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Exam 10: Reporting and Analyzing Liabilities

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Question 21

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Winrow Company received proceeds of $754,000 on 10-year, 8% bonds issued on January 1, 2019.The bonds had a face value of $800,000, pay interest annually on December 31, and have a call price of 101.Winrow uses the straight-line method of amortization.What is the amount of interest Winrow must pay the bondholders in 2019?

A) $60,320
B) $64,000
C) $68,600
D) $59,400

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Question 22

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The market rate of interest is often called the

A) stated rate.
B) effective rate.
C) coupon rate.
D) contractual rate.

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Question 23

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An installment note calling for equal total payments each period will result in an interest portion that decreases in each successive period.

A $150,000 bond with a quoted priced of 102 ¼ is sold for $153,375.

Total interest cost for a bond issued at a premium equals the total of the periodic interest payments minus the premium.

Which of the following is not an advantage of issuing bonds instead of common stock?

A company receives $348, of which $28 is for sales tax.The journal entry to record the sale would include a A) debit to Sales Taxes Expense for $28. B)debit to Sales Taxes Payable for $28. C)debit to Sales Revenue for $348. D)debit to Cash for $348.

The contractual rate of interest is usually stated as a(n)

Norlan Company does not ring up sales taxes separately on the cash register.Total receipts for October amounted to $36,750.If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?

The contractual interest rate on a bond is often referred to as the

Most notes are not interest bearing.

When the effective-interest method of amortization is used, the amount of interest expense for a given period is calculated by multiplying the face rate of interest by the bond's carrying value at the beginning of the given period.

The effective-interest method produces a constant dollar amount of interest expense to be reported for each interest period.

If the straight-line method of amortization is used, the amount of yearly interest expense will increase as the bonds approach maturity.

The relationship between current assets and current liabilities is

In a recent year, Hart Corporation had net income of $155,000, interest expense of $30,000, and income tax expense of $40,000.What was Hart Corporation's times interest earned for the year?

Regardless of whether the straight-line method or the effective-interest method is used, the carrying value of a bond issued at a discount will decrease continually over the bond's life.

On January 1, 2020, $3,000,000, 10-year, 10% bonds, were issued for $2,910,000.Interest is paid annually on January 1.If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is

On October 1, Sam's Painting Service borrows $150,000 from National Bank on a 3-month, $150,000, 4% note.The entry by Sam's Painting Service to record payment of the note and accrued interest on January 1 is

All of the following statements regarding convertible bonds are true except