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Ch 14 - test bank ch 14
Intermediate Financial Accounting (BUS 165C)
University of California Riverside
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CHAPTER 14
LONG-TERM LIABILITIES
IFRS questions are available at the end of this chapter.
TRUE-FALSE—Conceptual
Answer No. Description
T 1. Bond interest payments. F 2. Debenture bonds. T 3. Definition of serial bonds. F 4. Market rate vs. coupon rate. F 5. Definition of stated interest rate. T 6. Stated rate and coupon rate. F 7. Amortization of premium and discount. F 8. Issuance of bonds. F 9. Interest paid vs. interest expense. T 10. Reporting bond discounts. T 11. Refunding of bond issue. F 12. Long-term notes payable. T 13. Variable-rate mortgages. T 14. Definition of unrealized holding gain/loss. T 15. Off-balance-sheet financing. T 16. Debt to assets ratio. F 17. Refinancing long-term debt. F 18. Times interest earned. F *19. Loss recognized on impaired loan. F *20. Gain/loss in troubled debt restructuring.
MULTIPLE CHOICE—Conceptual
Answer No. Description
a 21. Liability identification. a 22. Bond terms. b 23. Definition of "debenture bonds." a P24. Definition of bearer bonds. d S25. Definition of income bonds. a S26. Effective-interest vs. straight-line method. d S27. Interest rate of the bond indenture. d 28. Rate of interest earned by the bondholders. d 29. Calculating the issue price of bonds. d 30. Calculating the issue price of bonds. b 31. Premium and interest rates. a 32. Interest and discount amortization. d 33. Effective-interest amortization method. d 34. Impact of effective-interest method. c 35. Recording bonds issued between interest dates. d 36. Bonds issued at other than an interest date. d 37. Classification of premium on bonds payable. c 38. Computing bond interest paid.
Test Bank for Intermediate Accounting, Sixteenth Edition 14 - 2
MULTIPLE CHOICE—Conceptual (cont.)
Answer No. Description
b 39. Face value of bonds. d 40. Early extinguishment of bonds payable. d 41. Gain or loss on extinguishment of debt. c P42. In-substance defeasance. c P43. Reporting long-term debt. a S44. Debt instrument exchanged for property. d 45. Stated interest rate of note. d 46. Creditworthiness of a company. c 47. Accounting for the fair value option. a 48. Project financing arrangement. c S49. Off-balance-sheet financing. d S50. Long-term debt maturing within one year. d 51. Required bond disclosures. d 52. Long-term debt disclosures. c 53. Times interest earned. c 54. Debt to assets ratio. c *55. Modification of terms in debt restructure. d *56. Gain/loss on troubled debt restructuring. b *57. Gain/loss on troubled debt restructuring. b *58. Interest and troubled debt restructuring. c *59. Creditor's calculations for modification of terms.
P These questions also appear in the Problem-Solving Survival Guide. S These questions also appear in the Study Guide.
- This topic is dealt with in an Appendix to the chapter.
MULTIPLE CHOICE—Computational
Answer No. Description
a 60. Calculate the present value of bond principal. b 61. Calculate the present value of bond interest. a 62. Determine the issue price of bonds. c 63. Proceeds from bond issuance. c 64. Bonds issued between interest dates. c 65. Proceeds from bond issuance. c 66. Bonds issued between interest dates. c 67. Effective-interest method interest expense. a 68. Effective-interest method carrying value. d 69. Straight-line method carrying value. d 70. Straight-line amortization/interest expense. c 71. Effective-interest method interest expense. a 72. Effective-interest method carrying value. d 73. Straight-line method carrying value. d 74. Straight-line method amortization/interest expense. b 75. Interest expense using effective-interest method. c 76. Interest expense using effective-interest method. d 77. Entry to record issuance of bonds. a 78. Calculate bond interest expense.
Test Bank for Intermediate Accounting, Sixteenth Edition 14 - 4
BRIEF EXERCISES
Item Description
BE14-117 Terms related to long-term debt. BE14-118 Bond issue price and premium amortization. BE14-119 Amortization of discount or premium.
EXERCISES
Item Description E14-120 Entries for bonds payable. E14-121 Retirement of bonds. E14-122 Early extinguishment of debt. *E14-123 Accounting for a troubled debt settlement. *E14-124 Accounting for troubled debt restructuring. *E14-125 Accounting for troubled debt.
PROBLEMS
Item Description
P14-126 Bond discount amortization. P14-127 Bond interest and discount amortization. P14-128 Entries for bonds payable. P14-129 Entries for bonds payable. P14-130 Fair value option *P14-131 Accounting for a troubled debt restructuring.
CHAPTER LEARNING OBJECTIVES
Describe the nature of bonds and indicate the accounting for bond issuances.
Describe the accounting for the extinguishment of debt.
Explain the accounting for long-term notes payable.
Describe the accounting for the fair value option.
Indicate how to present and analyze long-term debt.
*6. Describe the accounting for a debt restructuring.
- Compare the accounting procedures for long-term liabilities under GAAP and IFRS.
Long-Term Liabilities 14 - 5
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
TRUE-FALSE STATEMENTS
1. 1 K 5. 1 K 9. 1 C 13. 3 K 17. 5 C
2. 1 K 6. 1 K 10. 1 K 14. 4 K 18. 5 K
3. 1 K 7. 1 C 11. 2 K 15. 5 K 19. 6 K
4. 1 K 8. 1 K 12. 3 K 16. 5 AN 20. 6 K
MULTIPLE CHOICE QUESTIONS
21. 1 C 41. 2 K 61. 1 AP 81. 1 AP 101. 5 AN
22. 1 K 42. 2 K 62. 1 AP 82. 1 AP 102. 5 AP
23. 1 K 43. 3 C 63. 1 AP 83. 1 AP 103. 6 AP
24. 1 K 44. 3 C 64. 1 AP 84. 1 AP 104. 6 AP
25. 1 K 45. 3 K 65. 1 AP 85. 2 AP 105. 6 AP
26. 1 C 46. 4 K 66. 1 AP 86. 2 AP 106. 1 AP
27. 1 K 47. 4 C 67. 1 AP 87. 2 AP 107. 1 AP
28. 1 K 48. 5 K 68. 1 AP 88. 2 AP 108. 1 AP
29. 1 K 49. 5 K 69. 1 AP 89. 2 AP 109. 1 AP
30. 1 K 50. 5 K 70. 1 AP 90. 2 AP 110. 2 AP
31. 1 C 51. 5 K 71. 1 AP 91. 2 AP 111. 2 AP
32. 1 C 52. 5 K 72. 1 AP 92. 2 AP 112. 2 AP
33. 1 K 53. 5 K 73. 1 AP 93. 2 AP 113. 2 AP
34. 1 C 54. 5 K 74. 1 AP 94. 2 AP 114. 2 C
35. 1 C 55. 6 C 75. 1 AP 95. 2 AP 115. 2 C
36. 1 C 56. 6 K 76. 1 AP 96. 3 AP 116. 6 AP
37. 1 K 57. 6 C 77. 1 AP 97. 3 AP
38. 1 K 58. 6 C 78. 1 AP 98. 3 AP
39. 1 K 59. 6 C 79. 1 AP 99. 5 AP
40. 2 C 60. 1 AP 80. 1 AP 100. 5 AP
BRIEF EXERCISES
117. 1 , 2 , K 118. 1 AP 119. 1 AP
EXERCISES
120. 1, 2 AP 122. 2 AP 124. 6 AP
121. 2 AP 123. 6 AP 125. 6 K
PROBLEMS
126. 1 AP 128. 1, 2 AP 130. 4 AP
127. 1 AP 129. 1,2 AP 131. 6 AP
Long-Term Liabilities 14 - 7
- The interest rate of variable-rate mortgages is tied to changes in the fluctuating market rate.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- An unrealized holding gain or loss is the net change in the fair value of the liability from one period to another, exclusive of interest expense recognized but not recorded.
Ans: T, LO: 4, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- Off-balance-sheet financing is an attempt to borrow monies in such a way to minimize the reporting of debt on the balance sheet.
Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
- The debt to assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.
Ans: T, LO: 5, Bloom: AN, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, FSA, IFRS: None
- If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.
Ans: F, LO: 5, Bloom: C, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
- The times interest earned is computed by dividing income before interest expense by interest expense.
Ans: F, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None
*19. The loss to be recognized by a creditor on an impaired loan is the difference between the investment in the loan and the expected undiscounted future cash flows from the loan.
Ans: F, LO: 6, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
*20. In a troubled debt restructuring, the loss recognized by the creditor will equal the gain recognized by the debtor.
Ans: F, LO: 6, Bloom: K, Difficulty: Moderate, Min: 1, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
True False Answers—Conceptual
Item Ans. Item Ans. Item Ans. Item Ans. 1. T 6. T 11. T 16. T 2. F 7. F 12. F 17. F 3. T 8. F 13. T 18. F 4. F 9. F 14. T 19. F 5. F 10. T 15. T 20. F
Test Bank for Intermediate Accounting, Sixteenth Edition 14 - 8
MULTIPLE CHOICE—Conceptual
- An example of an item which is not a liability is a. dividends payable in stock. b. advances from customers on contracts. c. accrued estimated warranty costs. d. the portion of long-term debt due within one year.
Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
- The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the a. bond indenture. b. bond debenture. c. registered bond. d. bond coupon.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
- The term used for bonds that are unsecured as to principal is a. mortgage bonds. b. debenture bonds. c. indenture bonds. d. callable bonds.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
P24. Bonds for which the owners' names are not registered with the issuing corporation are called a. bearer bonds. b. term bonds. c. debenture bonds. d. secured bonds.
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
S25. Bonds that pay no interest unless the issuing company is profitable are called a. collateral trust bonds. b. debenture bonds. c. revenue bonds. d. income bonds.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
S26. If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be a. greater than if the straight-line method were used. b. greater than the amount of the interest payments. c the same as if the straight-line method were used. d. less than if the straight-line method were used.
Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
Test Bank for Intermediate Accounting, Sixteenth Edition 14 - 10
- If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will a. exceed what it would have been had the effective-interest method of amortization been used. b. be less than what it would have been had the effective-interest method of amortization been used. c. be the same as what it would have been had the effective-interest method of amortiza- tion been used. d. be less than the stated (nominal) rate of interest.
Ans: A, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 33. Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to a. the stated (nominal) rate of interest multiplied by the face value of the bonds. b. the market rate of interest multiplied by the face value of the bonds. c. the stated rate multiplied by the beginning-of-period carrying amount of the bonds. d. the market rate multiplied by the beginning-of-period carrying amount of the bonds. Ans: D, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will a. increase only if the bonds were issued at a discount. b. decrease only if the bonds were issued at a premium. c. increase only if the bonds were issued at a premium. d. increase if the bonds were issued at either a discount or a premium.
Ans: D, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a a. debit to Interest Payable. b. credit to Interest Receivable. c. credit to Interest Expense. d. credit to Unearned Interest.
Ans: C, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be a. decreased by accrued interest from June 1 to November 1. b. decreased by accrued interest from May 1 to June 1. c. increased by accrued interest from June 1 to November 1. d. increased by accrued interest from May 1 to June 1.
Ans: D, LO: 1, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None 37. Premium on bonds payable is a. a contra account. b. reported as a reduction of the bond liability. c. debited to a deferred charge account and amortized over the life of the bonds. d. an adjunct account. Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
Long-Term Liabilities 14 - 11
- Bond interest paid is equal to the a. carrying value of the bonds multiplied by the effective-interest rate. b. carrying value of the bonds multiplied by the stated interest rate. c. face amount of the bonds multiplied by the stated interest rate. d. face amount of the bonds multiplied by the effective-interest rate.
Ans: C, LO: 1, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- The face value of bonds is also called each of the following except a. maturity value. b. stated value. c. par value. d. principal.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
- An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition a. any costs of issuing the bonds must be amortized up to the purchase date. b. the premium must be amortized up to the purchase date. c. interest must be accrued from the last interest date to the purchase date. d. All of these answers are correct.
Ans: D, LO: 2, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as a. an adjustment to the cost basis of the asset obtained by the debt issue. b. an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument. c. an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt. d. a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.
Ans: D, LO: 2, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: FSA, IFRS: None
P42. "In-substance defeasance" is a term used to refer to an arrangement whereby a. a company gets another company to cover its payments due on long-term debt. b. a governmental unit issues debt instruments to corporations. c. a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust. d. a company legally extinguishes debt before its due date.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
Long-Term Liabilities 14 - 13
- If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting a. Bonds Payable. b. Gain on Restructuring of Debt. c. Unrealized Holding Gain/Loss-Income. d. Realized Holding Gain.
Ans: C, LO: 4, Bloom: C, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- A project financing arrangement refers to: a. an arrangement where a company creates a special-purpose entity to perform a special project. b. an arrangement where a company borrows from its subsidiary to finance a project. c. an arrangement where a company promises future repayment by placing purchased assets in an irrevocable trust. d. an arrangement where a company finances a project from a sinking fund established for bond repayments.
Ans: A, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
S49. When a company enters into what is referred to as off-balance-sheet financing, the company a. is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. b. wishes to confine all information related to the debt to the income statement and the statement of cash flow. c. can enhance the quality of the balance sheet and permits credit to be obtained more readily and at less cost. d. is in violation of generally accepted accounting principles.
Ans: C, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
S50. Long-term debt that matures within one year and is to be converted into stock should be reported a. as a current liability. b. in a special section between liabilities and stockholders’ equity. c. as noncurrent. d. as noncurrent and accompanied with a note explaining the method to be used in its liquidation.
Ans: D, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
- Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements? a. The present value of future payments for sinking fund requirements and long-term debt maturities during each of the next five years. b. The present value of scheduled interest payments on long-term debt during each of the next five years. c. The amount of scheduled interest payments on long-term debt during each of the next five years. d. The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.
Ans: D, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
Test Bank for Intermediate Accounting, Sixteenth Edition 14 - 14
- Note disclosures for long-term debt generally include all of the following except a. assets pledged as security. b. call provisions and conversion privileges. c. restrictions imposed by the creditor. d. names of specific creditors.
Ans: D, LO: 5, Bloom: K, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting, IFRS: None
- The times interest earned is computed by dividing a. net income by interest expense. b. income before taxes by interest expense. c. income before income taxes and interest expense by interest expense. d. net income and interest expense by interest expense.
Ans: C, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None
- The debt to assets ratio is computed by dividing a. current liabilities by total assets. b. long-term liabilities by total assets. c. total liabilities by total assets. d. total assets by total liabilities.
Ans: C, LO: 5, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA, IFRS: None
*55. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, a. a loss should be recognized by the debtor. b. a gain should be recognized by the debtor. c. a new effective-interest rate must be computed. d. no interest expense or revenue should be recognized in the future.
Ans: C, LO: 6, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
*56. A troubled debt restructuring will generally result in a a. loss by the debtor and a gain by the creditor. b. loss by both the debtor and the creditor. c. gain by both the debtor and the creditor. d. gain by the debtor and a loss by the creditor.
Ans: D, LO: 6, Bloom: K, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
*57. In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize a. no gain or loss on the restructuring. b. a gain on the restructuring. c. a loss on the restructuring. d. None of these answers are correct.
Ans: B, LO: 6, Bloom: C, Difficulty: Moderate, Min: 2, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
Test Bank for Intermediate Accounting, Sixteenth Edition 14 - 16
MULTIPLE CHOICE—Computational
On January 1, 2017, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .......................................... Present value of 1 for 8 periods at 8% .......................................... Present value of 1 for 16 periods at 3% ........................................ Present value of 1 for 16 periods at 4% ........................................ Present value of annuity for 8 periods at 6% ............................... 6. Present value of annuity for 8 periods at 8% ............................... 5. Present value of annuity for 16 periods at 3% ............................. 12. Present value of annuity for 16 periods at 4% ............................. 11.
- The present value of the principal is a. $3,204,000. b. $3,240,000. c. $3,738,000. d. $3,762,000.
Ans: A, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
On January 1, 2017, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .......................................... Present value of 1 for 8 periods at 8% .......................................... Present value of 1 for 16 periods at 3% ........................................ Present value of 1 for 16 periods at 4% ........................................ Present value of annuity for 8 periods at 6% ............................... 6. Present value of annuity for 8 periods at 8% ............................... 5. Present value of annuity for 16 periods at 3% ............................. 12. Present value of annuity for 16 periods at 4% ............................. 11.
- The present value of the interest is a. $2,068,920. b. $2,097,360. c. $2,235,600. d. $2,260,980.
Ans: B, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
On January 1, 2017, Ellison Co. issued eight-year bonds with a face value of $6,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .......................................... Present value of 1 for 8 periods at 8% .......................................... Present value of 1 for 16 periods at 3% ........................................ Present value of 1 for 16 periods at 4% ........................................ Present value of annuity for 8 periods at 6% ............................... 6. Present value of annuity for 8 periods at 8% ............................... 5.
Long-Term Liabilities 14 - 17
Present value of annuity for 16 periods at 3% .............................. 12. Present value of annuity for 16 periods at 4% .............................. 11.
- The issue price of the bonds is a. $5,301,360. b. $5,308,920. c. $5,337,360. d. $5,997,600.
Ans: A, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- Downing Company issues $5,000,000, 6%, 5-year bonds dated January 1, 2017 on January 1, 2017. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2% 3% 5% 6% Present value of a single sum for 5 periods .88385 .86261 .78353. Present value of a single sum for 10 periods .78120 .74409 .61391. Present value of an annuity for 5 periods 4 4 4 4. Present value of an annuity for 10 periods 8 8 7 7.
a. $5,000, b. $5,216, c. $5,218, d. $5,217,
Ans: C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- Feller Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2017 at 97 plus accrued interest. The bonds are dated January 1, 2017, and pay interest on June 30 and December 31. What is the total cash received on the issue date? a. $19,400, b. $20,450, c. $19,700, d. $19,100,
Ans: C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- Everhart Company issues $25,000,000, 6%, 5-year bonds dated January 1, 2017 on January 1, 2017. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?
2% 3% 5% 6% Present value of a single sum for 5 periods .88385 .86261 .78353. Present value of a single sum for 10 periods .78120 .74409 .61391. Present value of an annuity for 5 periods 4 3 4 4 4. Present value of an annuity for 10 periods 8 8 7 7.
a. $25,000, b. $26,082, c. $26,094, d. $26,086,
Ans: C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
Long-Term Liabilities 14 - 19
- A company issues $15,000,000, 7%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, how much interest expense will be recognized in 2017? a. $585, b. $1,170, c. $1,176, d. $1,176,
Ans: C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- A company issues $15,000,000, 7%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2017 balance sheet? a. $14,709, b. $15,000, c. $14,718, d. $14,706,
Ans: A, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- A company issues $15,000,000, 7%, 20-year bonds to yield 8% on January 1, 2016. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2018? a. $14,752, b. $14,955, c. $14,725, d. $14,747,
Ans: D, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- A company issues $15,000,000, 7%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,108. What is interest expense for 2018, using straight-line amortization? a. $1,540, b. $1,170, c. $1,176, d. $1,184,
Ans: D, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- A company issues $25,000,000, 7%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using effective-interest amortization, how much interest expense will be recognized in 2017? a. $975, b. $1,950, c. $1,960, d. $1,960,
Ans: C, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
Test Bank for Intermediate Accounting, Sixteenth Edition 14 - 20
- A company issues $25,000,000, 7%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2017 balance sheet? a. $24,515, b. $25,000, c. $24,531, d. $24,510,
Ans: A, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 4, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- A company issues $25,000,000, 7%, 20-year bonds to yield 8% on January 1, 2016. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2018? a. $24,587, b. $24,925, c. $24,545, d. $24,579,
Ans: D, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- A company issues $25,000,000, 7%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and December 31. The proceeds from the bonds are $24,505,180. What is interest expense for 2018, using straight-line amortization? a. $1,925, b. $1,950, c. $1,961, d. $1,974,
Ans: D, LO: 1, Bloom: AP, Difficulty: Moderate, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- On January 1, 2017, Huber Co. sold 12% bonds with a face value of $2,000,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,154,500 to yield 10%. Using the effective-interest method of amortization, interest expense for 2017 is a. $200,000. b. $214,836. c. $215,400. d. $240,000.
Ans: B, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
- On January 2, 2017, a calendar-year corporation sold 8% bonds with a face value of $3,000,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $2,768,000 to yield 10%. Using the effective- interest method of computing interest, how much should be charged to interest expense in 2017? a. $240,000. b. $276,800. c. $277,720. d. $300,000.
Ans: C, LO: 1, Bloom: AP, Difficulty: Difficult, Min: 3, AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting, IFRS: None
Ch 14 - test bank ch 14
Course: Intermediate Financial Accounting (BUS 165C)
University: University of California Riverside
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