Refer to Kalahari Limited. What is the carrying value of the bonds at the end of ten
years before the final maturity payment is made?
Kalahari Limited
On January 2, 2013, this company issued 1,000,000, 10-year bonds for $1,150,000. The
bonds pay interest on June 30 and December 31. The stated rate is 10% and the market
rate is 8%. The company plans to use the effective interest method of amortizing bond
discounts and premiums. a. $850,000
b. $1,200,000
c. $1,000,000
d. $1,150,000
Interest expense
Select the ratio that would include each amount or account in its calculation. (Choices
may be used more than once.)
a. Times interest earned ratio
b. Operating cash flow ratio
c. Debt-to-equity ratio
d. Return on equity
Monthly statements are mailed to customers to indicate the current balance due. The
following set of items describes activities completed by a company in purchasing and
paying for merchandise and in collecting cash for merchandise sales. For each activity,
identify whether or not the activity adheres to or violates sound internal control
procedures. (Choices may be used more than once.)
a. Adheres to sound internal controls
b. Violates sound internal controls
c. Neither strengthens nor violates internal control
The Allowance to Adjust Trading Securities to Market account is
a. an asset account.
b. a contra asset account.
c. a liability account.
d. an unrealized gain or loss account.
The Kaplan Group sold $200,000 of 10-year bonds for $190,000. The face rate on the
bonds was 8% and interest is paid annually on December 31. What entry would be
made on December 31 when the interest is paid? (Numbers are omitted.)
a. Interest Expense Cash
b. Interest Expense Discount on Bonds Payable Cash
c. Interest Expense Discount on Bonds Payable Cash
d. Interest Expense Bonds Payable Cash
Debt that is secured by real estate. Match these terms with their definitions.
a. Callable bonds f. Mortgage bonds
b. Capital lease g. Notes payable
c. Convertible bonds h. Operating lease
d. Debenture bonds i. Secured bonds
e. Junk bonds
Research and development costs are
a. treated as an expense when incurred.
b. capitalized but not amortized.
c. capitalized and amortized over the periods that will probably benefit from the
research and development.
d. included with the cost of the patent resulting from the research and development.
Interest Income
Several items from the financial statements of Fireside Tires are listed. Use the
following choices to identify the type of account for each item listed. (Choices may be
used more than once.)
a. Assets
b. Liabilities
c. Revenues
d. Expenses
e. Stockholders’ Equity
While preparing a bank reconciliation, which of the following items would be
subtracted from the balance per the bank statement?
a. outstanding checks
b. deposits in transit
c. bank service charges
d. interest earned on the bank account
If a company erroneously records a $500 deposit as $50 in its records, which of the
following must occur when reconciling its bank statement?
a. The company must increase the balance per its records by $500.
b. The company must increase the balance per its records by $450.
c. The company must decrease the balance per its records by $500.
d. The company must decrease the balance per its records by $450.
Debt that is so risky that it must pay a high rate of interest to compensate the lender for
the added risk. Match these terms with their definitions.
a. Callable bonds f. Mortgage bonds
b. Capital lease g. Notes payable
c. Convertible bonds h. Operating lease
d. Debenture bonds i. Secured bonds
e. Junk bonds
Which one of the following is the last step in the accounting cycle?
a. analyze transactions
b. recording and posting adjustments
c. closing the accounts
d. preparing financial statements
Because of its relationship to dividends and market price, which of the following ratios
is most important to investors?
a. current ratio
b. debt-to-equity ratio
c. dividend yield ratio
d. asset turnover ratio
The maximum number of shares the corporation may issue in each class of stock.
Match the terms to the definitions.
According to the Sarbanes-Oxley Act of 2002, who is primarily responsible for
establishing and maintaining a system of internal control over the company’s financial
reporting?
a. Management of the company
b. The company’s auditor’s
c. The company’s internal auditors
d. The audit committee of the company’s board of directors
Comparing two companies in the same industry should cause no problem since both
companies are required to use the same accounting principles.
each financial statement line item is expressed as a percent of the base year (typically
the least recent year shown).
Match these terms to their correct definition
The residual claim entitles a common stockholder to a proportionate share of a
liquidating payout before preferred stockholders are paid.
When treasury stock is reissued at a price that is less than their cost, the difference
should be credited to retained earnings.
One primary purpose of a classified balance sheet is to help users evaluate the working
capital of a company.