Ch 10

1. 1On January 1, 2016, Denver Company borrowed $25,000 by issuing a 5-year note to Capital Bank. The note had a 10% annual rate of interest. The loan agreement called for five equal payments of $6,595 on December 31 of each year 2016 through 2020. What is the correct journal entry to record the loan payment on December 31, 2016?

   1. A
   2. B
   3. C
   4. D
2. 2On January 1, 2016, Denver Company borrowed $25,000 by issuing a 5-year note to Capital Bank. The note had a 10% annual rate of interest. The loan agreement called for five equal payments of $6,595 on December 31 of each year 2016 through 2020. What is the principal balance on this installment note at the end of 2017 after the loan payment is recorded? (Hint: Use an amortization schedule to determine your answer.)

   1. A$16,401
   2. B$11,810
   3. C$20,905
   4. D$13,129
3. 3Pincus Company obtained a line of credit from First National Bank that is renewable annually. How will Pincus classify the line of credit borrowings on its balance sheet?

   1. AEquity
   2. BShort-term liability
   3. CShort-term investment
   4. DLong-term liability
4. 4On January 1, 2016, Yi Corporation received cash from issuing 10-year $100,000 bonds at face value. Interest of $5,000 is paid annually to the bondholders on December 31. How do the issuance of the bonds and the payment of the interest affect Yi's financing activities section of the statement of cash flows for 2016?

   1. ACash inflow of $100,000
   2. BCash inflow of $95,000
   3. CCash inflow of $5,000
   4. DNo effect on the financing activities section of the statement of cash flows
5. 5A characteristic of bonds that allow the issuing company to redeem the bond debt before the maturity date is known as:
   

   1. AConvertible.
   2. BCollateral
   3. CRestrictive covenant.
   4. DCallable.
6. 6Bonds sold at a discount implies that

   1. AThe market rate of interest is less than the stated rate of interest.
   2. BThe market rate of interest is equal to the stated rate of interest.
   3. CThe market rate of interest is more than the stated rate of interest.
   4. DNone of these.
7. 7On January 1, 2016, Sanchez Corporation issued 5-year $200,000 bonds with a 4% stated rate of interest at 97. Sanchez Corporation pays the interest annually on December 31 and uses the straight-line amortization method. Which of the following choices represents the general journal entry required to record the issuance of the bonds?
   

   1. A
   2. B
   3. C
   4. D
8. 8On January 1, 2016, Sanchez Corporation issued 5-year $200,000 bonds with a 4% stated rate of interest at 97. Sanchez Corporation pays the interest annually on December 31 and uses the straight-line amortization method. What is the total interest expense associated with these bonds for 2016?

   1. A$6,800
   2. B$9,200
   3. C$8,000
   4. D$14,000
9. 9On January 1, 2016, Sanchez Corporation issued 5-year $200,000 bonds with a 4% stated rate of interest at 97. Sanchez Corporation pays the interest annually on December 31 and uses the straight-line amortization method. What is the carrying value of the bonds that Sanchez Corporation will report on its balance sheet at the end of 2016?

   1. A$195,200
   2. B$194,000
   3. C$192,800
   4. D$200,000
10. 10On January 1, 2016, Phoenix Corporation issued 10-year $200,000 bonds with a 6% stated rate interest at 103. Phoenix Corporation pays the interest annually on December 31 and uses the straight-line amortization method. The general journal entry to issue these bonds includes

    1. AA debit to Premium on Bonds Payable for $6,000
    2. BA debit to Discount on Bonds Payable for $6,000
    3. CA credit to Premium on Bonds Payable for $6,000
    4. DA credit to Discount on Bonds Payable for $6,000

11. 11On January 1, 2016, Phoenix Corporation issued 10-year $200,000 bonds with a 6% stated rate of interest at 103. Phoenix Corporation pays the interest annually on December 31 and uses the straight-line amortization method. Which of the following is the correct general journal entry to record the interest expense for 2016?

    1. A
    2. B
    3. C
    4. D
12. 12On January 1, 2016, Phoenix Corporation issued 10-year $200,000 bonds with a 6% stated rate of interest at 103. Phoenix Corporation pays the interest annually on December 31 and uses the straight-line amortization method. What is the carrying value of the bonds that Phoenix Corporation will report on its balance sheet at the end of 2017?

    1. A$200,000
    2. B$206,000
    3. C$204,800
    4. D$207,200
13. 13On January 1, 2016, Lewis Corporation issued $100,000 face value bonds for $92,977. The bonds had a 10-year term and a 6% stated rate of annual interest. At the time the bonds were issued, the market rate of interest for bonds of comparable risk was 7%. Using the effective interest rate method, what is the amount of the discount amortization for 2016?

    1. A$ 508.39
    2. B$ 421.38
    3. C1,000.00
    4. DThe discount is not amortized when using the effective interest rate method.
14. 14Crowther Company expects to earn $80,000 before interest and taxes and the tax rate is 40% of income. The company needs $200,000 of financing. Its choices are debt that costs 8% per year or stock with an expected dividend payment of $16,000 per year. Which of the following statements would be relevant to Crowther Company's decision?

    1. AThe total cash paid would be higher if debt financing is used.
    2. BNet income would be lower if equity financing is used.
    3. CThe total cash paid would be lower if equity financing is used
    4. DNet income would be lower if debt financing is used.
15. 15The company wishes to raise $40,000 in cash and is considering two financing options. Either it can sell $40,000 of bonds payable, or it can issue $40,000 of additional common stock. Which of the following statements is correct regarding how the financing alternatives will affect its ratios?

    

    1. AThe debit to assets ratio will decrease if bonds are issued.
    2. BThe current ratio will decrease if stock is issued.
    3. CThe debt to assets ratio will decrease if stock is issued.
    4. DThe current ratio is not affected if stock is issued.

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Quiz on Ch 10, created by Angelica Vannarath on 09/12/2016.

Author

Angelica Vannarath

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