Which of the following statements pertaining to installment notes with blended
Subject: Business / Accounting
Which of the following statements pertaining to instalment notes with blended principal and interest
payments is correct?
a) The portion of each instalment applied to the interest and principal will remain constant.
b) The portion of the instalment applied to the principal will increase, while the portion applied
to the interest will decrease over time.
c) The portion of the instalment applied to the principal will decrease, while the portion applied
to the interest will increase over time.
d) The portion of the instalment applied to the interest will depend on prevailing market interest
rates, with the difference being applied to the principal.
Bond discounts should be amortized to comply with the
d) cost principle.
revenue recognition principle.
full disclosure principle. A $500,000 bond is retired at 97 when the carrying amount of the bond is $480,000. The entry to
record the retirement would include a:
d) $20,000 loss.
Which of the following is true?
a) It is common for companies to both retire debt and issue new bonds in the same year as
a way to replace higher interest rate debt with lower rate issuances.
b) Payment of interest is an investing activity since we would not have interest unless we
borrowed money or sold bonds to the public.
c) Retractable bonds require cash outflow connected to investing when the issuing
corporation redeems the bonds.
d) The corporation will have to pay cash to bond investors when those investors demand to
call the bonds. A $100,000 bond was retired at 96 when the carrying amount of the bond was $105,000. The entry
to record the retirement would include a:
d) gain on bond redemption of $9,000.
loss on bond redemption of $4,000.
loss on bond redemption of $8,000.
gain on bond redemption of $4,000. If a bond payable is sold (issued) at a premium, the amount of the carrying value (the long-term
liability) reported on the subsequent statements of financial position does which of the following?
b) Decreases each year.
c) Increases each year.
d) Changes from year to year depending upon the market rate of interest each year.
In 2014, The W D Co. had total liabilities of $22,704 million and total assets of $43,679 million. In
2013, they had total liabilities of $21,990 million and total assets of $41,378 million. Calculate their
debt to equity ratio for 2014 and 2013, respectively.
a) .48 and .47
b) .52 and .53
c) .92 and .88
d) 1.08 and 1.13 Tasker Inc. earned a gross profit of $300,000 on sales of $1,200,000 during 2013. The company also
had operating expenses of $180,000. These operating expenses included interest expense of
$40,000. The company is subject to an effective tax rate of 30%. What is the company’s times
interest earned ratio for the year?
a) 4 times
b) 4.5 times
c) 5 times
d) 3.2 times
If the market interest rate is higher than the coupon interest rate (or stated rate) of the bond, the
d) at face value.
at a premium.
at a discount.
It is undeterminable.