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Exam 10: Reporting and Interpreting Liabilities

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Question 71

Multiple Choice

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A company pays $18,000 in interest on notes, consisting of $12,000 interest that accrued during the last accounting period and $6,000 of interest accumulated during this accounting period but not previously recorded on the books. The journal entry for the interest payment should:

A) debit Interest Expense for $18,000 and credit Cash for $18,000.
B) debit Cash for $18,000 and credit Interest Payable for $18,000.
C) debit Interest Expense for $6,000, debit Interest Payable $12,000 and credit Cash for $18,000.
D) debit Interest Payable for $12,000, debit Accrued Interest $6,000 and credit Cash for $18,000.

E) A) and B)
F) B) and C)

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Question 72

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When a company issues bonds that include no periodic interest payments, the bonds are called zero-coupon bonds.

A) True
B) False

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Question 73

Multiple Choice

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A company issued $100,000 5-year, 7% bonds and received $101,137 in cash. The market rate of interest when the bonds were issued was 6.5%. What is the amount of interest expense to be recorded for the first annual interest period if the company uses the effective-interest method of amortization?

The gross pay for all employees is debited to Wages Payable.

A company pays $9,000 in interest on notes consisting of $6,000 of interest that was accrued during the last accounting period and $3,000 of interest that accumulated during this accounting period that has not yet been accrued on the books. The journal entry for the interest payment should:

At the date of maturity, the carrying value of a bond should always be equal to the face value.

When a company issues bonds that do not pay periodic interest, the bonds are called:

The face value of bonds is also the maturity value of the bonds.

Bonds that are backed by a company's assets are called secured bonds.

Operating cycles are generally longer than a year.

When the amount of a contingent liability cannot be estimated but its likelihood is probable, the company should:

On January 1, your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%. The market interest rate is 5%. The issue price of the bond was $10,866. Using the effective-interest Method of amortization and rounding to the nearest dollar, the interest expense for the first year ended December 31 would be:

The threshold for recording contingent liabilities under IFRS is lower than that under GAAP. considered to be more likely than not to occur; whereas, GAAP states that an estimated loss is recorded if it is probable.