1. When calculating deferred income taxes:

A. Income tax payable is based on tax reporting rules.

B. Income tax payable is based on GAAP.

C. Income tax expense is based on tax reporting rules.

D. Income tax expense can never equal income tax payable.

2. The Fuller Company issued a $100,000, 5-year, 6% bond at par. It is a semiannual bond with interest paid on June 30^th and December 31^st. The entry to record the sale of the bond would include a:

1. $100,000 credit to Cash.
2. $6,000 debit to Interest Expense.
3. $100,000 debit to Accounts Payable.
4. $100,000 credit to Bonds Payable.

3. Refer to Question 3. The entry to record the semiannual interest payment is:

1. Interest Expense 6,000

Cash 6,000

2. Interest Expense 3,000

Cash 3,000

3. Interest Payable 6,000

Cash 6,000

4. Interest Expense 3,000

Interest Payable 3,000

4. On January 1, Southeast Airlines issued $300,000 of 9%, 5-year, callable bonds when the market interest was 8%. On a date when the carrying value of the bonds is $300,500, the bonds are called and retired at 99. Southeast will report a:
   1. $3,500 Gain on Retirement of Bonds Payable.
   2. $300,000 credit to Bonds Payable.
   3. $300,500 credit to Cash.
   4. $3,500 Loss on Retirement of Bonds Payable.

5. For 2019, Lail Company reports beginning total assets of $100 million and ending total assets of $180 million. Beginning common stockholders equity was $60 million and ending stockholders equity was $90 million. Net income for 2019 was $45 million. The leverage ratio for 2019 equals:

1. 0.53
2. 3.11
3. 1.94
4. 1.67

6. On February 1^st, Starr Company issued $500,000, 5-year, 4% bonds. The market rate at the time of the sale was greater than 4% so the bonds were sold at 94. Interest is payable July 31^th and January 31^st. The entry to record the sale of the bonds would include a:

1. Debit to Discount on Bonds Payable for $30,000.
2. Debit to Cash for $500,000.
3. Credit to Cash for $470,000.
4. Credit to Bonds Payable for $470,000.

7. Refer to Question 6. Starr Company uses the straight-line method to amortize discount on the bonds, the entry to record the first interest payment would include:

1. Credit to Cash for $20,000.
2. Debit to Interest Expense for $13,000.
3. Debit to Interest Expense for $6,000.
4. Debit to Discount on Bonds Payable for $3,000.

8. On July 1, 2019, a company issued $200,000, 8-year, 4% bonds payable for $186,944, when the market rate of interest was 5%. Interest payment dates are June 30 and December 31. Using the effective interest method of amortization, the December 31, 2019, carrying amount of the bonds (rounded to the closest dollar) will be:

A. $186,270

B. $199,326

C. $187,618

D. $200,000

9. When a company uses the effective-interest method to amortize bond discount,

A. Interest expense on each semi-annual interest payment date will be a constant amount.

B. Interest expense is calculated as principal contract rate 6/12.

C. Interest expense will increase each period as the carrying amount of the bonds increases.

D. Both B and C are correct.

10. Which of the following is not a characteristic of a financing lease?

A. The Lease transfers ownership of the asset to the lessor at the end of term.

B. The Lease term is for the major part of the remaining economic life.

C. The Lease grants the option, that the lessee is reasonably certain to exercise, for the lessee to purchase the asset.

D. All of the above are true.