Question 1

Which of the following is not a true statement?

Accepted Answer

A)  The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.
B)  Leverage enables a company to earn a higher return using debt than without debt.
C)  Return on assets is calculated as net income divided by the ending balance for total assets.
D)  The times interest earned ratio compares interest expense with income available to pay interest charges.E) All of the above
F) B) and D)

Question 2

The lower the market interest rate,the lower the bond issue price will be.

Accepted Answer

A) True 
 B)False

Question 3

Selected financial data for Company B is provided below:  What is the times interest earned ratio for Company B?

Accepted Answer

A)  6.2 times.
B)  10.8 times.
C)  0.2 times.
D)  164.5 times.E) A) and B)
F) A) and D)

Question 4

When bonds are issued at a discount and the effective interest method is used for amortization,at each subsequent interest payment date,the cash paid is:

Accepted Answer

A)  Less than the interest expense.
B)  Equal to the interest expense.
C)  Greater than the interest expense.
D)  More than if the bonds had been sold at a premium.E) A) and D)
F) C) and D)

Question 5

Use the following information to answer the next 6 questions:
X2 issued callable bonds on January 1,2015.The bonds pay interest annually on December 31 each year.X2's accountant has projected the following amortization schedule from issuance until maturity:
 
-What is the annual stated interest rate on the bonds?

Accepted Answer

A)  3%.
B)  3.5%.
C)  6%.
D)  7%.E) B) and C)
F) A) and D)

Question 6

Bond X and Bond Y are both issued by the same company.Each of the bonds has a face value of $100,000 and each matures in 10 years.Bond X pays 8% interest while Bond Y pays 9% interest.The current market rate of interest is 8%.Which of the following is correct?

Accepted Answer

A)  Both bonds will sell for the same amount.
B)  Bond X will sell for more than Bond Y.
C)  Bond Y will sell for more than Bond X.
D)  Both bonds will sell at a discount.E) A) and B)
F) A) and D)

Question 7

Secured bonds are backed by the federal government.

Accepted Answer

A) True 
 B)False

Question 8

The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million,but the market value of the bonds is $36 million.The entry to record the retirement will include:

Accepted Answer

A)  A credit of $6 million to a gain account.
B)  A debit of $6 million to a loss account.
C)  No gain or loss on retirement.
D)  A credit to cash for $42 million.E) None of the above
F) B) and C)

Question 9

The mixture of liabilities and stockholders' equity a business uses is called its:

Accepted Answer

A)  Bond contract.
B)  Carrying value.
C)  Capital structure.
D)  Accounting equation.E) None of the above
F) B) and C)

Question 10

Interest expense incurred when borrowing money,as well as dividends paid to stockholders,are tax-deductible.

Accepted Answer

A) True 
 B)False

Question 11

When bonds are issued at a premium and the effective interest method is used for amortization,at each interest payment date,the interest expense:

Accepted Answer

A)  Increases.
B)  Decreases.
C)  Remains the same.
D)  Is equal to the change in book value.E) None of the above
F) C) and D)

Question 12

Term bonds require payments in installments over a series of years.

Accepted Answer

A) True 
 B)False

Question 13

The market value of bonds moves in the opposite direction of interest rates.

Accepted Answer

A) True 
 B)False

Question 14

Use the following information to answer the next 4 questions:
Discount-Mart issues $10 million in bonds on January 1,2015.The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year.Below is a partial bond amortization schedule for the bonds:
 
-What is the interest expense on the bonds in 2015?

Accepted Answer

A)  $693,103.
B)  $600,000.
C)  $345,639.
D)  $347,464.E) All of the above
F) B) and D)

Question 15

Serial bonds require payment of the full principal amount of the bond at a single maturity date.

Accepted Answer

A) True 
 B)False

Question 16

Use the following information to answer the next 6 questions:
Tony Hawk's Adventure (THA) issued callable bonds on January 1,2015.THA's accountant has projected the following amortization schedule from issuance until maturity:
 
-THA issued the bonds:

Accepted Answer

A)  At par.
B)  At a premium.
C)  At a discount.
D)  Cannot be determined from the given information.E) B) and C)
F) C) and D)

Question 17

The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million,but the market value of the bonds is $23 million.The entry to record the retirement will include:

Accepted Answer

A)  A debit of $5 million to a loss account.
B)  A credit of $5 million to a gain account.
C)  No gain or loss on retirement.
D)  A credit to cash for $18 million.E) B) and D)
F) C) and D)

Question 18

What is capital structure? Why would a company choose to borrow money rather than issue additional stock?

Accepted Answer

Capital structure is the mixture of liab...

Question 19

Which of the following definitions describes a secured bond?

Accepted Answer

A)  Matures on a single date.
B)  Secured only by the "full faith and credit" of the issuing corporation.
C)  Matures in installments.
D)  Supported by specific assets pledged as collateral by the issuer.E) B) and D)
F) A) and C)

Question 20

Use the following information to answer the next 4 questions:
Discount-Mart issues $10 million in bonds on January 1,2015.The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year.Below is a partial bond amortization schedule for the bonds:
 
-What is the market annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate. )

Accepted Answer

A)  3%.
B)  4%.
C)  6%.
D)  8%.E) A) and B)
F) B) and D)

Exam 9: Long-Term Liabilities

The market value of bonds moves in the opposite direction of interest rates.

Correct Answer
verified

What is capital structure? Why would a company choose to borrow money rather than issue additional stock?

Correct Answer
verified
Capital structure is the mixture of liab...
View Answer

Which of the following is not a true statement?

Correct Answer
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Correct Answer
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Secured bonds are backed by the federal government.

Correct Answer
verified

Interest expense incurred when borrowing money,as well as dividends paid to stockholders,are tax-deductible.

Correct Answer
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Bond X and Bond Y are both issued by the same company.Each of the bonds has a face value of $100,000 and each matures in 10 years.Bond X pays 8% interest while Bond Y pays 9% interest.The current market rate of interest is 8%.Which of the following is correct?

Correct Answer
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Selected financial data for Company B is provided below: What is the times interest earned ratio for Company B?

Correct Answer
verified

The lower the market interest rate,the lower the bond issue price will be.

Correct Answer
verified

The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million,but the market value of the bonds is $23 million.The entry to record the retirement will include:

Correct Answer
verified

Serial bonds require payment of the full principal amount of the bond at a single maturity date.

Correct Answer
verified

Use the following information to answer the next 6 questions: Tony Hawk's Adventure (THA) issued callable bonds on January 1,2015.THA's accountant has projected the following amortization schedule from issuance until maturity: -THA issued the bonds:

Correct Answer
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Correct Answer
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When bonds are issued at a premium and the effective interest method is used for amortization,at each interest payment date,the interest expense:

Correct Answer
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When bonds are issued at a discount and the effective interest method is used for amortization,at each subsequent interest payment date,the cash paid is:

Correct Answer
verified

The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million,but the market value of the bonds is $36 million.The entry to record the retirement will include:

Correct Answer
verified

Term bonds require payments in installments over a series of years.

Correct Answer
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Which of the following definitions describes a secured bond?

Correct Answer
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Correct Answer
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The mixture of liabilities and stockholders' equity a business uses is called its:

Correct Answer
verified

Exam 9: Long-Term Liabilities

The market value of bonds moves in the opposite direction of interest rates.

Correct AnswerverifiedShow Answer

What is capital structure? Why would a company choose to borrow money rather than issue additional stock?

Correct AnswerverifiedCapital structure is the mixture of liab...View AnswerShow Answer

Which of the following is not a true statement?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Secured bonds are backed by the federal government.

Correct AnswerverifiedShow Answer

Interest expense incurred when borrowing money,as well as dividends paid to stockholders,are tax-deductible.

Correct AnswerverifiedShow Answer

Bond X and Bond Y are both issued by the same company.Each of the bonds has a face value of $100,000 and each matures in 10 years.Bond X pays 8% interest while Bond Y pays 9% interest.The current market rate of interest is 8%.Which of the following is correct?

Correct AnswerverifiedShow Answer

Selected financial data for Company B is provided below: What is the times interest earned ratio for Company B?

Correct AnswerverifiedShow Answer

The lower the market interest rate,the lower the bond issue price will be.

Correct AnswerverifiedShow Answer

The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million,but the market value of the bonds is $23 million.The entry to record the retirement will include:

Correct AnswerverifiedShow Answer

Serial bonds require payment of the full principal amount of the bond at a single maturity date.

Correct AnswerverifiedShow Answer

Use the following information to answer the next 6 questions: Tony Hawk's Adventure (THA) issued callable bonds on January 1,2015.THA's accountant has projected the following amortization schedule from issuance until maturity: -THA issued the bonds:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When bonds are issued at a premium and the effective interest method is used for amortization,at each interest payment date,the interest expense:

Correct AnswerverifiedShow Answer

When bonds are issued at a discount and the effective interest method is used for amortization,at each subsequent interest payment date,the cash paid is:

Correct AnswerverifiedShow Answer

The Viper retires a $40 million bond issue when the carrying value of the bonds is $42 million,but the market value of the bonds is $36 million.The entry to record the retirement will include:

Correct AnswerverifiedShow Answer

Term bonds require payments in installments over a series of years.

Correct AnswerverifiedShow Answer

Which of the following definitions describes a secured bond?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The mixture of liabilities and stockholders' equity a business uses is called its:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Capital structure is the mixture of liab...
View Answer

Correct Answer
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