Question 1

Under a defined contribution pension plan,

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The answer of Under a defined contribution pension plan,
...

Question 2

The interest coverage ratio equals income before income taxes plus interest expense divided by

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The answer of The interest coverage ratio equals income before...

Question 3

The debt to equity ratio is expressed in terms of

Accepted Answer

The debt to equity ratio is expressed in terms of "times," indicating how many times the total debt is compared to the shareholders' equity.

Question 4

Deferred income taxes arise when

Accepted Answer

Deferred income taxes arise when there is a timing difference between financial reporting and tax filing requirements. For example, revenue or expense recognition might be deferred for tax purposes, but recognized immediately for financial reporting purposes, leading to differences in taxable income and accounting income. These differences lead to deferred tax liabilities or assets, which are recognized on the balance sheet.

Question 5

It is the bondholder rather than the issuer who may exercise the call feature of a callable bond.

Accepted Answer

The call feature of a callable bond allows the issuer to redeem the bond before its maturity date. Therefore, it is the issuer who has the right to exercise the call feature, not the bondholder.

Question 6

The cash received on bonds issued at face value and between interest dates is less than the bonds' face value.

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The answer of The cash received on bonds issued at...

Question 7

An adjustment must be made at the end of an accounting period to accrue the interest expense on bonds payable and to amortize any related premium or discount from the last interest payment date to the end of the fiscal year.

Accepted Answer

This adjustment is necessary in order to properly reflect the interest expense and related premium or discount on the financial statements for the period.

Question 8

When bonds are converted to stock,any excess carrying value of the bonds over the par value of the stock is to be recorded as Additional Paid-in Capital.

Accepted Answer

When bonds are converted to stock, any excess carrying value of the bonds over the par value of the stock is to be recorded as Additional Paid-in Capital. This is because the carrying value of the bonds represents the amount that the issuer initially received from the bondholders, and any excess over the par value of the stock represents an additional investment by the bondholders that should be recorded as equity.

Question 9

Issuing bonds between interest payment dates will have the effect of decreasing a bond issuance discount or increasing a bond issuance premium.

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The answer of Issuing bonds between interest payment dates will...

Question 10

Other postretirement benefits should be expensed

Accepted Answer

Other postretirement benefits are typically earned by employees over their years of service, so they should be recognized as an expense as the employee earns them. This follows the matching principle of accounting, which requires expenses to be recognized when the related revenue is earned.

Question 11

The entry to record the issuance of bonds between interest payment dates will include a debit to Bond Interest Expense.

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The answer of The entry to record the issuance of...

Question 12

Under an operating lease,the lessee

Accepted Answer

Under an operating lease, the lessee would record rent expense, as the lease payments are considered operational expenses rather than long-term debt obligations. The other choices do not apply to operating leases.

Question 13

Which of the following statements best describes the behavior over time of the components of equal mortgage payments?

Accepted Answer

In a typical mortgage structure, the total payment amount remains constant over time, but the composition of the payment shifts. At the beginning, interest constitutes a larger portion of the payment, but as the principal balance decreases over time, the interest expense decreases and the portion of the payment applied to the principal increases.

Question 14

A company with income before income taxes of $96,000,and $20,000 in interest expense,has an interest coverage ratio of

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The answer of A company with income before income taxes...

Question 15

Which of the following qualifies as a capital lease?

Accepted Answer

A capital lease is a type of lease that is treated as a purchase of asset, meaning it is recorded as an asset and liability on the lessee's balance sheet. A lease is considered a capital lease if it meets any one of the following criteria:
- Ownership of the asset is transferred to the lessee at the end of the lease term.
- The lease includes a bargain purchase option that allows the lessee to purchase the asset at a price significantly below its fair market value.
- The lease term is equal to or greater than 75% of the estimated economic life of the asset.
In the given options, only the lease of a machine that has a five-year useful life for a five-year lease term meets the criteria of a capital lease as the lease term is equal to the useful life of the asset.

Question 16

The advantages of financial leverage accrue primarily to

Accepted Answer

Financial leverage refers to the use of debt to finance a firm's operations and investments. The advantages of financial leverage, such as the tax benefits of debt interest payments and the effect of boosting return on equity (ROE), primarily accrue to the stockholders. Debt allows the company to generate more profits without increasing the investment of equity. The benefits go to the stockholders when the profits are used to pay dividends or buyback shares.

Question 17

If bonds are retired by an issuer by purchase on the open market at a price below the bonds' carrying value,a gain will result.

Accepted Answer

If bonds are purchased on the open market at a price below their carrying value, the issuer will realize a gain on retirement because it is paying less than the bond's recorded value.

Question 18

All of the following are operating leases except a

Accepted Answer

An operating lease is a lease agreement where the lessor passes only the use of the asset to the lessee and retains the risks and rewards of ownership. Option to buy for a small amount at the end of the lease means that this lease agreement is a finance lease, not an operating lease. Therefore, D is the correct answer. A, B, and C are operating leases because they can be canceled with a notice, or have a renewal option but do not include a purchase option.

Question 19

Which of the following is an example of off-balance-sheet financing?

Accepted Answer

Off-balance-sheet financing refers to any form of financing that does not appear on a company's balance sheet. Leases are a common form of off-balance-sheet financing, as the leased assets may not be recorded as assets and the lease payments may not be recorded as liabilities. Bonds, notes, and dividends are all forms of on-balance-sheet financing, as they are recorded as either liabilities or equity on the balance sheet.

Question 20

Under a capital lease,the lessee does not record which of the following?

Accepted Answer

Under a capital lease, the lessee records the leased asset as a capital lease asset and the lease obligation as a liability. Depreciation on the leased asset is recorded, but rent expense is not. Rent expense is only recorded under an operating lease.

Quiz 10: Long-Term Liabilities