earned ratio?


A) 130
B) 129
C) 122
D) 139

E) A) and B)
F) B) and C)

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Issuing a note payable for cash immediately results in a(n) :


A) increase in assets and an increase in liabilities.
B) decrease in assets and an increase in liabilities.
C) decrease in assets and a decrease liabilities.
D) increase in liabilities and a decrease in stockholders' equity.

E) C) and D)
F) None of the above

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Which of the following statements about the issuance of bonds at a discount is not correct?


A) The contra liability account, Discount on Bonds Payable, is amortized each year by shifting part of its balance to interest expense.
B) As the current date approaches the maturity date, the carrying value of the bond approaches the face value of the bond.
C) At the date of issuance, the market interest rate was higher than the stated interest rate.
D) The account used to record the discount is a normal credit balance account.

E) B) and C)
F) B) and D)

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Callable bonds can be converted to stock.

A) True
B) False

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Which one of the following statements about amortization of discounts and premiums is not correct?


A) Under straight-line amortization, when a bond is sold at a premium, the annual premium amortization is the total premium divided by the number of years until bond maturity.
B) When a bond is sold at a discount, interest expense recorded using the effective-interest method is less than the interest paid on the bond.
C) The effective-interest method of amortization is considered to be conceptually superior to straight-line amortization.
D) When a bond discount is amortized using the effective-interest method, the promised interest payment is less than the interest expense, so the bond liability will increase as a result of the contra-liability account decreasing.

E) B) and D)
F) C) and D)

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