Question 1

One example of a temporary difference between financial and tax reporting results from

Accepted Answer

A)   rent expense.
B)   tax-exempt interest from municipal bonds.
C)   life insurance proceeds resulting from the death of an executive.
D)   depreciation of long-term assets.

Question 2

Callable bonds may be retired by the issuer before their specified due date.

Accepted Answer

A) True 
 B)False

Question 3

Match the following bond and long-term liability related terms to the appropriate definition.
-Bonds that are backed by the general creditworthiness of the issuer and are not backed by specific collateral.

Accepted Answer

A)  Long-term liability
B)  Face value
C)  Debenture bonds
D)  Serial bonds
E)  Callable bondsF) Face rate of interestG) Market rate of interestH) Bond issue priceI) PremiumJ) DiscountK) Effective interest method of amortizationL) Carrying valueM) Gain or loss on redemption

Question 4

A convertible bond is one where

Accepted Answer

A)   the issuer can convert from a fixed interest rate to a floating one.
B)   the issuer can convert it from long-term to short-term.
C)   the issuer can retire the bond before its specified due date.
D)   the holder can convert the bond into common stock at a future time.

Question 5

Cash interest is computed annually when a bond is issued for other than its face value.For a bond issued at a premium, how will this component change as the bond approaches maturity?

Accepted Answer

A)   decrease
B)   increase
C)   remain constant
D)   not enough information given to decide

Question 6

Match the following bond and long-term liability related terms to the appropriate definition.
-The process of transferring a portion of premium or discount to interest expense.This method transfers an amount resulting in a constant effective interest rate.

Accepted Answer

A)  Long-term liability
B)  Face value
C)  Debenture bonds
D)  Serial bonds
E)  Callable bondsF) Face rate of interestG) Market rate of interestH) Bond issue priceI) PremiumJ) DiscountK) Effective interest method of amortizationL) Carrying valueM) Gain or loss on redemption

Question 7

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will

Accepted Answer

A)   decrease as the bonds approach their maturity date.
B)   increase as the bonds approach their maturity date.
C)   remain constant throughout the bonds' life.
D)   fluctuate throughout the bonds' life.

Question 8

The attitude of the Financial Accounting Standards Board toward deferred tax liabilities is that they are

Accepted Answer

A)   an amount that results in a future obligation and meets the definition of a liability.
B)   a bookkeeping item that is used merely to maintain equality of the accounting equation.
C)   not true liabilities because the balance increases every year.
D)   not payable in the immediate future so it not necessary to record them.

Question 9

An investor views a high debt-to-equity ratio and a low times interest earned as a favorable sign of a company's abilities to meet its long-term obligations.

Accepted Answer

A) True 
 B)False

Question 10

The accounting for leases is an excellent example of the differences in how U.S.and IFRS accounting standards are applied.

Accepted Answer

A) True 
 B)False

Question 11

Flagg Company issued $500,000 of bonds for $498,351, Interest is paid semiannually.The bond markets and the financial press are likely to state the bond issue price as

Accepted Answer

A)   498.35.
B)   100.00.
C)   99.67.
D)   49.84.

Question 12

In an operating lease, the lessee acquires the right to use an asset for only a limited period of time.

Accepted Answer

A) True 
 B)False

Question 13

East Liberty Corp.received authorization on December 31, 2016, to issue $7,000,000 face value of 6%, 10-year bonds.The interest payment dates are June 30 and December 31.All the bonds were issued at par, plus accrued interest, April 1, 2017.The bonds are callable by East Liberty at any time at 102.
Required:
Prepare the journal entry to record issuance of the bonds on April 1, 2017.

Accepted Answer

The answer of East Liberty Corp.received authorization on December 31,...

Question 14

When using the indirect method for preparing the statement of cash flows, all of the following will appear in the operating activities section except:

Accepted Answer

A)   Increase in deferred tax.
B)   Depreciation expense on leased assets.
C)   Interest expense.
D)   An increase in long-term liabilities.

Question 15

Which of the following items should not appear in the long-term liability section of the balance sheet?

Accepted Answer

A)   Accrued income taxes
B)   Deferred income taxes
C)   Bonds payable
D)   Pension obligations

Question 16

On January 1, 2016, Sharpsburg, Inc.issued $400,000, 10-year, 10% bonds for $354,200.The bonds pay interest on June 30 and December 31.The market rate is 12%.What is the carrying value of the bonds at the end of the ten years?

Accepted Answer

A)   $400,000
B)   $480,000
C)   $380,000
D)   $354,200

Question 17

Deferred income taxes arise because

Accepted Answer

A)   corporations often make errors in their tax estimations.
B)   companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders.
C)   the IRS owes a company a refund from last year.
D)   large corporations generally have operations in foreign countries whose tax law is quite different from U.S.tax law.

Question 18

Bonds are generally issued in denominations of $1,000.

Accepted Answer

A) True 
 B)False

Question 19

Line Corporation's balance sheet showed the following amounts for their liability and stockholders' equity accounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000; and Deferred Income Taxes, $300.Total stockholders' equity was $6,000.The debt-to-equity ratio is

Accepted Answer

A)   0.63
B)   0.83
C)   1.42
D)   1.47

Question 20

Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company.The annual payments are $1,000,000 and the life of the lease is 18 years.It is estimated that the useful life of the aircraft is 20 years.How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%.

Accepted Answer

A)   The company would not record the aircraft as an asset but would record rent expense of $1,000,000 per year for 18 years.
B)   The company would not record the aircraft as an asset but would record rent expense of $900,000 per year for 20 years.
C)   The aircraft would be recorded as an asset with a cost of $8,756,000.
D)   The aircraft would be recorded as an asset with a cost of $9,129,000.

Exam 10: Long-Term Liabilities

Flagg Company issued $500,000 of bonds for $498,351, Interest is paid semiannually.The bond markets and the financial press are likely to state the bond issue price as

Correct Answer
verified

One example of a temporary difference between financial and tax reporting results from

Correct Answer
verified

The attitude of the Financial Accounting Standards Board toward deferred tax liabilities is that they are

Correct Answer
verified

Correct Answer
verified

Match the following bond and long-term liability related terms to the appropriate definition. -The process of transferring a portion of premium or discount to interest expense.This method transfers an amount resulting in a constant effective interest rate.

Correct Answer
verified

Bonds are generally issued in denominations of $1,000.

Correct Answer
verified

Correct Answer
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Deferred income taxes arise because

Correct Answer
verified

Line Corporation's balance sheet showed the following amounts for their liability and stockholders' equity accounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000; and Deferred Income Taxes, $300.Total stockholders' equity was $6,000.The debt-to-equity ratio is

Correct Answer
verified

In an operating lease, the lessee acquires the right to use an asset for only a limited period of time.

Correct Answer
verified

Match the following bond and long-term liability related terms to the appropriate definition. -Bonds that are backed by the general creditworthiness of the issuer and are not backed by specific collateral.

Correct Answer
verified

Callable bonds may be retired by the issuer before their specified due date.

Correct Answer
verified

Cash interest is computed annually when a bond is issued for other than its face value.For a bond issued at a premium, how will this component change as the bond approaches maturity?

Correct Answer
verified

When using the indirect method for preparing the statement of cash flows, all of the following will appear in the operating activities section except:

Correct Answer
verified

The accounting for leases is an excellent example of the differences in how U.S.and IFRS accounting standards are applied.

Correct Answer
verified

Which of the following items should not appear in the long-term liability section of the balance sheet?

Correct Answer
verified

On January 1, 2016, Sharpsburg, Inc.issued $400,000, 10-year, 10% bonds for $354,200.The bonds pay interest on June 30 and December 31.The market rate is 12%.What is the carrying value of the bonds at the end of the ten years?

Correct Answer
verified

A convertible bond is one where

Correct Answer
verified

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will

Correct Answer
verified

An investor views a high debt-to-equity ratio and a low times interest earned as a favorable sign of a company's abilities to meet its long-term obligations.

Correct Answer
verified

Exam 10: Long-Term Liabilities

Flagg Company issued $500,000 of bonds for $498,351, Interest is paid semiannually.The bond markets and the financial press are likely to state the bond issue price as

Correct AnswerverifiedShow Answer

One example of a temporary difference between financial and tax reporting results from

Correct AnswerverifiedShow Answer

The attitude of the Financial Accounting Standards Board toward deferred tax liabilities is that they are

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Match the following bond and long-term liability related terms to the appropriate definition. -The process of transferring a portion of premium or discount to interest expense.This method transfers an amount resulting in a constant effective interest rate.

Correct AnswerverifiedShow Answer

Bonds are generally issued in denominations of $1,000.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Deferred income taxes arise because

Correct AnswerverifiedShow Answer

Line Corporation's balance sheet showed the following amounts for their liability and stockholders' equity accounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000; and Deferred Income Taxes, $300.Total stockholders' equity was $6,000.The debt-to-equity ratio is

Correct AnswerverifiedShow Answer

In an operating lease, the lessee acquires the right to use an asset for only a limited period of time.

Correct AnswerverifiedShow Answer

Match the following bond and long-term liability related terms to the appropriate definition. -Bonds that are backed by the general creditworthiness of the issuer and are not backed by specific collateral.

Correct AnswerverifiedShow Answer

Callable bonds may be retired by the issuer before their specified due date.

Correct AnswerverifiedShow Answer

Cash interest is computed annually when a bond is issued for other than its face value.For a bond issued at a premium, how will this component change as the bond approaches maturity?

Correct AnswerverifiedShow Answer

When using the indirect method for preparing the statement of cash flows, all of the following will appear in the operating activities section except:

Correct AnswerverifiedShow Answer

The accounting for leases is an excellent example of the differences in how U.S.and IFRS accounting standards are applied.

Correct AnswerverifiedShow Answer

Which of the following items should not appear in the long-term liability section of the balance sheet?

Correct AnswerverifiedShow Answer

On January 1, 2016, Sharpsburg, Inc.issued $400,000, 10-year, 10% bonds for $354,200.The bonds pay interest on June 30 and December 31.The market rate is 12%.What is the carrying value of the bonds at the end of the ten years?

Correct AnswerverifiedShow Answer

A convertible bond is one where

Correct AnswerverifiedShow Answer

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will

Correct AnswerverifiedShow Answer

An investor views a high debt-to-equity ratio and a low times interest earned as a favorable sign of a company's abilities to meet its long-term obligations.

Correct AnswerverifiedShow Answer

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