ch 10 quizzes

Created by marmar9o9 

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Interest payable on a loan becomes a liability:

As it accrues.

Which of the following is not an accurate statement regarding the distinction between debt and equity?

Only equity is considered a source of financing for operations of the business, since debt must be repaid at a specified maturity date.

The current portion of long-term debt should be reported:

In the current liabilities section of the balance sheet.

On November 1, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The November 30 adjusting entry will be: (assume 360 days in year)

Debit Interest Expense $550 and credit Interest Payable $550.

Temple Corporation purchased a piece of real estate, paying $400,000 cash and financing $700,000 of the purchase price with a 10-year, 15% installment note. The note calls for equal monthly payments that will result in the debt being completely repaid by the end of the tenth year. In this situation:

Each monthly payment is greater than the amount of interest accruing each month

On November 1, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The November 30 adjusting entry will be: (assume 360 days in year)

Debit Interest Expense $550 and credit Interest Payable $550.

On November 1, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately.

How much must Noble pay South Bank on May 1, Year 2, when the note matures?

$84,800

Sanford Corporation borrowed $90,000 by issuing a 12%, six-month note payable, all due at the maturity date. After one month, the company's total liability for this loan amounts to:

...

On November 1, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately.

At December 31, Year 1, the adjusting entry with respect to this note includes a:

Credit to Interest Payable for $1,600.

On October 1, 2011, Master's Co. borrows $500,000 from its bank for five years at an annual interest rate of 10%. According to the terms of the loan, the principal amount will not be due for five years. Interest is to be paid monthly on the first day of each month, beginning November 1, 2011. With respect to this borrowing, Master's December 31, 2011, balance sheet included only a long-term note payable of $500,000. As a result:

Liabilities are understated by $4,167 accrued interest payable.

The term "junk bonds" describes bonds with:

...

Management has both the intent and the ability to refinance a liability maturing in four months by taking out a new loan at the due date, which would not be due for several years. How would this situation be reported in financial statements prepared as of today's date?

the original liability is classified as long-term; the new loan is not included in liabilities at this date.

A bond that is not secured is also known as:

...

Sinking funds usually appear on the balance sheet as:

Long-term investment.

In relation to a bond issue, the role of the underwriter is to:

Purchase the entire bond issue from the issuing corporation and then sell the bonds to the public

On November 1, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately.

At December 31, Year 1, Noble Co.'s overall liability for this loan amounts to:

$81,600.

Trego Company issued, payable on December 31, 2011, $1,000,000 face value, 4%, 5-year bonds. Interest will be paid semiannually each June 30 and December 31. The bonds sold at a price of 102; Trego uses the straight-line method of amortizing bond discount or premium.

The entry made by Trego Company to record issuance of the bonds payable at December 31, 2011, includes:

A credit to Premium on Bonds Payable of $20,000.

When a corporation has a right to redeem bonds in advance of the maturity date, the bond is considered a:

...

Amortizing a discount on bonds payable:

Increases interest expense.

Webster Company issues $1,000,000 face value, 6%, 5-year bonds payable on December 31, 2011. Interest is paid semiannually each June 30 and December 31. The bonds sell at a price of 97; Webster uses the straight-line method of amortizing bond discount or premium.

The carrying value of this liability in Webster Company's December 31, 2012, balance sheet is:

$976,000.

Austin Corporation issues $6,000,000 of 10%, 10-year bonds, dated December 31, Year 1. The bonds are issued on April 30, Year 2, at 100 plus accrued interest. Interest on the bonds is payable semiannually each June 30 and December 31.

The amount of Austin's interest expense on this bond issue during Year 2 amounts to:

...

Webster Company issues $1,000,000 face value, 6%, 5-year bonds payable on December 31, 2011. Interest is paid semiannually each June 30 and December 31. The bonds sell at a price of 97; Webster uses the straight-line method of amortizing bond discount or premium.

The entry made by Webster Company to record issuance of the bonds payable at December 31, 2011, includes:

A debit to Discount on Bonds Payable of $30,000.

A $1,000 bond that sells for 104 has a selling price of:

$1,040.

Austin Corporation issues $6,000,000 of 10%, 10-year bonds, dated December 31, Year 1. The bonds are issued on April 30, Year 2, at 100 plus accrued interest. Interest on the bonds is payable semiannually each June 30 and December 31.

The total amount of cash received by Austin Corporation upon issuance of the bonds on April 30, Year 2, is:

$6,200,000.

On April 1, Year 1, Greenway Corporation issues $20 million of 10%, 20-year bonds payable at par. Interest on the bonds is payable semiannually each April 1 and October 1.

The journal entry to record the first cash payment to bondholders on October 1, year 1, will include:

...

Which of the following is not a characteristic of an estimated liability?

...

Webster Company issues $1,000,000 face value, 6%, 5-year bonds payable on December 31, 2011. Interest is paid semiannually each June 30 and December 31. The bonds sell at a price of 97; Webster uses the straight-line method of amortizing bond discount or premium.

Webster's entry at June 30, 2012, to record the first semiannual payment of interest and amortization of discount on the bonds includes a:

Debit to Bond Interest Expense of $33,000.

Austin Corporation issues $6,000,000 of 10%, 10-year bonds, dated December 31, Year 1. The bonds are issued on April 30, Year 2, at 100 plus accrued interest. Interest on the bonds is payable semiannually each June 30 and December 31.

The journal entry made by Austin Corporation to record the first semiannual interest payment on the bonds includes:

A debit to Bond Interest Expense of $100,000.

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