Q: What is the formula for calculating the periodic interest payment for a bond with semiannual payments?

$$\text{Principal} \times \text{Annual Interest Rate} \times \frac{6}{12}$$

Q: What is the carrying value of a bond issued at a discount after two periods of straight-line amortization, given an initial discount of $$33,367 and amortization per period of 5$$,561?

$$700,000 - (33,367 - 2 \times 5,561)$$

Q: Which equation represents the leverage ratio (equity multiplier)?

$$\frac{\text{Total Assets}}{\text{Stockholders' Equity}}$$

Q: A company’s times-interest-earned ratio is calculated as:

$$\frac{\text{Income from Operations}}{\text{Interest Expense}}$$

Question 1

Which of the following best describes a bond issued at a discount?

Accepted Answer

The stated interest rate is lower than the market interest rate.

Question 2

A company issues $500,000 of 5-year, 4% bonds at 94. What is the amount of the discount on bonds payable?

Accepted Answer

$30,000

Question 3

What is the formula for calculating the periodic interest payment for a bond with semiannual payments?

Accepted Answer

$$	ext{Principal} 	imes 	ext{Annual Interest Rate} 	imes \frac{6}{12}$$

Question 4

If a bond is issued at a premium, which of the following is true regarding interest expense?

Accepted Answer

Interest expense is less than the cash interest paid.

Question 5

A company issued $$200,000, 8-year, 5% bonds for 213$$,056. Using the straight-line method, what is the amount of premium amortized per period if interest is paid semiannually?

Accepted Answer

$$816$$

Question 6

What is the carrying value of a bond issued at a discount after two periods of straight-line amortization, given an initial discount of $$33,367 and amortization per period of 5$$,561?

Accepted Answer

$$700,000 - (33,367 - 2 	imes 5,561)$$

Question 7

Which journal entry correctly records the issuance of $$700,000 bonds at a discount for 666$$,633?

Accepted Answer

Db. Cash $$666,633$$, Db. Discount $$33,367$$, Cr. Bonds Payable $$700,000$$

Question 8

A company retires $$300,000 of bonds with a carrying value of 300$$,500 at a call price of 99. What is the gain or loss on retirement?

Accepted Answer

$$3,500$$ gain

Question 9

Which of the following best describes the effect of amortizing a bond premium over time?

Accepted Answer

The carrying value of the bond decreases until it equals the face value at maturity.

Question 10

Which equation represents the leverage ratio (equity multiplier)?

Accepted Answer

$$\frac{	ext{Total Assets}}{	ext{Stockholders' Equity}}$$

Question 11

A company’s times-interest-earned ratio is calculated as:

Accepted Answer

$$\frac{	ext{Income from Operations}}{	ext{Interest Expense}}$$

Question 12

Which of the following is NOT a feature of green bonds?

Accepted Answer

They are issued to finance both green and social projects.

Question 13

A company’s deferred income tax liability arises primarily due to:

Accepted Answer

Temporary differences between financial and tax reporting, such as depreciation methods.

Question 14

If a company’s pretax accounting income is $$600,000 and its taxable income is 500$$,000 with a tax rate of 25%, what is the deferred income tax liability?

Accepted Answer

$$(600,000 - 500,000) 	imes 0.25 = 25,000$$

Question 15

Which of the following is a correct statement about leases under GAAP?

Accepted Answer

Both finance and operating leases must be capitalized and reported as assets and liabilities.

Question 16

Which scenario would violate a debt covenant requiring a current ratio of at least 1.50?

Accepted Answer

A project that reduces the current ratio to 0.96.

Question 17

Which method does IFRS require for bond discount and premium amortization?

Accepted Answer

Effective-interest method

Question 18

When a bond is issued at par, which of the following is true?

Accepted Answer

The stated interest rate equals the market interest rate.

Chapter 9: Long-Term Liabilities – Bonds, Amortization, and Financial Statement Impact

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