MGMT 200H Final Exam

Secured bond

Backed by collateral

Unsecured Bonds

Not protected, most common bond type

Term Bonds

Mature on single date

Sinking Fund

Money set aside to repay debt at maturity

Serial Bonds

Mature in installments

Callable Bonds

Issuing company can call and retire bonds prior to maturity, borrower can pay off bonds early

Convertible Bonds

Bond can be converted into predetermined number of stock shares

Stated rate > Market rate

Bond premium

Stated rate < Market rate

Bond discount

Authorized stock

Number of shares available to sell

Issued stock

Number of shares that have been sold

Outstanding stock

Number of shares held by investors

Treasury stock

Repurchased shares

Stock split

Reduces par value per share and increases shares outstanding, no record

Large stock dividends

Records a decrease in retained earnings and an increase in common stock, recorded at par value

Cash inflows from operating activities

Sale of goods or services, collection of interest and dividends

Cash outflows from operating activities

Inventory, operating expenses, interest, income taxes

Cash inflows from investing activities

Sale of investments, sale of long-term assets, collection of notes receivable

Cash outflows from investing activities

Purchase of investments, purchase of long-term assets, lending with notes receivable

Cash inflows from financing activities

Issuance of bonds or notes payable, issuance of stock

Cash outflows from financing activities

Repayment of bonds or notes payable, acquisition of treasury stock, payment of dividends

Noncash activities

Purchase equipment with note payable, land acquired by issuing stock, conversion of bonds payable into common stock, exchange of long-term assets

Vertical Analysis

Express each item as a percentage of the same base amount (ex. percentage of sales in the income statement)

Horizontal Analysis

Analyzing trends in financial statement data for a single company over time

Receivables turnover ratio

Net credit sales / Average accounts receivable; higher = ability to quickly turn receivables into cash

Average collection period

Shorter = better because we want to maximize the speed of cash inflow

Inventory turnover ratio

Higher = inventory is selling quickly (too high = lost sales due to inventory shortages)

Average days in inventory

Shorter = better because it’s expensive for companies to store inventory for long periods of time

Current ratio

Current assets / Current liabilities; higher = sufficient assets to cover current obligations

Debt to equity ratio

Total liabilities / Stockholders’ equity; lower = lower obligations = lower risk

Times interest earned ratio

Higher = higher net income before interest and taxes in relation to the amount it needs for interest expense alone

Return on assets

Net income / Average total assets; higher = higher amount earned compared to the assets that it owns

Profit margin

Higher = higher amount actually earned (after expenses are accounted for) compared to its total revenues

Asset turnover

Higher = higher revenues compared to each dollar invested in assets

Return on equity

Net income / Average stockholders’ equity; higher = higher amount earned compared to investment made by owners of company

Price-earnings ratio

Higher = investors have a higher expectation of future earnings for the company

Cash flows from investing activities do **not** include:

A. Borrowing cash from a bank to acquire a factory

B. The purchase of equipment

C. The sale of land

D. The purchase of a building

E. The sale of truck

A. Borrowing cash from a bank to acquire a factory

A company has the following transactions:

* Pay workers’ salaries for the current period
* Pay next year’s rent in advance
* Pay dividends to stockholders in the current period
* Receive (but do not pay) a current period utility bill
* Use supplies previously purchased
* Pay for advertising to appear in the current period

How many of these transactions result in an expense being reported in the current period using accrual-basis accounting?

A. 1

B. 2

C. 3

D. 4

E. 5

D. 4

The body of rules and procedures that guide the measurement and communication of financial accounting information in the United States is known as:

A. Standards of Professional Compliance (SPC)

B. Generally Accepted Accounting Principles (GAAP)

C. Generally Accepted Auditing Standards (GAAS)

D. Rules of Financial Reporting (RFR)

E. The Securities and Exchange Commission (SEC)

B. Generally Accepted Accounting Principles (GAAP)

How many of the following transactions would increase total liabilities in the current period?

* Pay for advertising that will not occur until the following period
* Collect cash from customer prior to providing service
* Incur, but not pay, utilities cost in the current period
* Order supplies that have not yet been received

A. 1

B. 2

C. 3

D. 4

B. 2

Which of the following statements is **not** accurate?

A. Issuing common stock for cash = Increase in total assets

B. Paying employees for work performed during the previous reporting period = Decrease in total assets

C. Collecting cash from a sale made during the previous reporting period = Increase in total assets

D. Paying a cash dividend to shareholders = Decrease in total assets

C. Collecting cash from a sale made during the previous reporting period = Increase in total assets

During 2017, Rubble’s assets increased by $70,000 and Total Liabilities increased by $30,000. During 2017, Rubble generated net income of $20,000, and declared and paid a dividend of $5,000. Rubble also issued common stock for cash during 2017.

How much cash did Rubble receive from the issuance of common stock?

A. 15,000

B. 20,000

C. 25,000

D. 40,000

E. None of the above

C. 25,000

Consider the following events for Fountain Incorporated:

Under accrual-basis accounting, what is the appropriate day to record the expenses related to the gasoline?

A. January 1

B. January 7

C. January 9

D. January 12

E. January 13

D. January 12

ABC Corp. had the following information in its bank reconciliation:

Company’s recording the adjustment to cash would include a

A. Credit Cash, $1,200

B. Debit Cash, $3,800

C. Credit Cash, $4,200

D. Debit Cash, $1,800

E. Debit Cash, $1,200

A. Credit Cash, $1,200

Which of the following best describes the purpose of closing entries?

A. Adjusting asset accounts for changes due to the passage of time

B. Adjusting liability accounts for changes due to the passage of time

C. Recording a transaction with an external party

D. Transfer balance of all temporary accounts to the balance of retained earnings

E. All of the above

D. Transfer balance of all temporary accounts to the balance of retained earnings

The cash records and bank statement for the month of July for Purdue Incorporated are shown below.

Additional information:

* The difference in the beginning balances in the company’s records and the bank statement relates to check #530, which is outstanding as of June 30, 2020
* Check #533 is correctly processed by the bank
* The EFT on July 26 relates to the purchase of office supplies

What is the amount of cash that should be reported in the balance sheet as of July 31 after bank reconciliation?

A. $6,755

B. $5,135

C. $6,955

D. $6,555

E. $7.670

A. $6,755

Purdue Inc. maintains its books using cash-basis accounting. However, the company decides to borrow $100,000 from a local bank, and the bank requires Purdue Inc. to provide annual financial statements prepared using accrual-basis as part of the creditworthiness verification. During 2021, the company records the following cash flows:

Preparing an accrual-basis income statement for the year ended December 31, 2021, what is the net income (loss) balance?

A. $26,300

B. $22,300

C. $17,000

D. $25,000

E. $24,300

A. $26,300

On May 30, Boilermaker Inc. paid employee salaries of $7,000, including $1,000 it owed to its employees last month. What are the effects of this transaction on the accounting equation?

A. Expenses increased, liabilities increased, and assets increased

B. Assets decreased, liabilities decreased, and expenses increased

C. Assets decreased, expenses decreased, and liabilities increased

D. Expenses decreased, liabilities decreased, and assets decreased

E. Assets increased, expenses increased, and liabilities decreased

B. Assets decreased, liabilities decreased, and expenses increased

Your study partner is having trouble getting total debits to equal total credits in the trial balance.

If you were to prepare a corrected trial balance, what would be the amount for total debits?

A. 130,000

B. 110,000

C. 90,000

D. 70,000

E. None of the above

C. 90,000

Which of the following is a liability account?

A. Deferred Revenue

B. Accounts Receivable

C. Service Revenue

D. Retained Earnings

E. None of the above

A. Deferred Revenue

The following table contains financial information for Fisher Inc. before closing entries:

* Cash = 23,000
* Common Stock = 34,000
* Supplies = 4,000
* Advertising Expense = 2,000
* Accounts Payable = 20,000
* Service Revenue = 30,000
* Salaries Expense = 3,000
* Prepaid Rent = 4,000
* Dividends = 3,000
* Equipment = 45,000

How many of the above accounts are permanent?

A. 3

B. 4

C. 5

D. 6

E. 7

D. 6

Consider the following list of accounts:

* Accounts Payable
* Cash
* Prepaid Rent
* Common Stock
* Salaries Payable
* Dividends
* Supplies
* Rent Expense
* Accounts Receivable
* Deferred Revenue

How many of these accounts have a normal **credit** balance?

A. 2

B. 3

C. 4

D. 5

E. 6

C. 4

Which of the following transactions would **not** require a journal entry using accrual-basis accounting?

A. Buying supplies on account

B. Anticipating greater demand for the firm’s services in the following year

C. Collecting cash from a sale made in a previous period

D. Providing a good or service to a customer in exchange for cash

E. Paying utility bills used for this current period

B. Anticipating greater demand for the firm’s services in the following year

Below is the company’s Cash T-account.

The $5,200 amount could represent which of the following?

A. Purchase of supplies on account

B. Ending balance of cash

C. Payment for salaries

D. Collection from customers

E. Incur, but not pay, utilities cost in the current period

D. Collection from customers

Consider the following transactions:


1. The company uses supplies purchased in the previous period, $1,500
2. The company pays cash for rent in advance, $6,000
3. The company repays a loan to the bank, $10,000 (ignore any interest cost)
4. The company pays workers’ salaries for the current month, $800

The amount of accrual-basis expense is ( ) while the amount of cash-basis expense is ( )

A. $6,000; $11,500

B. $800; $16,800

C. $1,500; $6,000

D. $2,300; $6,800

E. $1,500; $6,800

D. $2,300; $6,800

Consider the following list of accounts:

* Cash
* Retained Earnings
* Service Revenue
* Utilities Expense
* Salaries Expense
* Accounts Receivable
* Accounts Payable
* Common Stock
* Equipment
* Dividends

How many of these accounts have a normal debit balance?

A. 4

B. 5

C. 6

D. 7

E. 8

C. 6

Purdue Inc. has the following balances on December 31 prior to closing entries:

Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

A. Increase of $11,000

B. Increase of $13,000

C. Increase of $12,000

D. Increase of $14,000

E. Increase of $21,000

A. Increase of $11,000

Below is a summary of all transactions of Mystery Inc. for the month of August 2020.

Calculate net cash flows from investing activities for August 2020.

A. $56,000

B. $30,000

C. $11,000

D. $10,000

E. None of the above

B. $30,000

At the beginning of December, Purdue Corporation had $2,000 in supplies on hand. During the month, supplies purchased amounted to $3,000, but by the end of the month the supplies balance was only $800. What is the appropriate month-end adjusting entry?

A. Debit Cash $4,200, credit Supplies $4,200

B. Debit Supplies $4,200, credit Supplies Expense $4,200

C. Debit Supplies Expense $4,200, credit Supplies $4,200

D. Debit Cash $800, credit Supplies $800

C. Debit Supplies Expense $4,200, credit Supplies $4,200

On July 1, 2021, Purdue Co. paid $18,000 to Rent-An-Office for rent covering 18 months from July 2021 through December 2022. What adjusting entry should Purdue Co. record on December 31, 2021?

D.

The financial statement that represents the account equation is the:

A. Income statement

B. Statement of cash flows

C. Balance sheet

D. Statement of stockholders’ equity

C. Balance sheet

Grasshopper Lawn Service provides general lawn maintenance to customers. The company’s fiscal year-end is December 31. On August 1, 2024, Grasshopper collected $12,000 in advance rent from another company that is renting a portion of Grasshopper’s building. The $12,000 represents one year’s rent, and the entire amount was credited to Deferred Revenue on August 1. What adjusting entry should Grasshopper make at the end of the financial period?

A. Debit Deferred Revenue 12,000, credit Service Revenue 12,000

B. Debit Service Revenue 5,000, credit Deferred Revenue 5,000

C. Debit Deferred Revenue 5,000, credit Service Revenue 5,000

D. Debit Cash 12,000, credit Deferred Revenue 12,000

C. Debit Deferred Revenue 5,000, credit Service Revenue 5,000

Consider the following list of transactions:


1. Repay borrowing from the bank, $2,000
2. Pay employees’ salaries of $1,500
3. Purchase equipment for cash, $10,000
4. Provide services to customers for cash, $4,500
5. Issue shares of common stock for cash, $5,000
6. Pay utilities, $1,000
7. Provide services to customers on account, $2,500
8. Sell old delivery truck for cash, $,4000

What amount would the company report for operating cash flows in the statement of cash flows?

A. $5,000

B. $4,500

C. $1,000

D. $2,000

E. $3,000

D. $2,000

A company paid $900 to workers during May. Of this amount, $600 was for work performed in April, while the other $300 was for work performed during May. What would the impact of this transaction be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual-basis net income?

A. (1) No effect, (2) No effect, (3) Decrease

B. (1) Decrease, (2) Decrease, (3) No effect

C. (1) Decrease, (2) Decrease, (3) Decrease

D. (1) Decrease, (2) No effect, (3) No effect

E. (1) Decrease, (2) Increase, (3) No effect

C. (1) Decrease, (2) Decrease, (3) Decrease

Which of the following is recorded by a credit to Accounts Receivable?

A. Sale of inventory on account

B. Estimating the annual allowance for uncollectible accounts

C. Estimating annual sales returns

D. Write-offs of bad debts

D. Write-offs of bad debts

Which of the following is true regarding LIFO and FIFO?

A. In a period of decreasing costs, LIFO results in lower total assets than FIFO

B. In a period of decreasing costs, LIFO results in a lower net income than FIFO

C. In a period of rising costs, LIFO results in a lower net income than FIFO

D. The amount reported for COGS is based on net realizable value of inventory if LIFO is used

C. In a period of rising costs, LIFO results in a lower net income than FIFO

If A sells to B, and B obtains title while goods are in transit, the goods were shipped ( ). If C sells to D, and C maintains title until the goods arrive at D’s door then the goods were shipped ( ).

A. FOB shipping point; FOB destination

B. FOB destination; FOB shipping point

C. FOB destination; FOB destination

D. FOB shipping point; FOB shipping point

A. FOB shipping point; FOB destination

On September 1, 2024, Daylight Donuts signed a $100,000, 9% six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2025. Daylight Donuts accrued interest for the note on December 31, 2024. Which of the following would be recorded on the payment of the note plus accrued interest at maturity on March 1, 2025?

A. Interest Expense of $3,000

B. Interest Expense of $1,500

C. Interest Payable of $1,500

D. Interest Expense of $4,500

E. Interest Payable of $3,000

B. Interest Expense of $1,500

The following information relates to inventory for Shoeless Joe Inc.

At what amount would Shoeless report gross profit using LIFO cost flow assumptions?

A. $100

B. $110

C. $140

D. $175

E. $210

A. $100

Given the information in the table below, what is the company’s gross profit?

A. $280,000

B. $170,000

C. $50,000

D. $100,000

E. $240,000

D. $100,000

A company has four types of products in its inventory. The company applies the rules under lower of cost and net realizable value to its inventory at the end of each year as shown below:

The year-end adjusting entry based upon the information above would include a:

A. Debit to Cost of Goods Sold for $65

B. Credit to Inventory for $50

C. Debit to Inventory for $65

D. Debit to Cost of Goods Sold for $50

E. Credit to Cost of Goods Sold for $15

A. Debit to Cost of Goods Sold for $65

At December 31, Amy Jo’s Appliances had account balances in Accounts Receivable of $311,000 and in Allowance for Uncollectible Accounts of $970 (credit) before adjustment. An analysis of Amy Jo’s December 31 accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for the year should be:

A. $6,220

B. $6,450

C. $5,250

D. $7,190

E. $310,030

C. $5,250

Purdue Company provides services of $46,000 to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. What would Purdue record on April 23, assuming the customer made the correct payment on that date?

C.

Stillwater Youth Programs (SYP) purchased a used school bus to transport children for its after-school program. Which of the following correctly capitalize or expense the expenses incurred related to the bus for the current year?

A. Replaced a blown tire on the bus for $175 - Capitalize

B. Overhauled the engine at a cost of $6,400, increasing the service life of the bus by an estimated three years - Expense

C. Paid insurance on the school bus for the current year - Capitalize

D. Installed a DVD player and sound system to entertain the children in-transit and announce upcoming events at a cost of $1,000 - Capitalize

E. Installed new seats on the bus at a cost of $5,000 - Expense

D. Installed a DVD player and sound system to entertain the children in-transit and announce upcoming events at a cost of $1,000 - Capitalize

ABC Inc. purchased a tractor at a cost of $80,000 and sold it three years later for $33,000. Koki recorded depreciation using the straight-line, a five-year service life, and a $10,000 residual value. How much of a gain or loss does ABC Inc. recognize on the sale?

A. Loss of $11,000

B. Loss of $9,000

C. Loss of $7,000

D. Loss of $5,000

E. Gain of $1,000

D. Loss of $5,000

Garber Plumbers offers a 20% trade discount when providing $2,000 or more of plumbing services to its customers. In March 2018, Garber provided $4,000 of plumbing services to Red Oak Inc., and $1,500 of services to Cyril Inc. Each of these customers was granted credit terms of 2/10, net 30. If both customers paid for the plumbing services within the discount period, what was the net revenues amount for these two transactions?

A. $5,500

B. $4,312

C. $4,486

D. $4,606

E. $4,700

D. $4,606

A company incurred the following costs associated with the purchase of a piece of land that it will use to rebuild an office building:

What is the total capitalized cost of the land?

A. $437,500

B. $417,500

C. $439,000

D. $419,000

B. $417,500

January 1, 2021, Zach Corporation purchased a patent for $600,000. The remaining legal life is 20 years, but the company estimates the patent will be useful for only eight more years.

On January 1, 2023, the company incurred legal fees of $30,000 in successfully defending a patent infringement suit. The successful defense did not change the patent’s useful life. Zach Corporation’s year-end is December 31. What does Zach record for amortization expense for 2023?

A. Amortization expense of $67,500

B. Amortization expense of $75,000

C. Amortization expense of $60,000

D. Amortization expense of $80,000

E. Amortization expense of $30,000

D. Amortization expense of $80,000

At the beginning of year 1, ABC Corp. purchases equipment for $10,000. The equipment has a residual value of $3,000 and expected useful life of 4 years. What is double-declining-balance depreciation expense for year 2?

A. $5,000

B. $1,000

C. $2,000

D. $2,500

E. $0

C. $2,000

Purdue Construction purchased a delivery truck on June 1, 2024. The following information is available:

* Cost = $90,000
* Estimated service life = 5 years
* Estimated residual value = $15,000

What is the depreciation expense for the year ended December 31, 2024, using straight-line depreciation?

A. $8,750

B. $15,000

C. $6,250

D. $18,000

E. $7,500

A. $8,750

Purdue Company acquired an office building on three acres of land for $2,400,000. The building was completely equipped. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and equipment, respectively. At what amount would the company record the building?

A. $720,000

B. $1,300,000

C. $1,200,000

D. $2,400,000

E. None of the above

C. $1,200,000

A company developed a new horse transport device and incurred research and development costs of $250,000. Rather than continue with its own research, the company decided to purchase a patent for a similar design for $350,000. What are the total assets and expenses for these two transactions?

A. Assets $600,000; Expenses $0

B. Assets $250,000; Expenses $350,000

C. Assets $350,000; Expenses $250,000

D. Assets $0; Expenses $600,000

C. Assets $350,000; Expenses $250,000

Under the direct write-off method, what entry is recorded at the time an actual bad debt occurs?

A. Debit Bad Debt Expense; credit Allowance for Uncollectible Accounts

B. Debit Allowance for Uncollectible Accounts; credit Accounts Receivable

C. Debit Bad Debt Expense; credit Accounts Receivable

D. Debit Allowance for Uncollectible Accounts; credit Bad Debt Expense

E. No entry is recorded

C. Debit Bad Debt Expense; credit Accounts Receivable

On October 1, 2017, Logan Corporation signed a 6-mont, 8% interest-bearing note for $10,000. The journal entry required on December 31, 2017 would include which of the following entries?

A. Debit Interest Expense $200

B. Debit Interest Expense $400

C. Credit Cash $800

D. Credit Interest Payable $600

E. Credit Interest Payable $400

A. Debit Interest Expense $200

Littleton Books has the following transactions during May.

The journal entry required on May 30 would include which of the following entries?

A. Debit Cost of Goods Sold $3,300

B. Credit Inventory $3,071

C. Debit Sales Revenue $4,000

D. Debit Cost of Goods Sold $3,100

E. Credit Accounts Receivable $3,100

B. Credit Inventory $3,071

Precision, a manufacturer of processed engine parts in the automotive and airline industries, borrows $41 million cash on October 1, 2020, to provide working capital for anticipated expansion. Precision signs a one-year, 9% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

What is the correct entry to record the journal entries on September 30, 2021 for Midwest Bank?

A. Debit Cash 44,690,000, credit Interest Receivable 922,500, credit Interest Revenue 2,767,500, credit Notes Receivable 41,000,000

B. Debit Notes Payable 41,000,000, debit Interest Payable 922,500, debit Interest Expense 2,767,500, credit Cash 44,690,000

C. Debit Cash 44,690,000, credit Interest Revenue 3,690,000, credit Notes Receivable 41,000,000

D. Debit Cash 44,690,000, credit Interest Receivable 2,767,500, credit Interest Revenue 922,500, credit Notes Receivable 41,000,000

E. Debit Notes Payable 41,000,000, debit Interest Expense 922,500, debit Interest Payable 2,767,500, credit Cash 44,690,000

A. Debit Cash 44,690,000, credit Interest Receivable 922,500, credit Interest Revenue 2,767,500, credit Notes Receivable 41,000,000

In January 2018, Summit Co. sells a gift card for $50 and receives cash. In February 2018, the customer comes back and spends $20 of their gift card on a water bottle.

What would be the appropriate journal entry for the purchase of the water bottle?

A. Debit Deferred Revenue, $50; credit Sales Revenue, $50

B. Debit Deferred Revenue, $20; credit Sales Revenue, $20

C. Debit Sales Revenue, $20; credit Deferred Revenue, $20

D. Debit Cash, $20; credit Sales Revenue, $20

E. No journal entry is necessary

B. Debit Deferred Revenue, $20; credit Sales Revenue, $20

Jay introduces a new product that carries a two-year warranty against manufacturer’s defects. Based on industry experience with similar product introductions, warranty costs are expected to be approximately 4% of sales. By the end of the first year of selling the product total sales are $40 million, and actual warranty expenditures are $900,000.

What amount should Jay report as a liability at the end of the year?

A. 1,600,000

B. 1,400,000

C. 900,000

D. 700,000

E. None of the above

D. 700,000

During 2021, Wally has the following inventory transactions:

For the entire year, the company sells 400 units of inventory for $30 each.

Using FIFO, what is the cost of goods sold for 2021?

A. $8,200

B. $8,600

C. $9,000

D. $9,400

E. $12,000

B. $8,600

Krannert Estates purchased a tractor on January 1, 2018 for $125,000. The tractor’s useful life is estimated to be 40,000 miles and has a residual value of $5,000. If Krannert Estates used the tractor 5,000 miles in 2018 and 3,000 in 2019, what is the balance for accumulated depreciation at the end of 2019 using the activity-based method?

A. $9,000

B. $15,000

C. $16,000

D. $24,000

E. $6,000

D. $24,000

Which of the following are employer payroll costs?


1. FICA taxes
2. Federal and state unemployment taxes
3. Federal and state income taxes
4. Employer contributions to a retirement plan
5. Employee contributions for health insurance

A. 1 and 4

B. 1, 3, and 4

C. 1, 2, and 4

D. 2 and 3

E. 1, 3, and 5

C. 1, 2, and 4

Timkin creates the following accounts receivable aging report at the end of the year:

Prior to adjusting entries, the Allowance for Uncollectible Accounts has a debit balance of $500. The year-end adjustment would include a:

A. Credit to Allowance for Uncollectible Accounts for $12,000

B. Debit to Bad Debt Expense for $700

C. Debit to Bad Debt Expense for $1,700

D. Debit to Bad Debt Expense for $1,200

E. Credit to Allowance for Uncollectible Accounts for $4,800

C. Debit to Bad Debt Expense for $1,700

America Airline is being sued by Northeast Airline for $5,000,000. At the end of the year, America Airline feels it is probable that it will pay $5,000,000 at some point in the following year. Northeast Airline also feels it is probable that it will win the lawsuit. What should Unified and Northeast record at the end of the year concerning the lawsuit?

A. America Airline does not record any loss; Northeast records a $5,000,000 gain

B. America Airline records a $5,000,000 loss; Northeast does not record any gain

C. America Airline records a $5,000,000 loss; Northeast records a $5,000,000 gain

D. A. America Airline does not record any loss; Northeast does not record any gain

E. Neither company records a loss or gain

B. America Airline records a $5,000,000 loss; Northeast does not record any gain

A bond issue with a face amount of $500,000 bears interest at the rate of 7%. The current market rate of interest is 8%. These bonds will sell at a price that is:

A. Less than $500,000.

B. Equal to $500,000.

C. More than $500,000.

D. The answer cannot be determined from the information provided.

A. Less than $500,000.

Interest expense is calculated as the carrying value times the market rate. True/False

True

An advantage to financing with debt is that

A. interest is tax deductible.

B. interest does not have to be paid until the maturity date.

C. dividends reduce retained earnings whereas interest expense does not reduce retained earnings.

D. dividends are tax deductible.

A. interest is tax deductible.

Purdue Inc. issues 7%, 15-year bonds with a face amount of $200,000. The market interest rate for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price will the bonds be issued?

A. $964,028

B. $219,600

C. $925,597 

D. $1,358,700

B. $219,600

A loan with fixed monthly payments and the building as collateral most closely represents which of the following bond characteristics?

A. Secured and term.

B. Unsecured and term.

C. Unsecured and serial.

D. Secured and serial.

D. Secured and serial.

Zuma issues 8%, 10 year bonds with a face amount of $100,000 for $123,384 on January 1, 2018. The market interest rate for bonds of similar risk and maturity is 5%. Interest is paid on June 30th and December 31st. How much interest expense is recorded on the journal entry on December 31st?

A. 3,023

B. 3,062

C. 3,124

D. 3,085

E. 3,107

B. 3,062

Apple Inc. sold bonds at a premium. Over the life of the bonds, the carrying value of the bonds will

A. remain the same.

B. decrease.

C. increase.

B. decrease.