Q: Which formula correctly calculates the periodic interest payment for a bond?

$$\$$\text{Face Value} \times \text{Stated Rate} \times \frac{\text{Months}}{12}$

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 at issuance.

Question 2

A company issues $1,000,000 of 8% bonds at 96 when the market rate is 10%. What is the amount of cash the company receives from the bond issuance?

Accepted Answer

$960,000

Question 3

Which journal entry correctly records the issuance of $500,000, 5-year, 4% bonds at 94?

Accepted Answer

Db. Cash $$470,000; Db. Discount on Bonds Payable 30$$,000; Cr. Bonds Payable $500,000

Question 4

A $$700,000 bond is issued at a premium for 735$$,533. What is the correct journal entry at issuance?

Accepted Answer

Db. Cash $$735,533; Cr. Bonds Payable 700$$,000; Cr. Premium $35,533

Question 5

Calculate the semiannual interest payment for $700,000 of 12% bonds.

Accepted Answer

$42,000

Question 6

A company issues $$200,000, 8-year, 5% bonds at a premium for 213$$,056. Using straight-line amortization over 16 periods, what is the interest expense for the first period if the cash interest paid is $5,000?

Accepted Answer

$4,184

Question 7

Which formula correctly calculates the periodic interest payment for a bond?

Accepted Answer

$$\$$	ext{Face Value} 	imes 	ext{Stated Rate} 	imes \frac{	ext{Months}}{12}$

Question 8

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

Accepted Answer

$3,500 Gain

Question 9

Which of the following best describes a deferred tax liability?

Accepted Answer

A liability for taxes that will be paid in the future due to temporary differences between accounting and tax records

Question 10

Garden’s Ltd. has pretax accounting income of $$600,000 and taxable income of 500$$,000. The tax rate is 25%. What is the income tax expense and income tax payable?

Accepted Answer

Income tax expense: $$150,000; Income tax payable: 125$$,000

Question 11

Which of the following is true about the carrying value of bonds issued at a discount?

Accepted Answer

It increases over time until it equals face value at maturity.

Question 12

Which of the following is a feature of secured bonds?

Accepted Answer

They give the bondholder the right to specific assets if the issuer defaults.

Question 13

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

Accepted Answer

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

Question 14

Which of the following best describes a green bond?

Accepted Answer

A bond issued to finance projects with positive environmental impact.

Question 15

If a company’s debt ratio is calculated as $$\frac{	ext{Total Liabilities}}{	ext{Total Assets}}$$, what does a higher debt ratio indicate?

Accepted Answer

The company is more leveraged and potentially riskier to creditors.

Question 16

Which of the following is true about the amortization of a bond premium using the straight-line method?

Accepted Answer

Interest expense is less than the cash interest paid each period.

Question 17

A company is considering a project that would increase its debt ratio above the maximum allowed by its debt covenants. What tool can help managers evaluate the impact before proceeding?

Accepted Answer

What-If Analysis Scenario Manager in Excel

Question 18

Which of the following is NOT a type of bond described in the materials?

Accepted Answer

Dividend bond

Question 19

Which of the following statements about leases is correct under GAAP?

Accepted Answer

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

Chapter 9: Long-Term Liabilities – Bonds Payable, Amortization, and Other Long-Term Liabilities

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