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1 | |
The providers of borrowed capital for the business are called creditors. |
| | A) | True |
| | B) | False |
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2 | |
Estimated liabilities have two basic characteristics: The liability is known to exist and precise dollar amount can be determined. |
| | A) | True |
| | B) | False |
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3 | |
Assets that have been pledged to secure specific liabilities are called collateral. |
| | A) | True |
| | B) | False |
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4 | |
The maturity value of a $12,000, 12%, 60-day note is $12,240. |
| | A) | True |
| | B) | False |
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5 | |
When a 60-day, 12%, note payable is issued on March 15, no adjusting entry is required at the end of March or April if the fiscal year ends on June 30. |
| | A) | True |
| | B) | False |
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6 | |
An accrued liability is an accrued expense. |
| | A) | True |
| | B) | False |
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7 | |
The employee pays income taxes, social security taxes, and state and federal unemployment taxes. |
| | A) | True |
| | B) | False |
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8 | |
Unearned fees and customer deposits are examples of earned revenues. |
| | A) | True |
| | B) | False |
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9 | |
The combined cash outlays required for repayment of principal amounts borrowed and for payments of interest expense during the period is called debt service. |
| | A) | True |
| | B) | False |
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10 | |
A bond is a type of long-term, interest-bearing, note payable. |
| | A) | True |
| | B) | False |
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11 | |
When bonds are issued, the corporation usually utilizes the services of an investment-banking firm, called an underwriter. |
| | A) | True |
| | B) | False |
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12 | |
A $1,000 bond selling at 103 would be sold for $1,030. |
| | A) | True |
| | B) | False |
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13 | |
An unsecured bond is a debenture bond. |
| | A) | True |
| | B) | False |
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14 | |
A 20-year bond that can be redeemed at any time during the life of the bond is a callable bond. |
| | A) | True |
| | B) | False |
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15 | |
A convertible bond is a bond that can be converted to cash at any given time. |
| | A) | True |
| | B) | False |
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16 | |
A cash fund that is established with a trustee and is designated to repay the borrowed bond funds at bond maturity is called a sinking fund. |
| | A) | True |
| | B) | False |
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17 | |
A major advantage of raising capital through the sale of bonds is that the interest paid on the bonds is a tax-deductible item. |
| | A) | True |
| | B) | False |
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18 | |
Dividends paid to stockholders are deductible for income tax purposes. |
| | A) | True |
| | B) | False |
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19 | |
Financing with bonds has no tax advantages for the business. |
| | A) | True |
| | B) | False |
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20 | |
The future value of a $1,000, 10%, 1-year bond is $1,100, and the present value of the bond is $1,000 for an investor who requires a 10% return. |
| | A) | True |
| | B) | False |
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21 | |
A lease agreement that meets any two of the FASB criteria will qualify that lease as an operating lease. |
| | A) | True |
| | B) | False |
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22 | |
When interest rates rise, the corporation's cost of borrowing through bonds issued at an earlier time will increase. |
| | A) | True |
| | B) | False |
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23 | |
An operating lease requires a periodic charge to the Rent Expense account. |
| | A) | True |
| | B) | False |
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24 | |
There is no advantage to a corporation for early retirement of bond debt. |
| | A) | True |
| | B) | False |
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25 | |
A lease agreement that contains a bargain purchase option is an operating lease. |
| | A) | True |
| | B) | False |
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26 | |
A lease with a term of 8 years, which is 20% less than the estimated economic life of the leased property, is an operating lease. |
| | A) | True |
| | B) | False |
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27 | |
To qualify as a capital lease, the terms of the lease must meet at least two of the FASB criteria for a capital lease. |
| | A) | True |
| | B) | False |
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28 | |
Funded costs for employee retirement benefits are debited directly to the Pension Expense account. |
| | A) | True |
| | B) | False |
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29 | |
Unfunded post-retirement costs are noncash expenses. |
| | A) | True |
| | B) | False |
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30 | |
Deferred income taxes may be classified as current or long-term liabilities. |
| | A) | True |
| | B) | False |
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31 | |
It is not necessary to disclose the maturity dates of long-term obligations on the financial statements. |
| | A) | True |
| | B) | False |
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32 | |
The interest coverage ratio is computed by dividing the annual operating income by the annual interest expense. |
| | A) | True |
| | B) | False |
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33 | |
Borrowing funds at 8% to fund business operations that provide a return of 18% is an example of leverage. |
| | A) | True |
| | B) | False |
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34 | |
The current ratio is equal to current assets divided by current liabilities. |
| | A) | True |
| | B) | False |
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35 | |
The debt ratio shows how many times the company earns its annual interest obligations. |
| | A) | True |
| | B) | False |
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36 | |
Working capital is a more stringent measure of solvency than the quick ratio. |
| | A) | True |
| | B) | False |
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37 | |
A $25,000, 12%, 3-month, note payable is issued on July 15. What is the maturity value of the note? |
| | A) | $25,000 |
| | B) | $750 |
| | C) | $25,750 |
| | D) | $2,000 |
| | E) | None of the above |
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38 | |
On January 2, a business acquired a building by paying $10,000 down and issuing a mortgage note for the balance of $96,000. The mortgage note is to be paid at $1,000 per month plus interest, beginning on February 1. The March 31 balance sheet would disclose the mortgage note as which of the following? |
| | A) | Long-term liability of $94,000 |
| | B) | Current liability of $10,000 and long-term liability of $84,000 |
| | C) | Current liability of $12,000 and long-term liability of $82,000 |
| | D) | Current liability of $12,000 and long-term liability of $94,000 |
| | E) | Long-term liability of $93,000 |
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39 | |
The Long-Term Notes Payable account currently has a balance of $20,000. A single payment of $3,000 is made on the principal each year. The balance sheet will report in which of the following? |
| | A) | A long-term liability of $20,000 |
| | B) | A long-term liability of $23,000 |
| | C) | A long-term liability of $3,000 |
| | D) | A short-term liability of $17,000 |
| | E) | A short-term liability of $3,000 |
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40 | |
The current balance due on a Note Payable totals $4,855. If the interest being charged is 12% (1% per month), and the current monthly payment is $1,000, what amount of the monthly payment is interest expense? |
| | A) | $48.00 |
| | B) | $48.55 |
| | C) | $1,000.00 |
| | D) | $951.00 |
| | E) | $951.45 |
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41 | |
Which accounting principle requires that interest expense, or any expense for operations during a specific period, be recorded in that period? |
| | A) | Materiality principle |
| | B) | Non-materiality principle |
| | C) | Going-concern principle |
| | D) | Matching principle |
| | E) | Commitment principle |
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42 | |
How are unearned revenues classified on the balance sheet? |
| | A) | Long-term liabilities |
| | B) | Current assets |
| | C) | Current liabilities |
| | D) | Other revenues |
| | E) | Other expenses |
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43 | |
An 8% installment note of $60,000, dated January 2, requires 6 annual installments of $12,979, which includes interest. What amount of the second installment that should be charged to interest expense? |
| | A) | $4,146 |
| | B) | $4,800 |
| | C) | $4,416 |
| | D) | $3,762 |
| | E) | $4,499 |
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44 | |
An 8% installment note of $10,000, dated December 16, requires 6 annual installments of $2,163, which includes interest. How much interest expense should be accrued on December 31, after the first installment? |
| | A) | $800.00 |
| | B) | $690.96 |
| | C) | $58.58 |
| | D) | $28.79 |
| | E) | None of the above |
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45 | |
Bondholders are which of the following? |
| | A) | Creditors of the business |
| | B) | Stockholders of the business |
| | C) | Partners of the business |
| | D) | Owners of the business |
| | E) | Customers of the business |
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46 | |
Which of the following is a bond that offers a high rate of interest but has a higher risk than normal? |
| | A) | Sinking fund bond |
| | B) | Junk bond |
| | C) | Garbage bond |
| | D) | Callable bond |
| | E) | Convertible bond |
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47 | |
On October 1, the company issued $500,000 of 6%, 10-year bonds at a price of 100. Interest is paid quarterly. What is the journal entry at the end the first year, December 31, to accrue the interest on the bonds? |
| | A) | A debit to Bond Interest Expense for $7,500 and a credit to Bond Interest Payable for $7,500. |
| | B) | A debit to Bond Interest Expense for $7,500 and a credit to Cash for $7,500. |
| | C) | A debit to Bond Interest Expense for $7,500 and a credit to Bonds for $7,500. |
| | D) | A debit to Bond Interest Expense for $30,000 and a credit to Bond Interest Payable for $30,000. |
| | E) | A debit to Bond Sinking Fund for $30,000 and a credit to Cash for $30,000. |
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48 | |
On October 1, the company issued $500,000 of 6%, 10-year bonds at a price of 100. The bonds are dated September 1 and pay interest quarterly. Which of the following is true about the journal entry to record the sale of the bonds? |
| | A) | Cash is debited for $502,500. |
| | B) | Cash is debited for $500,000. |
| | C) | Bonds Payable is credited for $500,000. |
| | D) | Bond Interest Expense is credited for $2,500. |
| | E) | A and C |
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49 | |
Today, you've been given a note receivable with a face value of $10,000, an annual compound interest rate of 12%, and a term of 5 years. What is the present value of the note? |
| | A) | $12,000 |
| | B) | $17,623 |
| | C) | $10,000 |
| | D) | $8,800 |
| | E) | None of the above. |
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50 | |
Bonds outstanding are $2,000,000, 10%, 10-year bonds that were issued at par and with a call price of 105. The market interest rates have declined and the market price of the bonds is currently 107. What is the amount of gain or loss on early retirement of the bonds, if the bonds are retired today? |
| | A) | Loss on early retirement of $140,000. |
| | B) | Gain on early retirement of $140,000 |
| | C) | Loss on early retirement of $100,000. |
| | D) | Gain on early retirement of $20,000 |
| | E) | None of the above |
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51 | |
Which lease requires a periodic cash payment and a debit to the Rent Expense account? |
| | A) | Capital lease |
| | B) | Operating lease |
| | C) | Financing lease |
| | D) | Convertible lease |
| | E) | Both A and C |
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52 | |
The present value of the minimum lease payments amounts to 80 percent of the fair market value of the leased property. If the other FASB criteria for leases have not been met, then this is which type of lease? |
| | A) | Capital lease |
| | B) | Financing lease |
| | C) | Operating lease |
| | D) | Convertible lease |
| | E) | Both 2 and 3 above |
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53 | |
A machine is acquired under a capital lease agreement. Which of the following statements is true? |
| | A) | The lessor will depreciate the asset. |
| | B) | The lessee will depreciate the asset. |
| | C) | Rent expense will be recorded. |
| | D) | All of the above are true. |
| | E) | A and B are true. |
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54 | |
A fully funded pension plan would require that the employer make periodic payments to which of the following? |
| | A) | Current employees |
| | B) | A trustee |
| | C) | A government agency |
| | D) | Retired employees |
| | E) | A credit union |
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55 | |
The taxable income subject to a tax rate of 30% is $400,000. The taxable income was determined by taking a declining-balance method of depreciation, which resulted in a depreciation expense of $40,000. For financial reporting purposes, straight-line depreciation was used, which resulted in a depreciation expense of $25,000. What was the amount of the deferred income taxes? |
| | A) | $15,000 |
| | B) | $4,500 |
| | C) | $19,500 |
| | D) | $12,000 |
| | E) | $7,500 |
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2002 McGraw-Hill Higher Education