Question 1

Improv Corporation issued $95,000 face value bonds at a discount of $5,000. The bonds contain a call price of 102.
Improv decides to redeem the bonds early when the unamortized discount is $2,750.
REQUIRED:
1. Calculate Improv Corporation's gain or loss on the early redemption of the bonds.
2. Describe how the gain or loss would be reported on the income statement and in the notes to the financial statements.

Accepted Answer

1.

$ 4,650 loss

2. The gain or los...

Question 2

Which of the following statements is true with respect to long-term liabilities?

Accepted Answer

A)   They are obligations that will be satisfied within one year.
B)   An account payable is a good example of a long-term liability because it is interest-bearing.
C)   Long-term liabilities include bonds, other long-term liabilities and deferred income taxes.
D)   Accrued expenses are considered to be long-term liabilities.

Question 3

Bonds were issued at an when the issue price exceeds the face value.

Accepted Answer

The answer of Bonds were issued at an when the...

Question 4

Caron Industries received authorization on December 31, 2014, 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, 2015. The bonds are callable by Caron at any time at 102.
REQUIRED:
1. What is the amount of bond interest expense that appears in Caron's 2015 income statement relating to these
bonds?
2. What is the amount of accrued bond interest expense that appears in Caron's balance sheet at December 31,
2015, with respect to these bonds?

Accepted Answer

1. $315,000 interest expense.
Since the ...

Question 5

Happy Corporation leased a building from Sensor Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true?

Accepted Answer

A)   Depreciation expense of $6,710 will be recorded each year.
B)   Depreciation expense of $10,000 will be recorded each year.
C)   No depreciation expense will be recorded by Happy Corporation.
D)   No interest expense will be recorded by Happy Corporation.

Question 6

An example of a cash flow related to a liability that would not appear in the financing activities category of the statement of cash flows is

Accepted Answer

A)   mortgage payable.
B)   bonds payable.
C)   deferred income taxes.
D)   a lease obligation.

Question 7

When a lease is classified as an operating lease, the lease liability should be presented on the balance sheet of the lessee.

Accepted Answer

A) True 
 B)False

Question 8

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.

Question 9

A gain on bond redemption

Accepted Answer

A)   is considered unusual and infrequent.
B)   should be treated as part of operating income.
C)   decreases a company's income.
D)   is always included when predicting a company's future income.

Question 10

In 2015, Suez Company issued $200,000 of bonds for $189,640. If the face rate of interest was 6.73% and the effective rate of interest was 8%, how would Suez calculate the interest expense for the first year on the bonds using the effective interest method?

Accepted Answer

A)   $189,640 × 6.73%
B)   $189,640 × 8%
C)   $10,000 × 6.73%
D)   $10,000 × 8%

Question 11

Discount on Bonds Payable is shown on the balance sheet as an .

Accepted Answer

The answer of Discount on Bonds Payable is shown on...

Question 12

One of your friends is majoring in Aeronautics. In this industry, leases are very important and he is interested in knowing a little bit about how international accounting standards will affect the industry as compared to current
U.S. GAAP treatments for leasing. How would you explain the differences in their applications?

Accepted Answer

Under U.S. GAAP, the criteria to determi...

Question 13

Amortization of bond discount results in an

Accepted Answer

A)   decrease of the bonds payable account.
B)   decrease of stockholders' equity.
C)   increase of stockholders' equity.
D)   decrease in the cash account

Question 14

The current portion of long-term debt is a balance sheet item for Flavorful Products Company. How would it most likely be classified on the balance sheet?

Accepted Answer

A)   Current liability
B)   Long-term liability
C)   Current asset
D)   Long-term liability.

Question 15

The deferred income taxes for a corporation represent

Accepted Answer

A)   the dollar amount of deductions that a corporation may claim for the year.
B)   an additional assessment made by the IRS for underpaid taxes.
C)   the estimated amount of next year's taxes.
D)   the dollar amount that arises due to the difference between accounting for financial statements and accounting for tax purposes.

Question 16

If a company's bonds are callable,

Accepted Answer

A)   the investor or buyer of the bonds has the right to retire the bonds.
B)   the issuing company is likely to retire the bonds before maturity if the bonds are paying 9% interest while the market rate of interest is 6%.
C)   the bonds are never allowed to remain outstanding until the maturity date.
D)   the investor never knows what the redemption price will be until the bonds are actually called.

Question 17

How do most changes in long-term liabilities on the balance sheet appear on the cash flow statement?

Accepted Answer

Long-term debt arises from the issue of ...

Question 18

All of the following refer to the face rate of interest on a bond except:

Accepted Answer

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

Question 19

Match the following bond and long-term liability related terms to the appropriate definition.
-The excess of the issue price over the face value of bonds. It occurs when the face rate on the bonds exceeds the market 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 20

When will bonds sell at a discount?

Accepted Answer

A)   The credit standing of the issuing company is not as good as other companies in a similar line of business.
B)   The face rate of interest is less than the market rate of interest at the time of issue.
C)   The face rate of interest is more than the market rate of interest at the time of issue.
D)   The issuing company will be able to retire the bonds at less than face at maturity.

Exam 10: Long-Term Liabilities

All of the following refer to the face rate of interest on a bond except:

Correct Answer
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Correct Answer
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How do most changes in long-term liabilities on the balance sheet appear on the cash flow statement?

Correct Answer
verified
Long-term debt arises from the issue of ...
View Answer

If a company's bonds are callable,

Correct Answer
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The current portion of long-term debt is a balance sheet item for Flavorful Products Company. How would it most likely be classified on the balance sheet?

Correct Answer
verified

A gain on bond redemption

Correct Answer
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An example of a cash flow related to a liability that would not appear in the financing activities category of the statement of cash flows is

Correct Answer
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Which of the following statements is true with respect to long-term liabilities?

Correct Answer
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The deferred income taxes for a corporation represent

Correct Answer
verified

Happy Corporation leased a building from Sensor Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true?

Correct Answer
verified

Amortization of bond discount results in an

Correct Answer
verified

Correct Answer
verified
Under U.S. GAAP, the criteria to determi...
View Answer

Discount on Bonds Payable is shown on the balance sheet as an .

Correct Answer
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In 2015, Suez Company issued $200,000 of bonds for $189,640. If the face rate of interest was 6.73% and the effective rate of interest was 8%, how would Suez calculate the interest expense for the first year on the bonds using the effective interest method?

Correct Answer
verified

When a lease is classified as an operating lease, the lease liability should be presented on the balance sheet of the lessee.

Correct Answer
verified

Match the following bond and long-term liability related terms to the appropriate definition. -The excess of the issue price over the face value of bonds. It occurs when the face rate on the bonds exceeds the market rate.

Correct Answer
verified

Correct Answer
verified
1.
$ 4,650 loss

2. The gain or los...
View Answer

Correct Answer
verified
1. $315,000 interest expense.
Since the ...
View Answer

Bonds were issued at an when the issue price exceeds the face value.

Correct Answer
verified

When will bonds sell at a discount?

Correct Answer
verified

Exam 10: Long-Term Liabilities

All of the following refer to the face rate of interest on a bond except:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

How do most changes in long-term liabilities on the balance sheet appear on the cash flow statement?

Correct AnswerverifiedLong-term debt arises from the issue of ...View AnswerShow Answer

If a company's bonds are callable,

Correct AnswerverifiedShow Answer

The current portion of long-term debt is a balance sheet item for Flavorful Products Company. How would it most likely be classified on the balance sheet?

Correct AnswerverifiedShow Answer

A gain on bond redemption

Correct AnswerverifiedShow Answer

An example of a cash flow related to a liability that would not appear in the financing activities category of the statement of cash flows is

Correct AnswerverifiedShow Answer

Which of the following statements is true with respect to long-term liabilities?

Correct AnswerverifiedShow Answer

The deferred income taxes for a corporation represent

Correct AnswerverifiedShow Answer

Happy Corporation leased a building from Sensor Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Amortization of bond discount results in an

Correct AnswerverifiedShow Answer

Correct AnswerverifiedUnder U.S. GAAP, the criteria to determi...View AnswerShow Answer

Discount on Bonds Payable is shown on the balance sheet as an .

Correct AnswerverifiedShow Answer

In 2015, Suez Company issued $200,000 of bonds for $189,640. If the face rate of interest was 6.73% and the effective rate of interest was 8%, how would Suez calculate the interest expense for the first year on the bonds using the effective interest method?

Correct AnswerverifiedShow Answer

When a lease is classified as an operating lease, the lease liability should be presented on the balance sheet of the lessee.

Correct AnswerverifiedShow Answer

Match the following bond and long-term liability related terms to the appropriate definition. -The excess of the issue price over the face value of bonds. It occurs when the face rate on the bonds exceeds the market rate.

Correct AnswerverifiedShow Answer

Correct Answerverified1. $ 4,650 loss 2. The gain or los...View AnswerShow Answer

Correct Answerverified1. $315,000 interest expense.Since the ...View AnswerShow Answer

Bonds were issued at an when the issue price exceeds the face value.

Correct AnswerverifiedShow Answer

When will bonds sell at a discount?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Long-term debt arises from the issue of ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Under U.S. GAAP, the criteria to determi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
1.
$ 4,650 loss

2. The gain or los...
View Answer

Correct Answer
verified
1. $315,000 interest expense.
Since the ...
View Answer

Correct Answer
verified

Correct Answer
verified