Question;101. A mortgage note payable with a fixed;interest rate requires the borrower to make installment payments over the term;of the loan. Each installment payment includes interest on the unpaid balance;of the loan and a payment on the principal. With each installment payment;indicate the effect on the portion allocated to interest expense and the;portion allocated to principal.;Portion;Allocated Portion;Allocated;to;Interest Expense to;Payment of Principal;a. Increases Increases;b. Increases Decreases;c. Decreases Decreases;d. Decreases Increases;102. The entry to record an installment payment;on a long-term note payable is;a. Mortgage;Payable;Cash;b. Interest;Expense;Cash;c. Mortgage;Payable;Interest;Expense;Cash;d. Bonds;Payable;Cash;103. Winter Company purchased a building on;January 2 by signing a long-term $600,000 mortgage with monthly payments of $5,400.;The mortgage carries an interest rate of 10 percent.;The entry to record the;first monthly payment will include a;a. debit to the Cash account for $5,400.;b. credit to the Cash account for $5,000.;c. debit to the Interest Expense account for $5,000.;d. credit to the Mortgage Payable account for $5,400.;104. Horton Company purchased a building on;January 2 by signing a long-term $480,000 mortgage with monthly payments of;$4,400. The mortgage carries an interest rate of 10 percent. The amount owed on;the mortgage after the first payment will be;a. $480,000.;b. $479,600.;c. $476,000.;d. $475,600.;105. Farris;Company borrowed $800,000 from BankTwo on January 1, 2011 in order to expand;its mining capabilities. The five-year note required annual payments of;$208,349 and carried an annual interest rate of 9.5%.What is the amount of expense Farris must;recognize on its 2012 income statement?;a. $76,000;b. $63,427;c. $56,206;d. $49,659;106. Farris Company;borrowed $800,000 from BankTwo on January 1, 2011 in order to expand its mining;capabilities. The five-year note required annual payments of $208,349 and;carried an annual interest rate of 9.5%.What is the balance in the notes payable;account at December 31, 2012?;a. $800,000;b. $522,729;c. $667,651;d. $648,000;107. The lessee has;substantially all of the benefits and risks of ownership in a(n);a. apartment;lease.;b. capital;lease.;c. operating;lease.;d. operating lease and a capital;lease.;108. A lease where the intent is temporary use;of the property by the lessee with continued ownership of the property by the;lessor is called;a. off-balance sheet financing.;b. an operating lease.;c. a capital lease.;d. a purchase of property.;109. Which of the following is not a condition which would require the;recording of a lease contract as a capital lease?;a. The lease transfers ownership of the property;to the lessee.;b. The lease contains a bargain purchase option.;c. The lease term is less than 75% of the;economic life of the leased property.;d. The present value of the lease payments;equals or exceeds 90% of the fair market value of the leased property.;110. In a lease contract;a. the owner of the property is called the;lessee.;b. the presence of a bargain purchase option;indicates that it is a capital lease.;c. the renter of the property is called the;lessor.;d. there is always a transfer of ownership at;the end of the lease term.;111. Which of the following statements;concerning leases is true?;a. Capital leases are favored by lessees.;b. The appearance of the account, Leased Asset;on the balance sheet, signifies an operating lease.;c. The portion of a lease liability expected to;be paid in the next year is reported as a current liability.;d. Present value is irrelevant in accounting for;leases.;112. If the present value of lease payments;equals or exceeds 90% of the fair market value of the leased property, the;a. conditions are met for the lease to be;considered a capital lease.;b. lease is uneconomical and should not be;entered into.;c. lease may be classified as an operating;lease.;d. recording of a lease liability is;optional?that is, the off-balance sheet approach can be elected.;113. Each of the;following may be shown on a supporting schedule instead of on the balance sheet;except the;a. current;maturities of long-term debt.;b. conversion;privileges.;c. interest;rates.;d. maturity dates.;114. The times interest earned ratio is computed;by dividing;a. net income by interest expense.;b. income before income taxes by interest;expense.;c. income before interest expense by interest;expense.;d. income before income taxes and interest;expense by interest expense.;115. The discount on bonds payable or premium on;bonds payable is shown on the balance sheet as an adjustment to bonds payable;to arrive at the carrying value of the bonds. Indicate the appropriate addition;or subtraction to bonds payable;Premium;on Discount on;Bonds;Payable Bonds Payable;a. Add Add;b. Deduct Add;c. Add Deduct;d. Deduct Deduct;116. In a recent year Joey Corporation had net;income of $140,000, interest expense of $40,000, and tax expense of $20,000.;What was Joey Corporation?s times interest earned ratio for the year?;a. 5.00;b. 4.00;c. 3.50;d. 3.00;117. In a recent year Cold Corporation;had net income of $250,000, interest expense of $50,000, and a times interest;earned ratio of 9. What was Cold Corporation?s income before taxes for the;year?;a. $500,000;b. $450,000;c. $400,000;d. None;of the above.;118. The adjusted trial;balance for Lamar Corp. at the end of the current year, 2012, contained the;following accounts.;5-year Bonds Payable 8% $1,600,000;Interest;Payable 50,000;Premium on;Bonds Payable 150,000;Notes Payable (3;mo.) 40,000;Notes Payable (5 yr.) 145,000;Mortgage;Payable ($15,000 due currently) 300,000;Salaries and;Wages Payable 18,000;Taxes;Payable (due 3/15 of 2013) 25,000;The total long-term liabilities;reported on the balance sheet are;a. $2,045,000.;b. $2,100,000.;c. $2,195,000.;d. $2,180,000.;119. The 2012 financial;statements of Marker Co. contain the following selected data (in millions).;Current Assets $ 75;Total Assets 140;Current;Liabilities 40;Total;Liabilities 95;Cash 8;The debt to total assets ratio is;a. 67.9%.;b. 96.4%.;c. 28.6%.;d. 256%.;a120. The;present value of a bond is also known as its;a. face value.;b. market price.;c. future value.;d. deferred value.;a121. $3 million;8%, 10-year bonds are issued at face value. Interest will be paid;semi-annually. When calculating the market price of the bond, the present value;of;a. $240,000 received for 10 periods must be;calculated.;b. $3 million received in 10 periods must be;calculated.;c. $3 million received in 20 periods must be;calculated.;d. $120,000 received for 10 periods must be;calculated.;a122. Either;the straight-line method or the effective-interest method of amortization will;always result in;a. the same amount of interest expense being;recognized over the term of the bonds.;b. the same amount of interest expense being;recognized each year.;c. more interest expense being recognized than;if premium or discounts were not amortized.;d. the same carrying value each year during the;term of the bonds.;a123. A;corporation issued $600,000, 10%, 5-year bonds on January 1, 2012 for $648,666;which reflects an effective-interest rate of 8%. Interest is paid semiannually;on January 1 and July 1. If the corporation uses the effective-interest method;of amortization of bond premium, the amount of bond interest expense to be;recognized on July 1, 2012, is;a. $30,000.;b. $24,000.;c. $32,434.;d. $25,946.;a124. A;bond discount must;a. always;be amortized using straight-line amortization.;b. always be amortized using the;effective-interest method.;c. be amortized using the effective-interest;method if it yields annual amounts that are materially different than the;straight-line method.;d. be amortized using the straight-line method;if it yields annual amounts that are materially different than the;effective-interest method.;a125. When;the effective-interest method of bond discount amortization is used;a. the applicable interest rate used to compute;interest expense is the prevailing market interest rate on the date of each;interest payment date.;b. the carrying value of the bonds will decrease;each period.;c. interest expense will not be a constant;dollar amount over the life of the bond.;d. interest paid to bondholders will be a;function of the effective-interest rate on the date the bonds are issued.
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