**Chapter 10 Quiz Name:**

Reporting and Analyzing

Long-Term Liabilities

25 pts

Please place the letter (T) for a true answer or the letter (F) for a false answer on the answer line and correct the False problems.

Problem 1:

A basic present value concept is that cash received in the future is worth more value than the same amount of cash received today.

Answer:

Problem 2:

An annuity is a series of equal payments at equal time intervals.

Answer

Problem 3:

If a bond’s interest period does not coincide with the issuing company’s accounting period, an adjusting entry is necessary to recognize bond interest expense accruing since the most recent interest payment.

Answer:

Problem 4:

Operating leases are long-term or non-cancelable leases in which the lessor transfers all the risks and rewards of ownership to the lessee.

Answer:

Problem 5:

A pension plan is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire.

Answer:

Problem 6:

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

Answer:

Problem 7:

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

Answer:

Chapter 10 Quiz pg. 2

Problem 8:

The type of bond that provides the greatest security from theft of loss is the debenture.

Answer:

Problem 9:

A bond listed at 103 on a stock exchange is selling at 103% of its par value.

Answer:

Problem 10:

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Answer:

Problem 11:

A bond’s par value is not necessarily the same as its market value.

Answer:

Problem 12:

The debt to equity ratio helps assess the risks of a company’s financing structure.

Answer:

Problem 13:

A company with liabilities of $2,816,000 and equity of $826,000 has a debt to equity ratio equal to 29.33%. Show your calculations…..

Answer:

Problem 14:

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Answer:

Problem 15:

Premium on Bonds Payable is an increase to the liability account.

Answer:

Problem 16:

Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.

Answer:

Chapter 10 Quiz pg. 3

Multiple Choice Problems

Place the corresponding letter for the correct answer to the multiple choice problem.

Problem 17:

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

A. Debentures

B. Discounted notes

C. Installment notes

D. Indentures

E. Investment notes

Answer:

Problem 18:

The carrying value of a long-term note payable:

A. Is computed as the future value of all remaining future payments, using the market rate as interest

B. Is the face value of the long-term note less the total of all future interest payments

C. Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance

D. Is computed as the present value of all remaining interest payments, discounted using the note’s rate of interest

E. Decreases each time period the discount on the note is amortized

Answer:

Problem 19:

A company borrowed $300,000 cash from the bank by signing a 5-year, 8% installment note. The present value factor for an annuity at 8% for 5 years is 3.9927. Each annuity payment equals $75,137. The present value of the note is: Show your calculations.

A. $75,137

B. $94,013

C. $300,000

D. $375,685

E. $1,197,810

Answer:

Chapter 10 Quiz pg. 3

Multiple Choice Problems

Problem 20:

If an issuer sells a bond at any other date than the interest payment date:

A. This means the bond sells at a premium

B. This means the bond sells at a discount

C. The issuing company will report a loss on the sale of the bond

D. The issuing company will report a gain on the sale of the bond

E. The buyer normally pays the issuer the purchase price plus any interest accrued since the prior interest payment date

Answer:

Problem 21:

A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer? Show your calculations.

A. $750

B. $5,250

C. $1,500

D. $3,000

E. $6,000

Answer:

Problem 22:

Operating leases differ from capital leases in that

A. For a capital lease the lessee records the lease payments as rent expense, but for an operating lease the lessee reports the lease payments as depreciation expense

B. For an operating lease the lessee depreciates the asset acquired under lease, but for the capital lease the lessee does not

C. Operating leases create a long-term liability on the balance sheet, but capital leases do not

D. Operating leases do not transfer ownership of the asset under the lease, but capital leases often do

E. Operating lease payments are generally greater than capital lease payments

Answer:

Problem 23:

Sinking fund bonds:

A. Require the issuer to set aside assets in order retire the bonds at maturity

B. Require equal payments of both principal and interest over the life of the bond issue

C. Decline in value over time

D. Are registered bonds

E. Are bearer bonds

Answer:

Chapter 10 Quiz pg. 5

Multiple Choice Problems

Problem 24:

Bonds owned by investors whose names and addresses are recorded by the issuing company and for which interest payments are made with checks to the bondholders, are called:

A. Callable bonds

B. Serial bonds

C. Registered bonds

D. Coupon bonds

E. Bearer bonds

Answer:

Problem 25:

The Discount on Bonds Payable account is:

A. A liability

B. A contra liability

C. An expense

D. A contra expense

E. A contra equity

Answer: