1. All of the following are characteristics of current liabilities except:

a. they may involve estimated amounts. b. they are due within one year or within the operating cycle, whichever is longer. c. they may be replaced with a new short-term liability rather than being paid in cash. d. all three of the above are characteristic of current liabilities.

2. Which of the following is an example of a contingent liability?

a. A corporate long-term employment contract with the chief executive officer. b. A lawsuit pending against a restaurant chain for improper preparation of food. c. A liability for notes payable with interest included in the face amount. d. The liability for future warranty repairs on computers sold during the current period

. 3. A company will have to pay a $50,000 liability in 4 years. How much must be deposited now into a bank account earning 8% compounded semiannually to fully fund the future payment? HINT: PV of $1 The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.

a. $35,500 b. $36,535 c. $36,665 d. $34,000

4. On October 1, Lawrence Company borrowed $60,000 from Fourth National Bank on a 1-year, 7% note. If the company's fiscal year ends as of December 31, Lawrence should make an entry to increase

a. interest payable, $1,050. b. prepaid interest, $3,150. c. notes payable, $1,050. d. interest expense, $4,200.

5. Warranty expenses are the result of the selling companys estimate of the number of units sold during the current year that may become defective and need repair or replacement during the warranty period.

a. True b. False

6. Estimated liability for product warranties to be paid in the future is a long term liability.

a. True b. False

7. The future value of equal semi-annual payments of $500 at 8% compounded semiannually for 4 years is HINT: FV of Annuity of $1 The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.

a. $ 868 b. $9,320 c. $2,000 d. $4,607

8. What is the correct classification of the account: Discount on Notes Payable?

a. a revenue b. a contra liability c. an asset d. an expense

9. If the annual interest is 12%, but the compounding is done quarterly, then the interest rate is 3% per period.

a. True b. False

10. A convertible bond is one where a. the issuer can convert from

a fixed interest rate to a floating one. b. the issuer can convert it from long-term to short-term. c. the issuer can retire the bond before its specified due date. d. the holder can convert the bond into common stock at a future time.

11. Which of the following statements regarding serial bonds is true?

a.They are likely to be issued by food companies.

b. They have shorter lives than term bonds.

c.They are strongly backed by the issuer's collateral.

d. The bonds do not all mature on the same date.

12. Bonds are a popular source of financing because

a.bond interest expense is deductible for tax purposes, while dividends paid on stock are not.

b. financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock.

c. a company having cash flow problems can postpone payment of interest to bondholders.

d. the bondholders can always convert their bonds into stock if they choose.

13. When determining the amount of interest to be paid on a bond, which of the following information is not necessary?

a.The face amount of the bonds

b. The selling price of the bonds

c.The face rate of interest on the bonds

d. The length of the interest period, annually or semiannually 14. Which of the following statements is correct?

a.Bonds are issued at a price that reflects the stated rate of interest on the day the bond is purchased.

b. If the face rate of interest on a bond is not equal to the market rate of interest, then the company desiring to issue the bonds must reprint its bond certificates.

c.The actual issue price of a bond represents the present value of all future cash flows related to the bond.

d. The market rate of interest has no bearing on the selling price of the bonds.

15. Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%. This means that the bonds were issued

a.at a premium. b. at a discount. c.at the face value. d. with an additional 3 years of interest.

16. Which of the following statements regarding leases is false?

a. Lease agreements are a popular form of financing the purchase of assets because leases do not require a large initial outlay of cash.

b. Accounting recognizes two types of leases--operating and capital leases.

c. If a lessor classifies a lease as a capital lease, then the lessee records a lease liability on its balance sheet.

d. If a lease is classified as an operating lease, the lessee records a lease liability on its balance sheet.

17. Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

a. Accumulated depreciation on the leased asset

b. Lease obligation in the current liability section

c. Lease obligation in the long-term liability section

d. Rent expense on the income statement