Multiple Choice Questions

Which of the following is not a commonly used method of presenting current liabilities on the balance sheet?
  • Listing current debt in the order of oldest first and then chronologically.
  • Prepaid rent.
  • Present value of the principal and the present value of the interest payments.
  • Both the note payable and the interest payable are current liabilities.
Four-Nine Corporation issued bonds at par that pay interest every July 1 and JanuaryWhich one of the following is one effect of the entry to accrue bond interest at December 31?
  • Credit to Interest Payable.(Since the interest has been accrued but not yet paid, it has to be recognized as an increase in expenses and liabilities. The entry would be a debit to Interest Expense and a credit to Interest Payable.)
  • $4,500.(The portion of the premiums not yet earned should be recognized as a liability by Sensible. Since there are 3 months remaining on the insurance policy, the remaining liability is 3/12 of $18,000 or $4,500.)
  • $244,000.(The total cost is the sum of the interest payments and the difference between the cash received from bondholders and the maturity value of the bonds.Principal at maturity $400,000Annual interest payments: $400,000 × 6% × 10 years 240,000Cash paid to bondholders 640,000Cash received from bondholders (99% × $400,000) 396,000Total cost of borrowing $244,000)
  • Credit to Bonds Payable for $200,000.(The issuance entry for the bonds includes a debit to cash for $200,000 and a credit to bonds payable for $200,000.)
What is the nature of a bond premium?
  • It reduces the cost of borrowing.
  • It is the rate investors demand for loaning funds.
  • It increases the carrying value of the bonds.(The amortization of a bond discount increases the carrying value of the bond issue because as the discount is reduced, the net amount, or carrying value increases.)
  • At the time of the sale as a liability.
As what are sales taxes recorded at the time the sale takes place?
  • Secured bonds.
  • A discount.
  • A liability.
  • Carrying value.
In what denomination are bonds typically issued?
  • $1,000.
  • A liability.
  • Prepaid rent.
  • Secured bonds.
Which of the following is a criterion for the classification of a liability as current?I. It is a debt that can be paid from existing current assets.II. It is a debt that can be paid through the creation of other current liabilities.III. It must be paid within one year or the operating cycle, whichever is shorter.
  • Prepaid rent.
  • Mortgages payable.
  • A discount.
  • I and II.
When recording payroll,
  • It is the rate investors demand for loaning funds.
  • It reduces the cost of borrowing.
  • Face value plus any premium.
  • Payroll deductions are recorded as liabilities.
Kant Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $103,Which of the following is part of the entry to record the bond redemption?
  • Credit to Bonds Payable for $200,000.(The issuance entry for the bonds includes a debit to cash for $200,000 and a credit to bonds payable for $200,000.)
  • Loss on redemption of $8,000.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. The company had to pay $204,000 for bonds with a carrying value of $196,000. The difference between the $204,000 and $196,000 is the loss on redemption.)
  • Interest Expense 1,125 Interest Payable 1,125
  • A debit of $3,745 to Premium on Bonds Payable.(The entry removes the face amount of the bonds from the Bonds Payable account, removes the remaining Premium on Bonds Payable, records the cash paid on retirement, and recognizes a gain or loss on redemption for the difference.The entry to record this transaction will have debits to Bonds Payable for $100,000, Premium on Bonds Payable for $3,745 and Loss on Retirement for $1,255. The credit will be to cash for $105,000.)
Sensible Insurance Company collected a premium of $18,000 for a 1-year insurance policy on AprilWhat amount should Sensible report as a current liability for Unearned Insurance Premiums at December 31?
  • $244,000.(The total cost is the sum of the interest payments and the difference between the cash received from bondholders and the maturity value of the bonds.Principal at maturity $400,000Annual interest payments: $400,000 × 6% × 10 years 240,000Cash paid to bondholders 640,000Cash received from bondholders (99% × $400,000) 396,000Total cost of borrowing $244,000)
  • $4,500.(The portion of the premiums not yet earned should be recognized as a liability by Sensible. Since there are 3 months remaining on the insurance policy, the remaining liability is 3/12 of $18,000 or $4,500.)
  • Credit to Interest Payable.(Since the interest has been accrued but not yet paid, it has to be recognized as an increase in expenses and liabilities. The entry would be a debit to Interest Expense and a credit to Interest Payable.)
  • $4,300.(The amount of sales can be computed by dividing total cash received by one plus the sales tax rate of 5%. The computation is as follows: $4,515/1.05 = $4,300)
When a bond is sold at a premium, at what amount is it reported on the balance sheet?
  • Face value plus any premium.
  • Carrying value.
  • Secured bonds.
  • Bonds payable.
What is the effect of amortizing a bond discount?
  • By adding the present value of the principal amount to the present value of the interest payments.
  • It increases the carrying value of the bonds.(The amortization of a bond discount increases the carrying value of the bond issue because as the discount is reduced, the net amount, or carrying value increases.)
  • Present value of the principal and the present value of the interest payments.
  • It is the rate investors demand for loaning funds.
A $500,000 bond is retired at 101¼ when the unamortized premium is $4,Which of the following is one effect of recording the retirement?
  • Loss on redemption of $8,000.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. The company had to pay $204,000 for bonds with a carrying value of $196,000. The difference between the $204,000 and $196,000 is the loss on redemption.)
  • A $2,000 loss.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. Since the bonds were retired for $485,000 ($500,000 × 97%) and the carrying value is $483,000, the company should record a loss of $2,000.)
  • A $1,750 loss.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. The bonds were retired for $506,250 ($500,000 × 101¼%) and the carrying value is $504,500, resulting in a loss of $1,750.)
  • Credit to Interest Payable.(Since the interest has been accrued but not yet paid, it has to be recognized as an increase in expenses and liabilities. The entry would be a debit to Interest Expense and a credit to Interest Payable.)
How is the market value of a bond issuance determined?
  • It is the rate investors demand for loaning funds.
  • Both the note payable and the interest payable are current liabilities.
  • It reduces the cost of borrowing.
  • By adding the present value of the principal amount to the present value of the interest payments.
On December 30, 2012, a company issued a note payable of $50,000, of which $10,000 will be repaid each year. What is the proper classification of this note on the December 31, 2012, balance sheet?
  • $10,000 current liability; $40,000 long-term liability.
  • Interest Expense 1,125 Interest Payable 1,125
  • Notes Payable 70,000 Interest Payable 2,100 Interest Expense 525 Cash 72,625
  • Bonds Payable 100,000 Cash 100,000
On September 1, Banner Co. borrowed $70,000 from the City Bank for five months at 9%. Which journal entry will Banner Co. make on December 31 before issuing its financial statements?
  • It is the rate investors demand for loaning funds.
  • Interest Expense 1,125 Interest Payable 1,125
  • $10,000 current liability; $40,000 long-term liability.
  • Interest Expense 2,100 Interest Payable 2,100
To what is the current market value of a bond equal?
  • It is the rate investors demand for loaning funds.
  • Notes Payable 70,000 Interest Payable 2,100 Interest Expense 525 Cash 72,625
  • By adding the present value of the principal amount to the present value of the interest payments.
  • Present value of the principal and the present value of the interest payments.
Which one of the following is not a current liability?
  • Bonds payable.
  • Carrying value.
  • Mortgages payable.
  • Prepaid rent.
To be classified as a current liability, how or when must a debt be expected to be paid?
  • The contractual interest rate exceeds the market interest rate.
  • Both the note payable and the interest payable are current liabilities.
  • It is the rate investors demand for loaning funds.
  • Either out of existing current assets or by creating other current liabilities.
A corporation issued a $50,000, 9%, 4-month note on JulyThe corporation's year-end is SeptemberWhich one of the following is the adjusting entry for interest on September 30?
  • Interest Expense 1,125 Interest Payable 1,125
  • Interest Expense 2,100 Interest Payable 2,100
  • $10,000 current liability; $40,000 long-term liability.
  • Contractual.
Andre Company collected $4,515 from cash sales to customers, which includes both sales revenue and 5% sales taxes. How much should be recognized as sales revenue?
  • $4,500.(The portion of the premiums not yet earned should be recognized as a liability by Sensible. Since there are 3 months remaining on the insurance policy, the remaining liability is 3/12 of $18,000 or $4,500.)
  • A $2,000 loss.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. Since the bonds were retired for $485,000 ($500,000 × 97%) and the carrying value is $483,000, the company should record a loss of $2,000.)
  • $244,000.(The total cost is the sum of the interest payments and the difference between the cash received from bondholders and the maturity value of the bonds.Principal at maturity $400,000Annual interest payments: $400,000 × 6% × 10 years 240,000Cash paid to bondholders 640,000Cash received from bondholders (99% × $400,000) 396,000Total cost of borrowing $244,000)
  • $4,300.(The amount of sales can be computed by dividing total cash received by one plus the sales tax rate of 5%. The computation is as follows: $4,515/1.05 = $4,300)
Bonds payable with a face value of $200,000 and a carrying value of $196,000 are redeemed prior to maturity atWhich of the following will result?
  • A $1,750 loss.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. The bonds were retired for $506,250 ($500,000 × 101¼%) and the carrying value is $504,500, resulting in a loss of $1,750.)
  • Loss on redemption of $8,000.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. The company had to pay $204,000 for bonds with a carrying value of $196,000. The difference between the $204,000 and $196,000 is the loss on redemption.)
  • A $2,000 loss.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. Since the bonds were retired for $485,000 ($500,000 × 97%) and the carrying value is $483,000, the company should record a loss of $2,000.)
  • Credit to Interest Payable.(Since the interest has been accrued but not yet paid, it has to be recognized as an increase in expenses and liabilities. The entry would be a debit to Interest Expense and a credit to Interest Payable.)
Tanner, Inc. issued a 10%, 5-year, $100,000 bond when the market rate of interest was 12%. At what value will the bond sell?
  • Carrying value.
  • The contractual interest rate exceeds the market interest rate.
  • Contractual.
  • A discount.
Nashville Rail Co. issued $100,000 in 10-year bonds in 2009 atThe final interest payment was made and recorded. What entry will Nashville record for the redemption of its bonds at maturity?
  • Notes payable are listed first.
  • Bonds Payable 100,000 Cash 100,000
  • Notes Payable 70,000 Interest Payable 2,100 Interest Expense 525 Cash 72,625
  • Bonds payable.
Sosa Corporation issued 10-year bonds with a face value of $400,000 and a contractual rate of interest of 6% at 99 on JulyWhat is the total cost of borrowing for Sosa Corporation?
  • $10,000 current liability; $40,000 long-term liability.
  • A debit of $3,745 to Premium on Bonds Payable.(The entry removes the face amount of the bonds from the Bonds Payable account, removes the remaining Premium on Bonds Payable, records the cash paid on retirement, and recognizes a gain or loss on redemption for the difference.The entry to record this transaction will have debits to Bonds Payable for $100,000, Premium on Bonds Payable for $3,745 and Loss on Retirement for $1,255. The credit will be to cash for $105,000.)
  • A $2,000 loss.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. Since the bonds were retired for $485,000 ($500,000 × 97%) and the carrying value is $483,000, the company should record a loss of $2,000.)
  • $244,000.(The total cost is the sum of the interest payments and the difference between the cash received from bondholders and the maturity value of the bonds.Principal at maturity $400,000Annual interest payments: $400,000 × 6% × 10 years 240,000Cash paid to bondholders 640,000Cash received from bondholders (99% × $400,000) 396,000Total cost of borrowing $244,000)
Hanlin Enterprises issued 2,000 bonds with a face value of $1,000 each atWhat is the entry to record the issuance?
  • Cash 1,940,000 Discount on Bonds Payable 60,000 Bonds Payable 2,000,000
  • The contractual interest rate exceeds the market interest rate.
  • Either out of existing current assets or by creating other current liabilities.
  • Cash 2,155 Sales 2,000 Sales Taxes Payable 155
Cuso Inc. issues 10-year bonds with a maturity value of $200,If the bonds are issued at a premium, what does this indicate?
  • Contractual.
  • The contractual interest rate exceeds the market interest rate.
  • Present value of the principal and the present value of the interest payments.
  • Either out of existing current assets or by creating other current liabilities.
A $500,000 bond is retired at 97 when the carrying value of the bond is $483,Which of the following is one effect of recording the retirement?
  • $244,000.(The total cost is the sum of the interest payments and the difference between the cash received from bondholders and the maturity value of the bonds.Principal at maturity $400,000Annual interest payments: $400,000 × 6% × 10 years 240,000Cash paid to bondholders 640,000Cash received from bondholders (99% × $400,000) 396,000Total cost of borrowing $244,000)
  • A $2,000 loss.(The difference between the carrying value and the cash used to redeem the bonds is a gain or loss on redemption. Since the bonds were retired for $485,000 ($500,000 × 97%) and the carrying value is $483,000, the company should record a loss of $2,000.)
  • Credit to Interest Payable.(Since the interest has been accrued but not yet paid, it has to be recognized as an increase in expenses and liabilities. The entry would be a debit to Interest Expense and a credit to Interest Payable.)
  • $4,300.(The amount of sales can be computed by dividing total cash received by one plus the sales tax rate of 5%. The computation is as follows: $4,515/1.05 = $4,300)
On September 1, 2012, Banner Co. borrowed $70,000 from the City Bank for five months at 9%. Interest was properly accrued on December 31,What entry is needed to record the payment of the note and accrued interest on the due date?
  • Notes payable are listed first.
  • Notes Payable 70,000 Interest Payable 2,100 Interest Expense 525 Cash 72,625
  • Interest Expense 2,100 Interest Payable 2,100
  • Bonds Payable 100,000 Cash 100,000
Which one of the following is not a typical current liability?
  • Bonds payable.
  • Mortgages payable.
  • Notes payable are listed first.
  • Prepaid rent.
0 h : 0 m : 1 s

Multiple Choice Questions
Answered Not Answered Not Visited Correct : 0 Incorrect : 0