Acc 556 week 8 chapter 10

ACC 556 CHAPTER 10 HOMEWORK

Question 1
Unearned revenues are received before goods are delivered or services are rendered.
 True
 False
Question 2
The relationship between current assets and current liabilities is
 
    useful in determining income.
 
    useful in evaluating a company’s liquidity.
 
    called the matching principle.
 
    useful in determining the amount of a company’s long-term debt.
Question 3
If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest annually would sell at an amount
 
    less than face value.
 
    equal to face value.
 
    greater than face value.
 
    that cannot be determined.
Question 4
Which of the following is not an advantage of issuing bonds instead of common stock?
 
    Stockholder control is not affected
 
    Earnings per share on common stock may be lower
 
    Tax savings result
 
    Each of these answer choices is an advantage.
Question 5
If bonds are issued at a discount, it means that the
 
    financial strength of the issuer is suspect.
 
    market interest rate is higher than the contractual interest rate.
 
    market interest rate is lower than the contractual interest rate.
 
    bondholder will receive effectively less interest than the contractual rate of interest.
Question 6
Most notes are not interest bearing.
 True
 False
Question 7
The interest charged on a $70,000 note payable, at the rate of 6%, on a 90-day note would be
 
    $4,200.
 
    $2,100.
 
    $1,050.
 
    $700.
Question 8
Match the items below by entering the appropriate code letter in the space provided.

Long term liabilities issued against the general credit of the borrower

Bonds that may be coverted into common stock at the bondholder’s option

Off-balance sheet financing

The rate investors demand for loaning funds to a corporation.

Occurs when the contractual rate of interest is less than the market rate of interest.

A measure of a company’s short-term liquidity.

Produces a periodic interest expense that is the same amount each interest period.

A measure of a company’s solvency.

Bonds subject to retirement at a stated dollar amount prior to maturity.

The time that the final payment on a bond is due from the bond issuer.
    A.    Maturity date
B.    Times interest earned
C.    Callable bonds
D.    Market interest rate
E.    Straight-line method of amortization
F.    operating leases
G.    convertible bonds
H.    Current ratio
I.    Discount on bonds payable
J.    unsecured bonds

Question 9
Norlan Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $29,400. If the sales tax rate is 5%, what amount must be remitted to the state for October’s sales taxes?
 
    $1,400
 
    $1,470
 
    $70
 
    It cannot be determined.
Question 10
Stockholders of a company may be reluctant to finance expansion through issuing more equity because
 
    leveraging with debt is always a better idea.
 
    their earnings per share may decrease.
 
    the price of the stock will automatically decrease.
 
    dividends must be paid on a periodic basis.
Question 11
On January 1, 2014, Keisler Company, a calendar-year company, issued $700,000 of notes payable, of which $175,000 is due on January 1 for each of the next four years. The proper balance sheet presentation on December 31, 2014, is
 
    Current liabilities, $700,000.
 
    Long-term debt, $700,000.
 
    Current liabilities, $175,000; Long-term Debt, $525,000.
 
    Current liabilities, $525,000; Long-term Debt, $175,000.
Question 12
In the balance sheet, the account Discount on Bonds Payable is
 
    added to bonds payable.
 
    deducted from bonds payable.
 
    classified as a stockholders’ equity account.
 
    classified as a revenue account.
Question 13
Liabilities are classified on the balance sheet as current or
 
    deferred.
 
    unearned.
 
    long-term.
 
    accrued.
Question 14
Ervay Company has $875,000 of bonds outstanding. The unamortized premium is $12,600. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?
 
    $3,850 gain
 
    $3,850 loss
 
    $8,750 gain
 
    $8,750 loss
Question 15
With an interest-bearing note, the amount of assets received upon issuance of the note is generally
 
    equal to the note’s face value.
 
    greater than the note’s face value.
 
    less than the note’s face value.
 
    equal to the note’s maturity value.
Question 16
If bonds have been issued at a discount, then over the life of the bonds the
 
    carrying value of the bonds will decrease.
 
    carrying value of the bonds will increase.
 
    interest expense will increase, if the discount is being amortized on a straight-line basis.
 
    unamortized discount will increase.
Question 17
Material gains or losses on bond redemption are reported as an extraordinary item on the income statement.
 True
 False
Question 18
When authorizing bonds to be issued, the board of directors does not specify the
 
    total number of bonds authorized to be sold.
 
    contractual interest rate.
 
    selling price.
 
    total face value of the bonds.

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