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Accounting > ACC Ch10 > Flashcards

ACC Ch10 Flashcards

1
Q

The present value of the annuity of interest payments plus the present value of the principal.

A

Bond issue price

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2
Q

Bonds that may be redeemed or retired before their specified due date.

A

Callable bonds

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3
Q

A lease that is recorded as an asset by the lessee.

A

Capital lease

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4
Q

The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.

A

Carrying value

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5
Q

Bonds that are not backed by specific collateral.

A

Debenture bonds

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6
Q

The account used to reconcile the difference between the amount recorded as income tax expense and the amount that is payable as income tax.

A

Deferred tax

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7
Q

The excess of the face value of bonds over the issue price.

A

Discount

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8
Q

The process of transferring a portion of the premium or discount to interest expense; this method results in a constant effective interest rate.

A

Effective interest method of amortization

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9
Q

The rate of interest on the bond certificate.

A

Face rate of interest

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10
Q

The principal amount of the bond as stated on the bond certificate.

A

Face value

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11
Q

The difference between the carrying value and the redemption price at the time bonds are redeemed.

A

Gain or loss on redemption

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12
Q

An obligation that will not be satisfied within one year or the current operating cycle.

A

Long-term liability

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13
Q

The rate that investors could obtain by investing in other bonds that are similar to the issuing firm’s bonds.

A

Market rate of interest

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14
Q

A lease that does not meet any of the four criteria and is not recorded as an asset by the lessee.

A

Operating lease

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15
Q

A difference that affects the tax records but not the accounting records, or vice versa.

A

Permanent difference

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16
Q

The excess of the issue price over the face value of the bonds.

A

Premium

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17
Q

Bonds that do not all have the same due date; a portion of the bonds comes due each time period.

A

Serial bonds

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18
Q

A difference that affects both book and tax records but not in the same time period.

A

Temporary difference

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19
Q

Bonds usually pay interesta. either annually or semiannually. b. at the time of issuance. c. only at the due date of the bond. d. monthly.

A

either annually or semiannually.

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20
Q

The excess of the issue price over the face value of the bond is referred to as:a. a discount. b. prepaid interest. c. a premium. d. accrued interest.

A

a premium.

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21
Q

If a long-term liability account increases, how should it be presented?a. as an increase in cash in the Operating Activities category. b. as an increase in cash in the Financing category. c. as a decrease in cash in the Financing category. d. as an increase in cash in the Investing category.

A

as an increase in cash in the Financing category.

22
Q

Which of the following is likely to appear in the Long-term Liabilities category of the balance sheet?a. Accounts payable b. Bonds payable c. Unearned revenue d. Warranty liability

A

Bonds payable

23
Q

Deferred income taxes arise because:a. corporations often make errors in their tax estimations. b. companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders. c. the IRS owes a company a refund from last year. d. large corporations generally have operations in foreign countries whose tax law is quite different from U.S. tax law.

A

corporations often make errors in their tax estimations.

24
Q

If the market rate of the bond at the time of issuance is greater than the face rate:a. the bonds will be issued at a discount. b. a loss will occur. c. a gain will occur. d. the bonds will be issued at a premium.

A

the bonds will be issued at a discount.

25
Q

Discount on Bonds Payable should be considered what type of account?a. contra-liability b. deferred revenue c. asset d. current liability

A

contra-liability

26
Q

On January 1, 2012, Omega Corporation issued a three-year, $1,000 bond with a nominal interest rate of 9%. At the time, the market rate of interest was 9%.If the market rate had been 10% at the time Omega issued the bonds:a. the bonds would have been issued at a discount. b. there would have been 1% accrued interest at the time of issuance. c. the bonds would have been issued at a premium. d. the bonds would have been issued at face value.

A

the bonds would have been issued at a discount.

27
Q

Which of the following circumstances would result in a capital lease to the lessee?a. The lessee can purchase the property for $1 at the end of the lease term. b. The fair market value of the property at the inception of the lease is $18,000; the present value of the minimum lease payments is $15,965. c. The lease term is 70% of the property’s economic life. d. The lessee will return the property to the lessor at the end of the lease term.

A

The lessee can purchase the property for $1 at the end of the lease term.

28
Q

On January 1, 2012, Omega Corporation issued a three-year, $1,000 bond with a nominal interest rate of 9%. At the time, the market rate of interest was 9%.If the market rate had been 8% at the time Omega issued the bonds:a. the bonds would have been issued at a premium. b. the bonds would have been issued at a discount. c. the bonds would have been issued at face value. d. there would have been 1% accrued interest at the time of issuance.

A

the bonds would have been issued at a premium.

29
Q

When a bond is issued at a premium, the interest expense each year:a. is less than the cash payment for interest. b. cannot be determined without details of the bond issue. c. equals the cash payment for interest. d. is greater than the cash payment for interest.

A

is less than the cash payment for interest.

30
Q

If bonds are sold at a premium, the carrying value of the bonds will:a. remain the same over the life of the bond. b. decrease over the life of the bond. c. increase over the life of the bond. d. unable to determine from the information provided

A

decrease over the life of the bond.

31
Q

When serial bonds are issued:a. the bonds all come due on the same date. b. not all of the bonds come due on the same date. c. the interest is paid as a series of monthly payments. d. the lender repays the interest only.

A

not all of the bonds come due on the same date.

32
Q

Items that are considered permanent differences:a. should be reflected as deferred tax assets on the balance sheet. b. should be reflected as deferred tax liabilities on the balance sheet. c. should not be reflected in the Deferred Tax account. d. are items that have been excluded from both tax and financial statement calculation.

A

should not be reflected in the Deferred Tax account.

33
Q

If a long-term liability account decreases, how should it be presented on the statement of cash flows?a. as an increase in cash in the Investing Activities category b. as an increase in cash in the Operating Activities category c. as a decrease in cash in the Financing Activities category d. as an increase in cash in the Financing Activities category

A

as a decrease in cash in the Financing Activities category

34
Q

What does a gain on the redemption of bonds indicate?a. The carrying value of the bond was equal to the redemption price. b. The bondholders were not paid the full face value at time of redemption. c. The carrying value of the bond was larger than the redemption price. d. The carrying value of the bond was less than the redemption price.

A

The carrying value of the bond was larger than the redemption price.

35
Q

When a company uses the straight-line depreciation method for financial reporting purposes and an accelerated depreciation method for tax purposes, what is the result?a. no deferred taxes. b. a deferred tax asset. c. a deferred tax liability. d. a violation of GAAP.

A

a deferred tax liability.

36
Q

When bonds are sold, the Bonds Payable account is always credited for:a. the amount of the premium or discount. b. None of these choices are correct. c. the face value of the bonds. d. the cash received

A

the face value of the bonds.

37
Q

If bonds are retired early, a gain will be recorded if the:a. redemption price > maturity value. b. redemption price carrying value.

A

redemption price

38
Q

Wong Corporation’s balance sheet showed the following amounts: Current Liabilities, $5,000; Bonds Payable, $1,500; Lease Obligations, $2,000, and Deferred Income Taxes, $300. Total stockholders’ equity was $6,000. The debt-to-equity ratio is:a. 0.83 b. 0.63 c. 1.47 d. 1.42

A

1.47

39
Q

Which of the following statements regarding leases is not true?a. Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash. b. If a lessor classifies a lease as a capital lease, then the lessor records a lease liability on its balance sheet. c. If a lease is classified as an operating lease, the lessee records a lease liability on its balance sheet. d. Accounting recognizes two types of leases–operating and capital leases.

A

If a lease is classified as an operating lease, the lessee records a lease liability on its balance sheet.

40
Q

When an investor views the times interest earned ratio of a company:a. a low value is generally viewed favorably. b. it is a measure of the company’s ability to generate cash. c. it is a measure of the company’s liquidity. d. a high value is generally viewed favorably.

A

a high value is generally viewed favorably.

41
Q

When a lease is classified as a capital lease:a. the lease liability should be presented on the balance sheet of the lessor. b. the leased asset liability should be presented on the balance sheet of the lessor. c. title to the leased asset may not pass to the lessee at the end of the lease. d. the lease liability should be presented on the balance sheet of the lessee.

A

the lease liability should be presented on the balance sheet of the lessee.

42
Q

A bond that is not backed by collateral is called a:a. secured bond. b. term bond. c. sub-prime bond. d. debenture bond.

A

debenture bond.

43
Q

A ten-year lease obligation appears on the balance sheet of Generic Products Company. How would it most likely be classified on the balance sheet?a. current assetb. long-term liabilityc. long-term assetd. contra-liability

A

long-term liability

44
Q

Which of the following items should NOT appear in the long-term liability section of the balance sheet?a. accrued income taxesb. deferred income taxesc. bonds payabled. pension obligations

A

accrued income taxes

45
Q

A convertible bond is one wherea. the issuer can convert from a fixed interest rate to a floating one,b. the issuer can convert it from long-term to short-termc. the issuer can retire the bond before its specified due date.d. the holder can convert the bond into common stock at a future time.

A

the holder can convert the bond into common stock at a future time.

46
Q

Bonds are a popular source of financing becausea. bond interest expense is deductible for tax purposes, while dividends paid on stock are not.b. financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock.c. a company having cash flow problems can postpone payment of interest to bondholders.d. the bondholders can always convert their bonds into stock if they choose.

A

bond interest expense is deductible for tax purposes, while dividends paid on stock are not.

47
Q

Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issueda. at a premiumb. at a discountc. at the face valued. with an additional 3 years of interest

A

at a discount

48
Q

The Premium on Bonds Payable account is shown on the balance sheet asa. a contra assetb. a reduction of an expensec. an addition to a long-term liabilityd. a subtraction from a long-term liability

A

an addition to a long-term liability

49
Q

If bonds were initially issued a a premium, the carrying value of the bonds on the issuer’s books willa. decrease as the bonds approach their maturityb. increase as the bonds approach their maturity datec. remain constant throughout the bonds lifed. fluctuate throughout the bonds life

A

decrease as the bonds approach their maturity

50
Q

Under the effective interest method, the cash paid on each interest payment date will a. decrease if bonds are issued at a premiumb. increase if bonds are issued at a premiumc. remain constant regardless of the issuance priced. increase if bonds are issued at a discount

A

remain constant regardless of the issuance price

51
Q

Because of changing market conditions, Friendly Corporation made the decision to redeem $300,000 of its bonds prior to maturity. The bonds had been issued at a discount and the balance in the discount account at the time of redemption was $15,000. The corporations bond certificates indicated that the bonds could be retired early at 103. Friendlys retirement of the bonds would result in a(n)a. loss of $24,000b. gain of $6,000c. decrease in owners equity of $9,000d. increase in assets of $15,000

A

loss of $24,000

52
Q

Which of the following lease conditions would result in a capital lease to the lessee?a. the lessee will return the property to the the lessor at the end of the lease term.b. the lessee can purchase the property for $1 at the end of the lease term.c. the fair market value of the property at the inception of the lease is $18,000; the present value of the minimum lease payments is $15,977.d. the lease term is 70% of the property’s economic life.

A

the lessee can purchase the property for $1 at the end of the lease term.

Accounting (10 decks)

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