1. How are liabilities classified on the balance sheet?
paid and unpaid
current and long-term
definitely determinable and estimated
current and unfunded
2. Definitely determinable liabilities are ________.
always current liabilities
obligations of an exact amount
obligations of an uncertain amount
always long-term liabilities
3. Beau Brentley earned $60,000 from his job at Bridgestone Tires. He had 15% of his gross pay withheld for federal income taxes, 6.2% withheld for FICA Social Security taxes, and 1.45% withheld for Medicare taxes. What was Beau’s net pay?
$48,000
$46,410
$48,200
$60,000
4. Brook’s Bike Company sold 80 mountain bikes during May. The company offered a one-year warranty. Future warranty expense was estimated to be $25 per bike. During May, the company spent $115 on parts and labor to repair three bikes that were under warranty. The warranty expense for May was ________.
$115
$2,115
$2,000
$345
5. When companies borrow money for longer than one year, that obligation is called ________.
a long-term liability
equity financing
a current liability
an operating activity
6. On January 1, 2011, Climax Corporation signed a $10,000,000, 6%, 10-year mortgage note to finance the construction of its new hotel in Cancun. The note will be repaid in 10 equal annual installments of $1,358,679. Over the 10-year period, as each installment payment is made, the portion of the payment that is used to reduce the principal will ________.
decrease
stay the same
increase
The answer cannot be determined from the information given.
7. On January 1, 2011, Ajax Corporation signed a $1,000,000, 7%, 10-year mortgage note to buy a new warehouse. The note will be repaid in 10 equal annual installments of $142,378. The first payment was made on December 31, 2011. How much of the first mortgage payment will be used to reduce the principal?
$72,378
$132,412
$142,378
$0
8. A bond is ________.
long-term debt until the year it matures
debt sold to investors
an agreement, which requires a company to repay principal plus interest
all of these
9. When a bond sells at its face amount, the market rate of interest is ________.
irrelevant to investors
less than the bond’s stated rate of interest
greater than the bond’s stated rate of interest
equal to the bond’s stated rate of interest
10. When a bond sells at less than its face amount, the market rate of interest is ________.
less than the bond’s stated rate of interest
equal to the bond’s stated rate of interest
greater than the bond’s stated rate of interest
irrelevant to investors
11. When a bond sells for 102, the bond is selling at ________.
a premium
par
a discount
face value
12. When a bond sells for 98, the bond is selling at ________.
face value
a discount
a premium
par
13. On January 1, Wok ‘n’ Roll, Inc. issued $50,000 worth of 8%, 20-year bonds for $52,950. These bonds sold at ________.
face value
a premium
a discount
par
14. On January 1, Bank, Rupp & Baroque, Inc. issued $50,000 worth of 10-year, 9% bonds for $48,890. These bonds sold at ________.
a discount
par
face value
a premium
15. On January 1, Bank, Rupp & Baroque, Inc. issued $50,000 worth of 10-year, 9% bonds for $48,890. What is the amount of the first year’s interest payment?
$4,400.10
$1,100.00
$88.80
$4,500.00
16. On November 1, 2011, The Mane Event, Inc. borrowed $40,000 from a local bank for 24 months at 11% annual interest. Both principal and interest are due when the note matures. Which statement below is TRUE?
The transaction represents a financing activity.
The note is a long-term liability on the balance sheet at Dec. 31, 2012.
The note is a current-term liability on the balance sheet at Dec. 31, 2011.
The transaction represents an investing activity.
17. On January 1, 2011, Dew Drop Inn borrowed $80,000 at 8% interest. The loan will be repaid with equal annual installment payments of $8,900 made on the last day of each year, which is the company’s yearend. Notes payable at December 31, 2011 equals ________.
$80,000 on the balance sheet
$77,500 on the balance sheet
$80,000 on the income statement
18. On October 31, 2011, Bondable, Inc. issued $20,000 of 10-year, 6% bonds at 100. The bonds pay interest annually on October 31. On its statement of cash flows for the year ended December 31, 2011, Bondable will show Cash paid for interest of ________.
$0
$(120) in the cash flows from operating activities section of the statement
$(200) in the cash flows from financing activities section of the statement
$(1,200) in the cash flows from operating activities section of the statement
19. On November 30, 2011, Just in Thyme, Inc. issued $10,000 of 20-year, 9% bonds at 100. The bonds pay interest semiannually on May 31 and November 30. On its statement of cash flows for the year ended December 31, 2011, Just in Thyme will show Cash paid for interest of ________.
$(450) in the cash flows from operating activities section of the statement
$(900) in the cash flows from operating activities section of the statement
$0
$(75) in the cash flows from financing activities section of the statement
20. If a company earns more with the money it borrows than it has to pay to borrow that money, it is called ________.
positive financial leverage
negative financial leverage
positive cost/benefit
negative cost/benefit
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