1.Failure to record an accrued liability causes a companyto:

A.

overstate expenses

B.

overstate liabilities

C.

overstate assets

D.

overstateowners' equity

2.A bond issued at a discount typically has a market price that decreases toward maturity value.

True

False

3.The interest rate that investors demand for loaning their money is referred to asthe:

A.

stated rate of interest

B.

contract rate of interest

C.

effective rate of interest

D.the stated or contract rate of interest

4.Under the effectiveinterest method ofamortization, the amount of discount amortized each interest period is equal tothe:

A.

amount of interest expense less the cash paid

B.

total amount of interest expense divided by the number of interest payments to be made

C.

total discount divided by the number of interest payments to be made

D.

amount of interest expense plus the cash paid

5.

Which type of lease will not increase acompany's assets orliabilities?

A.

an operating lease

B.

a finance lease

C.

a lease in which title is transferred to the lessee at the end of the lease term

D.

the present value of lease payments is90% or more of the market value of the leased asset

6.

The market or effective rate of interest is used to calculate the actual amount of interest bondholders will receive from a company issuing bonds.

True

False

7.

When the discount on bonds payable isamortized, the carrying value of thebonds:

A.

will increase

B.

will decrease

C.

will always remain unchanged

D.

may increase or decrease depending on the face value of the bonds

8.

Under the effectiveinterest method ofamortization, the cash payment on each interest payment date is calculated by multiplyingthe:

A.

carrying value of the bonds times the stated interest rate for the appropriate time period

B.

carrying value of the bonds times the effectiveinterest rate for the appropriate time period

C.

face value of the bonds times the stated interest rate for the appropriate time period

D.

face value of the bonds times the effectiveinterest rate for the appropriate time period

9.A$1,500 bond quoted at 981/2 is sellingfor:

A.

$1,518

B.

$1,478

C.

$1,492

D.

$1,500

10.

How does a company account for the difference between interest expense and the cash payment of interest when bonds are issued at less than their facevalue?

A.

The difference is accounted for using Amortization of Bond Premium.

B.

The difference is accounted for using Amortization of Bond Discount.

C.

The difference is accounted for using Bonds Payable.

D.

In this situation the cash payment of interest will exceed interest expense.

11.

The interest rate that determines the amount of cash paid to the bondholder is referred to asthe:

A.

contract rate of interest

B.

effective rate of interest

C.

market rate of interest

D.

the effective or market rate of interest

12.

The excess of abond's issue price over its face value is known asthe:

A.

effectiveinterest

B.

contract interest

C.

discount

D.

premium

13.

On abond's maturitydate, its carrying value will equalthe:

A.

present value of the bond on its issuance date

B.

maturity value

C.

maturity value plus all interest payments

D.

maturity value less all interest payments

14.

Another name for the effective interest rate is the market interest rate.

True

False

15.

Bonds with a face value of$100,000 were sold at an effective rate of10% to yield cash proceeds in excess of$100,000. It is apparent the bonds hada:

A.

stated rate less than10%

B.

market rate less than10%

C.

stated rate greater than10%

D.

market rate greater than10%

16.

On July1, 2016, the Jazz Corporation issues$4,000,000 of 10year bonds dated July1, 2016, at 89 when the market rate of interest was8%. Jazz Corporation uses the effectiveinterest method of amortization. Interest is paid each June 30 and December 31. The entry to record the first semiannual interest payment on December31, 2016, will includea:

A.

debit to Interest Expense for$142,400

B.

credit to Discount on Bonds Payable for$284,800

C.

debit to Premium on Bonds Payable for$160,000

D.

credit to Interest Payable for$320,000

17.

Under the effectiveinterest method of amortization forbonds, the cash payment on each interest paymentdate:

A.

increases over the first half of the life of thebond, and then decreases thereafter

B.

decreases over the life of the bond

C.

is constant

D.

increases over the life of the bond

18.

Under the effectiveinterest method ofamortization, interest expense each period can be calculated by multiplyingthe:

A.

carrying value of the bonds times the stated interest rate for the appropriate time period

B.

carrying value of the bonds times the effectiveinterest rate for the appropriate time period

C.

face value of the bonds times the effectiveinterest rate for the appropriate time period

D.

face value of the bonds times the stated interest rate for the appropriate time period