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20) On September 1, Year 1, West Company borrowed $10,000 from Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. West Company has a calendar year-end. What is the amount of interest expense that will be reported on West's income statement for Year 1? A) S-0- B) S150 ho C) $60 D) $200 21) Based on this information alone, what is the amount of cash flow from operating activities reported on Madison's Year 1 statement of cash flows? A) $1,920 B) $800 C) $24,000 D) $-0- 22) Based on this information alone, what is the amount of total liabilities appearing on Madison's balance sheet as of December 31, Year 1? A) $24,720 B) $24,800 C) $25,920 D) $24,000 Chapter 10 Accounting for Long-Term Debt 23) Chico Company borrowed $40,000 on a four-year, 8% installment note. How will Chico record the issuance of this note? A) Cash 36,800 Discount on notes payable 3,200 Notes payable 40,000 40,000 B) Cash Interest payable Notes payable 3.200 36,800 C) Cash Notes payable 43,200 43,200 D) Cash Notes payable 40,000 40,000 24) Which of the following correctly describes an installment note? A) An installment note requires equal interest payments with the entire principal balance paid at maturity B) An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of the note. C) An installment note requires equal payments of interest and principal in which the amount of interest increases over the life of the note. D) The installment note requires decreasing payments of interest and principal in which the amount of interest remains constant over the life of the note. 25) Pace Company issued bonds with a face value of $200,000 at 97. How does the issuance affect the company's accounting equation? A) Assets and liabilities would both increase by $200,000 B) Assets and liabilities would both increase by S194,000. C) Assets would increase by $194,000 and liabilities would increase by $200,000, D) Assets would increase by $200,000, and liabilities would increase by $191,000. 26) Which of the following describes what happens when bonds are issued when the market interest rate is less than the stated interest rate? A) The bonds are issued at a premium. B) The bonds are issued at less than their face value C) It raises the effective interest rate above the stated rate of interest D) The bonds are issued at a premium and the effective interest rate is higher than the stated rate. 27) Which of the following is the term used to describe bonds that mature at specified intervals throughout the life of the issuance? A) Term bonds B) Registered bonds C) Coupon bonds D) Serial bonds
