Chapter 10 When the market rate of interest is greater than the contractual rate of interest a. bonds will be issued at a premium 1. b. the financial strength of the issuer is exceptional. bonds will be issued at a discount the financial strength of the issuer is suspect. d. 2. Discount on Bonds Payable a. is a contra liability. b. is an expense. is deducted from bonds payable on the balance sheet both is a contra liability and is deducted from bonds payable on the balance sheet 3. Contingencies must be accrued as liabilities if a. the company can determine a reasonable estimate of the debt b. the amount is over $10,000. c. it is probable the company will suffer a loss. both the company can determine a reasonable estimate of the debt and it is probable the company will suffer a loss. Accounting for leases under FASB 13 a. you can have an operating lease, which is treated as a rental. b. you can have a capital lease, which is treated as a purchase c. attempts to deal with the so-called "Off Balance Sheet Financing d. all of the above are correct. 4. 5. If corporate bonds are redeemed a the corporation can have no gain or loss on the redemption. b.goins and losses are determined by comparing the carrying amount of the bonds to the redemption price. c. they are said to be convertible d. the effective-interest method of amortization cannot be used 6. Sales tax a. is an expense to the merchant when the tax is remitted to the state. b. is revenue to the corporation when it is collected from the customer. c. is governed by federal law d. included in accounts receivable can be recovered from the state if the account is written off as uncollectible