Question 1

If the times interest ratio:

A. Increases, then risk increases.
B. Increases, then risk decreases.
C. Is greater than 1.5, then the company is in default.
D. Is less than 1.5; the company is carrying too little debt.

Question 2

A company receives a note payable for $3,500 at 9% for 45 days. How much interest (to the nearest cent) will the customer owe using a 360-day year?
A. $354.38
B. $315.00
C. $39.38
D. $38.84

Question 3

By NOT accruing warranty expense:
A. Reported liability will be overstated and net income will be understated.
B. Reported expenses will be overstated and reported liabilities will be understated.
C. Reported liabilities will be understated and net income will be overstated.
D. Reported expenses will be understated and net income will be understated.

Question 4

Which of the following would NOT be considered a contingent liability?
A. Pending legal action
B. Potential fines from the EPA
C. Mortgage payable
D. Cosigning a loan

Question 5

If the market rate of interest is greater than the bond's stated rate of interest, the bond will be issued at:
A. Discount
B. Par
C. Premium
D. Maturity value

Question 6

A $150,000 bond issue sold at 93.8 will cost:
A. whatever cost is negotiated
B. $150,000
C. $159,300
D. $140,700

Question 7

Amounts received in advance from customers for future products or services:
A. Are revenues.
B. Increase income.
C. Are liabilities.
D. Are not allowed under GAAP.

Question 8

The rate of interest that is printed on the bond is called the __________ rate of interest.
A. Stated
B. Market
C. Variable
D. Maturity

Question 9

Which of the following statements is true? For the issuer:
A. Interest paid on bonds is tax deductible.
B. Interest paid on bonds is not tax deductible.
C. Dividends paid to stockholders are always tax deductible.
D. Bonds are assets.

Question 10

How should contingent liabilities be treated if the outcome is probable and the amount can be reasonably estimated?
A. Record it as an estimated amount, recognizing it on the balance sheet only.
B. Create a note to the financial statements sharing the probability of the contingency loss only.
C. Do both A and B.
D. Do neither. We don't record loss contingencies until we are required to pay under any circumstances.

Question 11

Current liabilities are expected to be settled within
A. 3 months.
B. 6 months.
C. 1 year.
D. More than 1 year.

Question 12

Which of the following will be reported in the balance sheet as a current liability?
A. Income tax payable due in 4 months
B. Mortgage payable due in 18 months
C. Current portion of long-term payable
D. Both A and C will be reported in the balance sheet as current liabilities

Question 13

A bondholder that owns a $1,000, 10%, 10-year bond has:
A. Ownership rights in the company who issued the bond.
B. The right to receive $10 per year until maturity.
C. The right to receive $1,000 at maturity.
D. The right to receive $10,000 at maturity.

Question 14

The Debt Ratio:
A. Shows what portion of the assets of a company are financed by owners
B. Indicates the company's ability to take on more debt
C. Is calculated by dividing long term debt by total equity
D. Shows the return on all long term liabilities

Question 15

If a $6,000, 10 percent, 10-year bond was issued at 104 on October 1, 2011, how much interest expense will accrue on December 31 if interest payments are made annually?
A. None
B. $144
C. $150
D. $500

Question 16

Which of the following would be considered an estimated liability?
A. Notes payable
B. Warranties payable
C. Pending litigation
D. Sales tax payable

Question 17

Bonds are issued by:
A. Local government entities
B. Corporations
C. The federal government
D. All of the above

Question 18

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:
A. Convertible bonds
B. Sinking fund bonds
C. Callable bonds
D. Serial bonds

Question 19

Bonds issued at a premium:
A. Will decrease the interest expense of the company
B. Means the bond sold at a gain
C. Are more attractive to investors than a bond sold at face value
D. Will be redeemed before the maturity date

Question 20

Utilize the _____________ principle to estimate warranty liabilities.
A. Matching
B. Entity
C. Conservatism
D. Objectivity