978-0134125053 Chapter 9 Part 3

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42) A $260,000 issue of bonds that sold for $255,000 matures on June 25, 2020. The journal

entry to record the payment of the bond on the maturity date is to:

A) debit Cash, $260,000; credit Bonds payable, $260,000.

B) debit Bonds payable, $260,000; credit Cash, $260,000.

C) debit Cash, $255,000; credit Bonds payable, $255,000.

D) debit Bonds payable, $255,000; credit Cash, $255,000.

Question Type: Application

43) A $430,000 issue of bonds that sold for $403,000 matures on August 1, 2020. The journal

entry to record the payment of the bond on the maturity date is to:

A) debit Cash, $430,000; credit Bonds payable, $430,000.

B) debit Bonds payable, $430,000; credit Cash, $430,000.

C) debit Cash, $403,000; credit Bonds payable, $403,000.

D) debit Bonds payable, $403,000; credit Cash, $403,000.

Question Type: Application

44) Bonds payable minus the Discount on bonds payable yields the:

A) maturity value.

B) annual interest.

C) carrying amount.

D) principle amount.

Question Type: Concept

45) Discount on bonds payable and Premium on bonds payable are examples of:

A) contra-accounts.

B) companion accounts.

C) estimated accounts.

D) equity accounts.

Question Type: Concept

46) If a $6,000, 10 percent, 10-year bond was issued at 106 on October 1, how much will

accrued interest payable be on December 31 if interest payments are made annually? (Round any

intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A) $106

B) $132

C) $150

D) $168

Question Type: Application

47) If a $15,000, 8 percent, 20-year bond was issued at 95 on November 1, how much will

accrued interest payable be on December 31 if interest payments are made annually? (Round any

intermediary calculations to the nearest cent and your final answer to the nearest dollar.)

A) $200

B) $181

C) $219

D) $190

Question Type: Application

48) On October 31, 2016, Renoir, Inc. recorded their semi-annual bond interest expense that

contained a credit to Discount on bonds payable of $2,600. The adjusting entry on December 31,

2016 will show a credit to Discount on bonds payable of: (Round any intermediary calculations

to two decimal places and your final answer to the nearest dollar.)

A) $2,600

B) $1,742

C) $1,300

D) $858

Question Type: Application

49) On September 30, 2016, Illusions, Inc. recorded their semi-annual bond interest expense that

contained a credit to Discount on bonds payable of $1,800. The adjusting entry on December 31,

2016 will show a credit to Discount on bonds payable of: (Round your final answer to the nearest

dollar.)

A) $1,800

B) $900

C) $338

D) $450

Question Type: Application

50) Which of the following would be treated as a rental agreement?

A) Capital leases

B) Operating leases

C) Expense leases

D) Revenue leases

Question Type: Concept

51) Leases that are treated as financed purchases are called:

A) capital leases.

B) operating leases.

C) expense leases.

D) revenue leases.

Question Type: Concept

52) Which of the following is NOT a requirement of a capital lease?

A) Ownership does not transfer at lease end.

B) The agreement has a bargain purchase option.

C) The lease must cover at least 75% of asset’s useful life.

D) The present value of lease payments must be 90% or more of market value of asset.

Question Type: Concept

53) Capital leases are most similar to:

A) Accounts Payable.

B) unearned revenue.

C) mortgage notes.

D) regular Notes Payable.

Question Type: Concept

54) In a(n) _____ lease the lessee will record the lease by debiting an asset account and crediting

Lease Payable.

A) operating

B) capital

C) short-term

D) long-term

Question Type: Concept

55) With regard to long-term debt, collateral represents?

A) A long-term note payable secured with real estate

B) A guarantee that a product is free from defect

C) Assets pledged to secure repayment of a loan

D) A long-term interest bearing note payable

Question Type: Concept

56) What is the purpose of a bond discount?

A) It raises the bond interest rate to the market interest rate at the time the bond was issued.

B) It decreases the bond interest rate to the market interest rate at the time the bond was issued.

C) It increases the periodic cash interest payments paid to those who purchased the bond.

D) It decreases the periodic cash interest payments paid to those who purchased the bond.

Question Type: Concept

57) When a company issues bonds, what are they doing?

A) The company is loaning money to third parties.

B) The company is borrowing money from third parties.

C) The company is selling part of itself.

D) The company is guaranteeing the products they sell.

Answer: B

Diff: 1

Question Type: Concept

9.6 Report liabilities on the balance sheet

1) Accounts Payable is generally listed first under long-term debt.

Question Type: Concept

2) Contingent liabilities pose an ethical challenge because they’re based on past events, they are

easier to manipulate.

Question Type: Concept

3) Having liabilities classified incorrectly will have a big impact on the company‘s current ratio.

Question Type: Concept

4) Proper classification of liabilities can pose an ethical challenge, since it might be tempting to

manipulate them in order to make the business appear more profitable.

Question Type: Concept

5) By NOT accruing warranty expense:

A) reported liabilities will be overstated and net income will be understated.

B) reported expenses will be overstated and reported liabilities will be understated.

C) reported liabilities will be understated and net income will be overstated.

D) reported expenses will be understated and net income will be understated.

Question Type: Application

6) Wolfe Company has a 5-year mortgage for $120,000 which requires 4 equal payments of

principal plus interest. In the first year of the mortgage, Wolfe will report this liability as a:

A) current liability of $120,000.

B) long-term liability of $120,000.

C) current liability of $90,000 and a long-term liability of $30,000.

D) current liability of $30,000 and a long-term liability of $90,000.

Question Type: Application

7) One type of liability that is easy to overlook is a(n):

A) tax liability.

B) note payable.

C) account payable.

D) contingent liability.

Question Type: Concept

8) Which current liability is generally listed first?

A) Notes payable

B) Accounts Payable

C) Current portions of long-term debt

D) Accrued payables

Question Type: Concept

9) Stella Corp. has the following liabilities: $30,000 salaries payable, $70,000 accounts payable,

$180,000 notes payable (to be made in 10 equal annual payments), and warranty payable

$22,000 (all of Stella‘s products come with a 90-day manufacturer warranty). The total current

liabilities is:

A) $100,000

B) $122,000

C) $140,000

D) $302,000

Question Type: Application

9.7 Compute the debt ratio and interest coverage ratio

1) The debt ratio equals total assets divided by total liabilities.

Question Type: Concept

2) The debt ratio is an indicator of a company’s profitability.

Question Type: Concept

3) The debt ratio is an indicator of a company’s ability to incur more debt.

Question Type: Concept

4) A debt ratio of 0.50 (50%) would mean that half of a company’s assets would need to be sold

to pay off all of its current liabilities.

Question Type: Concept

5) Both the formulas for current ratio and debt ratio use current liabilities in the computation.

Question Type: Concept

6) The interest coverage ratio equals interest expense divided by EBIT.

Question Type: Concept

7) A company will want a lower interest coverage ratio if it is unsure of its EBIT.

Question Type: Concept

8) A company’s ability to pay the interest on its debt is often measured with the interest coverage

ratio.

Question Type: Concept

9) If Caesar’s Coffee Company had total liabilities of $200,000 and total Stockholders’ Equity of

$150,000, then the debt ratio would be 57%.

Question Type: Application

10) If Sassycat, Inc. had gross profit of $35,000, interest expense $10,000, and operating

expenses $20,000, then the interest coverage ratio would be 1.25

Question Type: Application

11) Bach Instruments had total assets of $600,000; total liabilities of $270,000; and total

Stockholders‘ Equity of $330,000. Bach’s debt ratio is: (Round your final answer to the nearest

whole number.)

A) 82%.

B) 55%.

C) 45%.

D) 38%.

Question Type: Application

12) Livingston Organization had total assets of $635,000; total liabilities of $185,000; and total

Stockholders‘ Equity of $450,000. Livingston‘s debt ratio is: (Round your final answer to the

nearest whole number.)

A) 17%.

B) 71%.

C) 41%.

D) 29%.

Question Type: Application