ACC 206 Week 7 Quiz – Strayer



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Quiz 5 Chapter 15

CHAPTER15


LONG-TERMLIABILITIES


CHAPTERSTUDYOBJECTIVES


1.Explainwhybondsareissued.

2.Preparetheentriesfortheissuanceofbondsandinterestexpense.

3.Describetheentrieswhenbondsareredeemedorconverted.

4.Describetheaccountingforlong-termnotespayable.

5.Contrasttheaccountingforoperatingandcapitalleases.

6.Identifythemethodsforthepresentationandanalysisoflong-termliabilities.

7.Computethemarketpriceofabond.

8.Applytheeffective-interestmethodofamortizingbonddiscountandbondpremium.

a9.Applythestraight-linemethodofamortizingbonddiscountandbondpremium.




TRUE-FALSESTATEMENTS

1.     Eachbondholdermayvotefortheboardofdirectorsinproportiontothenumberofbonds held.

2.     Bondinterestpaidbyacorporationisanexpense,whereasdividendspaidarenotan expense of thecorporation.

3.     RegisteredbondsarebondsthataredeliveredtoownersbyU.S.registeredmailservice.

4.     Adebenturebondisanunsecuredbondwhichisissuedagainstthegeneralcreditofthe borrower.

5.     Bondsareaform of interest-bearingnotespayable.

6.     Neithercorporatebond interestnordividendsaredeductiblefor taxpurposes.

7.     A10%stockdividendistheequivalentofa$1,000parvaluebondpayingannualinterest of10%.

8.     Theholderofaconvertiblebondcanconvertaninterestpaymentreceivedintoacash dividend paidoncommonstock if thedividendisgreaterthantheinterestpayment.

9.     Theboardof directorsmayauthorizemorebondsthanare issued.

10.     Thecontractualinterestrateisalwaysequaltothemarketinterestrateonthedatethat bonds areissued.

11.     If$150,000face valuebondsareissuedat 102,theproceedsreceivedwill be$102,000.

12.     Discountonbondsisanadditionalcostofborrowingandshouldberecordedasinterest expense overthe lifeofthebonds.

13.     Ifacorporationissuedbondsatanamountlessthanfacevalue,itindicatesthatthe corporation hasaweakcreditrating.
Long-TermLiabilities     15-5

14.     Acorporationthatissuesbondsatadiscountwillrecognizeinterestexpenseatarate which is greaterthanthemarketinterestrate.

15.     Ifbondsareissuedatadiscount,theissuingcorporationwillpayaprincipalamountless thantheface amountof thebondsonthematuritydate.

16.     Ifbondsareissuedatapremium, thecarryingvalueofthebondswillbegreaterthanthe facevalueof thebondsfor allperiodspriortothebondmaturitydate.

17.     Ifthemarketinterestrateisgreaterthanthecontractualinterestrate,bondswillsellata discount.

18.     If$800,000,8%bondsareissuedonJanuary1,andpayinterestsemiannually,the amount of interestpaidon July1 willbe$32,000.

19.     Ifbonds sell atapremium, theinterestexpenserecognizedeach yearwillbegreaterthan thecontractualinterestrate.

20.     The carryingvalue ofbondsiscalculatedbyadding thebalanceoftheDiscountonBonds Payableaccountto thebalance intheBondsPayableaccount.

21.     Thelossonbondredemptionisthedifferencebetweenthecashpaidandthecarrying value of thebonds.

22.     If$200,000parvalue bondswithacarrying value of$190,400 areredeemedat97,aloss on redemptionwill berecorded.

23.     Gainsandlossesarenotrecognizedwhenconvertiblebondsareconvertedintocommon stock.

24.     Generally,convertiblebondsdonotpayinterest.

25.     Eachpaymentonamortgagenotepayableconsistsofinterestontheoriginalbalanceof theloan andareductionoftheloanprincipal.

26.     Along-term notethatpledgestitletospecificpropertyassecurityforaloanisknown asa mortgagepayable.

27.     A capitalleaserequiresthelesseetorecordthe leaseasapurchaseof anasset.

28.     Thetimesinterestearnedratiois computed bydividingnetincome byinterestexpense.

a29.    Thepresentvalueofabondisafunctionoftwovariables:(1)thepaymentamountsand (2)theinterest(discount)rate.

a30.     Theeffective-interestmethodofamortizationresultsinvaryingamountsofamortization and interestexpenseperperiodbut aconstantinterestrate.

Additional True-FalseQuestions

31.     Bondsthatmatureat asinglespecifiedfuturedatearecalledtermbonds.
15-6      

32.     Thetermsofthebondissuearesetforthinaformallegaldocumentcalledabond indenture.

33.     Thecarryingvalueof bondsatmaturityshouldbe equaltotheface valueof thebonds.

34.     PremiumonBondsPayableisacontraaccounttoBondsPayable.

35.     Whenbondsareconvertedintocommonstock,thecarryingvalueofthebondsis transferredto paid-incapital accounts.

36.     Operatingleasesareleasesthatthelesseemustcapitalizeonitsbalancesheetasan asset.

37.     Underacapitallease,thelease/assetisreportedonthebalancesheetunderplant assets.

38.     Long-termliabilitiesarereportedinaseparatesectionofthebalancesheetimmediately followingcurrent liabilities.





MULTIPLECHOICEQUESTIONS

39.     Eachof thefollowingiscorrectregarding bondsexcepttheyare a.aformofinterest-bearingnotespayable.
b.attractivetomanyinvestors.
c.issuedbycorporations andgovernmentalagencies. d.soldin largedenominations.

40.     Fromthestandpointoftheissuingcompany,adisadvantageofusingbondsasameans oflong-termfinancingisthat
a.bondinterestis deductiblefortaxpurposes.
b.interestmustbepaidonaperiodicbasisregardlessofearnings.
c.incometo stockholdersmayincreaseasaresultof tradingonthe equity. d.thebondholdersdonothavevotingrights.

41.     Ifacorporationissued$2,000,000inbondswhichpay10%annualinterest,whatisthe annual netcashcostof thisborrowingif theincometaxrateis30%?
a.$2,000,000 b.$60,000
c.$200,000 d.$140,000
Long-TermLiabilities     15-7

42.     Securedbondsarebondsthat
a.areinthepossessionof abank.
b.areregisteredinthenameof theowner.
c.havespecificassetsof the issuerpledged ascollateral. d.havedetachableinterestcoupons.

43.     Alegaldocumentwhichsummarizestherightsandprivilegesofbondholdersaswellas theobligationsandcommitmentsof theissuingcompanyiscalled
a.a bondindenture. b.abonddebenture.
c.tradingonthe equity. d.atermbond.

44.     Stockholdersofacompanymaybereluctanttofinanceexpansionthroughissuingmore equitybecause
a.leveragingwithdebtisalwaysa betteridea. b.theirearningspersharemaydecrease.
c.thepriceofthestockwillautomaticallydecrease. d.dividendsmust bepaidonaperiodicbasis.

45.     Whichofthefollowingisnot anadvantageof issuingbondsinsteadof commonstock? a.Stockholdercontrolisnot affected.
b.Earningsper shareoncommonstockmaybelower. c.Incometocommonshareholdersmayincrease.
d.Taxsavingsresult.

46.     Bondsthataresecuredbyrealestate aretermed a.mortgagebonds.
b.serialbonds.c.debentures.d.bearerbonds.

47.     Bondsthatmatureat asinglespecifiedfuturedate arecalled a.couponbonds.
b.termbonds. c.serialbonds. d.debentures.

48.     Bondsthatmaybeexchangedforcommonstockattheoptionofthebondholdersare called
a.options.
b.stockbonds.
c.convertiblebonds. d.callablebonds.

49.     Bondsthataresubjecttoretirementatastateddollaramountpriortomaturityatthe option of theissuerarecalled
a.callablebonds.
b.earlyretirementbonds. c.options.
d.debentures.
15-8       

50.     Investorswhoreceivechecksintheirnamesfor interestearnedonbondsmusthold a.registeredbonds.
b.couponbonds. c.bearerbonds. d.directbonds.

51.     A bondholderthatsendsina coupontoreceiveinterestpaymentsmusthavea(n) a.unsecuredbond.
b.bearerbond.
c.mortgagebond. d.serialbond.

52.     Bondsthatmaybedirectlytransferredtoanotherpartybydeliveryare a.couponbonds.
b.debentures.
c.registeredbonds.
d.transportablebonds.

53.     Bondsthatmustbecancelledandreissuedasnewbondsinordertohaveownership interest transferred are
a.couponbonds. b.bearerbonds. c.serialbonds.
d.registeredbonds.

54.     Corporationsaregrantedthepowertoissuebondsthrough a.taxlaws.
b.statelaws.
c.federalsecuritylaws. d.bonddebentures.

55.     Thepartywhohastherighttoexerciseacalloptionon bondsisthe a.investmentbanker.
b.bondholder. c.bearer.
d.issuer.

56.     A majordisadvantageresultingfromtheuseofbonds isthat a.earningspersharemaybe lowered.
b.interestmustbepaidonaperiodicbasis. c.bondholdershave votingrights.
d.taxesmayincrease.

57.     Bondswillalwaysfall intoallbut which oneof thefollowingcategories? a.Callableorconvertible
b.Termor serial
c.Registeredor bearerd.Securedor unsecured
Long-TermLiabilities     15-9

58.     Whichof thefollowingstatements concerningbonds is notatruestatement? a.Bondsaregenerallysoldthroughaninvestmentcompany.
b.Thebondindentureispreparedafterthebondsare printed.
c.Thebondindenture and bondcertificateare separatedocuments. d.Thetrusteekeepsrecords of eachbondholder.

59.     A bondtrusteedoesnot a.issuethebonds.
b.keeparecord of eachbondholder.
c.holdconditionaltitletopledgedproperty. d.maintaincustody of unsoldbonds.

60.     Thecontractualinterestrate is alwaysstatedasa(n) a.monthlyrate.

b.dailyrate.

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