Question 1

Operating cycles are generally longer than a year.

Accepted Answer

False

Question 2

Publicly issued debt certificates are also known as bonds.

Accepted Answer

This statement is true. Bonds are a type of debt security that are publicly issued by governments, corporations, and other organizations to raise capital.

Question 3

If the market rate equals the stated interest rate, a bond will sell at face value.

Accepted Answer

When the market rate equals the stated interest rate, the bond is considered to be priced at par or face value.

Question 4

Contingent liabilities arise from past transactions or events but also depend on future events.

Accepted Answer

Contingent liabilities are potential obligations arising from past events but exist because their occurrence depends on the outcome of future events. Therefore, they are uncertain and may or may not result in a liability. Examples include pending lawsuits or potential warranty claims.

Question 5

The quick ratio is similar to the current ratio because it is also used to evaluate the ability to pay current liabilities.

Accepted Answer

The quick ratio, also known as the acid-test ratio, is a measure of a company's ability to pay its current liabilities using its most liquid assets. This is similar to the current ratio, which evaluates a company's ability to meet current obligations using its current assets. Both ratios are used to assess a company's short-term liquidity.

Question 6

The method of bond amortization that results in varying amounts of amortization each period is the straight-line amortization method.

Accepted Answer

The straight-line amortization method results in equal amounts of amortization each period. The method that results in varying amounts of amortization each period is the effective interest method.

Question 7

A company's current liabilities are the total amount it currently owes at a single point in time.

Accepted Answer

The answer of A company's current liabilities are the total...

Question 8

At the date of maturity, the carrying value of a bond should always be equal to the face value.

Accepted Answer

At maturity, the bond issuer is required to repay the face value of the bond to the bondholder, so the carrying value should also be equal to the face value.

Question 9

When bonds are retired, the balance in the bonds payable account is equal to the issuance price of the bonds.

Accepted Answer

The balance in the bonds payable account is equal to the face value of the bonds, not the issuance price, which may include premiums or discounts.

Question 10

Callable bonds can be converted to stock.

Accepted Answer

The answer of Callable bonds can be converted to stock....

Question 11

Unearned revenue is recorded as an asset until the revenue has been earned.

Accepted Answer

Unearned revenue is recorded as a liability because it represents an obligation to deliver goods or services in the future.

Question 12

When a company issues bonds that include no periodic interest payments, the bonds are called zero-coupon bonds.

Accepted Answer

Zero-coupon bonds do not make periodic interest payments, and are sold at a discount to their face value. Instead, investors receive the return in the form of the difference between the purchase price and the face value at maturity.

Question 13

Sales taxes are charged to all customers in states that have a sales tax.

Accepted Answer

The answer of Sales taxes are charged to all customers...

Question 14

The issuance price of a bond does not depend on the method used to amortize the bond discount or premium.

Accepted Answer

The issuance price of a bond is determined by the market interest rates and the bond's coupon rate, not by the amortization method used for accounting purposes.

Question 15

The face value of bonds is also the maturity value of the bonds.

Accepted Answer

The face value of bonds represents the amount that the bond issuer has agreed to pay the bondholder when the bond reaches maturity. Therefore, the face value and maturity value are the same thing.

Question 16

The net amount of a bond liability that appears on the balance sheet is equal to the face value of the bond plus any related discount or minus any related premium.

Accepted Answer

The answer of The net amount of a bond liability...

Question 17

The times interest earned ratio shows the amount of interest earned for each dollar of interest expense.

Accepted Answer

The times interest earned ratio actually measures a company's ability to meet its interest payments; it's calculated by dividing earnings before interest and taxes (EBIT) by the interest expense.

Question 18

The net amount of a bond payable on the balance sheet is the call price of the bond plus any related discount or minus any related premium.

Accepted Answer

The net amount of a bond payable on the balance sheet is the face value of the bond minus any related discount or plus any related premium.

Question 19

The entry to record a bond retirement at maturity usually involves no gain or loss.

Accepted Answer

When a bond is retired at maturity, the issuing company pays the bondholders the face value of the bond. This means that the amount of cash paid out by the company is equal to the carrying value of the bond on its books. Since there is no difference between the amount paid and the carrying value, there is no gain or loss to be recognized.

Question 20

Bonds allow a company to borrow a lot of money from a lot of different people.

Accepted Answer

Bonds are a form of debt financing where a company can issue bonds and borrow money from investors who purchase those bonds. This allows the company to borrow significant amounts of money from a large number of investors.

Quiz 10: Reporting and Interpreting Liabilities