Q: Which formula correctly calculates the Debt to Total Assets ratio?

$$\frac{\text{Total Liabilities}}{\text{Total Assets}}$$

Q: A company issues $500,000 in bonds at 102. What is the total cash received from the bond issue?

$$500,000 \times 1.02 = 510$$,000$

Question 1

Which of the following is NOT classified as a current liability on the statement of financial position?

Accepted Answer

Notes payable due in 18 months

Question 2

A company borrows $100,000 from a bank with a floating interest rate and pledges inventory as collateral. This arrangement is best described as:

Accepted Answer

Operating line of credit

Question 3

Which of the following payroll deductions is voluntary for employees?

Accepted Answer

Union dues

Question 4

A company receives a property tax bill in March for the calendar year. How should the expense be recorded for January and February?

Accepted Answer

Record an expense for the months that have passed

Question 5

Which of the following best describes a contingent liability?

Accepted Answer

A possible obligation dependent on a future event

Question 6

A company issues a $1,000,000, five-year bond with a coupon rate of 5% when the market rate is 6%. At what price will the bond be issued?

Accepted Answer

At a discount

Question 7

Which formula correctly calculates the Debt to Total Assets ratio?

Accepted Answer

$$\frac{	ext{Total Liabilities}}{	ext{Total Assets}}$$

Question 8

A company has net income of $$200,000, interest expense of 40$$,000, and income tax expense of $30,000. What is its Times Interest Earned ratio?

Accepted Answer

$$\frac{200,000 + 40,000 + 30,000}{40,000} = 6.75$$

Question 9

When a bond is issued at a premium, how does the carrying amount of the bond change over time?

Accepted Answer

It decreases until it equals the face value at maturity

Question 10

Which of the following is a reason why interest expense is lower on the second instalment payment of a loan?

Accepted Answer

The principal balance is lower after the first payment

Question 11

A company issues $500,000 in bonds at 102. What is the total cash received from the bond issue?

Accepted Answer

$$500,000 	imes 1.02 = 510$$,000$

Question 12

Which of the following is NOT a mandatory payroll deduction in Canada?

Accepted Answer

Charitable donations

Question 13

A company has total liabilities of $$2,000,000 and total assets of 5$$,000,000. What is its Debt to Total Assets ratio?

Accepted Answer

$$\frac{2,000,000}{5,000,000} = 0.4$$

Question 14

Which of the following best describes the present value of a bond?

Accepted Answer

The value today of all future cash inflows discounted at the market rate of interest

Question 15

A company issues a $1,000,000, five-year bond with a coupon rate of 5% when the market rate is 4%. At what price will the bond be issued?

Accepted Answer

At a premium

Question 16

Which journal entry is correct when a company pays its sales tax payable?

Accepted Answer

Debit Sales Tax Payable, Credit Cash

Question 17

Which of the following is a financial liability?

Accepted Answer

Notes payable

Question 18

A company borrows $$120,000 for five years at 4% interest, with monthly instalment payments of 2$$,210. What is the interest expense for the first month?

Accepted Answer

$$120,000 	imes \frac{4\%}{12} = 400$

Question 19

Which of the following is TRUE regarding the amortization of bond discounts?

Accepted Answer

The discount is allocated to interest expense over the life of the bond

Chapter 10: Reporting and Analyzing Liabilities – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards