Question 1

Current assets are $200,000, long term assets are $300,000, current liabilities are $100,000, long-term liabilities are $200,000, paid-in capital is $150,000, and retained earnings total $50,000. What is the debt-to-total-assets ratio?

Accepted Answer

To calculate the debt-to-total-assets ratio, we need to determine the total debt and the total assets of the company.
Total debt is the sum of current liabilities and long-term liabilities:
Total debt = Current liabilities + Long-term liabilities
Total debt = $100,000 + $200,000
Total debt = $300,000
Total assets are the sum of current assets and long-term assets:
Total assets = Current assets + Long-term assets
Total assets = $200,000 + $300,000
Total assets = $500,000
Now, we can calculate the debt-to-total-assets ratio by dividing the total debt by the total assets:
Debt-to-total-assets ratio = Total debt / Total assets
Debt-to-total-assets ratio = $300,000 / $500,000
Debt-to-total-assets ratio = 0.6 or .6 to 1
Therefore, the correct answer is:
b. 0.6 or .6 to 1

Question 2

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
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-Refer to Kids R Kids Company. The interest coverage (accrual basis) ratio at December 31, 2020, is:

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 3

A long-term leased asset would appear on the balance sheet as

Accepted Answer

When a company enters into a lease agreement for an asset and the lease is classified as a finance (or capital) lease, it is required to recognize both an asset and a liability on the balance sheet. The asset is recorded as a right-of-use asset, and the liability is recorded as a lease liability. The lease liability is split into two parts: the current portion (payments due within one year) and the non-current or long-term portion (payments due in more than one year).
The long-term portion of the lease liability reflects the present value of lease payments that are due beyond the next 12 months. This long-term lease liability is shown under the long-term liabilities section of the balance sheet. The right-of-use asset, which represents the lessee's right to use the leased asset over the lease term, is shown under non-current assets on the balance sheet.
Therefore, the correct answer is b. long-term lease liability, as it represents the obligation to make lease payments in the future beyond the current fiscal year.

Question 4

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
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-Refer to King Cotton Company. Which long-term liability would also be listed in the short-term liability section? Why?

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 5

The bond issue price is determined by calculating the

Accepted Answer

When a bond is issued, the issuer determines the price by calculating how much money a series of future interest payments is worth in today's dollars, which is the present value of the interest payments. Additionally, the issuer calculates the present value of the principal amount that will be paid back at maturity. The sum of these two present values gives the bond's issue price.
The present value is calculated using a discount rate, which is often the market interest rate for similar bonds. The discount rate reflects the time value of money, which is the concept that money available now is worth more than the same amount in the future due to its potential earning capacity. By discounting the future cash flows (interest payments and principal repayment) to their present values, investors and issuers can determine a fair price for the bond at the time of issuance.

Question 6

A Discount on Bonds Payable account would appear on the balance sheet as

Accepted Answer

A Discount on Bonds Payable account would appear on the balance sheet as a contra-liability (d). This means it is not a separate category of liability but rather a valuation account that is used to adjust the carrying amount of the bonds payable. When bonds are issued at a discount, it means they are sold for less than their face value. The discount on bonds payable represents the difference between the face value of the bonds and the cash received from issuing them.

Question 7

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
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-Refer to King Cotton Company. What are the total long-term liabilities for each of the two years presented?

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 8

A company with operating income of $200,000, cash flow from operating activities of $75,000 and gross profit of $380,000, has interest payments of $25,000. What is the company's interest coverage ratio (cash basis)?

Accepted Answer

The interest coverage ratio is a financial metric used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio can be calculated on an accrual basis using operating income or on a cash basis using cash flow from operating activities.
To calculate the interest coverage ratio on a cash basis, you would use the following formula:
Interest Coverage Ratio (Cash Basis) = Cash Flow from Operating Activities / Interest Payments
Given the information:
Cash Flow from Operating Activities = $75,000
Interest Payments = $25,000
Now, we can calculate the interest coverage ratio (cash basis):
Interest Coverage Ratio (Cash Basis) = $75,000 / $25,000
Interest Coverage Ratio (Cash Basis) = 3
So, the company's interest coverage ratio on a cash basis is 3, or 3 to 1. This means that the company generates $3 in cash from operating activities for every $1 of interest expense it must pay.
The correct answer is:
b. 3 or 3 to 1

Question 9

Rent owed to the lessor under a short-term lease would appear on the balance sheet as

Accepted Answer

Rent owed under a short-term lease is a current liability because it is an obligation that is expected to be settled within one year.

Question 10

A company wishes to issue $600,000 of 10-year, 6.8% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the selling price?

Accepted Answer

To determine the selling price of the bonds, we need to calculate the present value of the future cash flows that the bonds will generate. These cash flows consist of the annual interest payments and the repayment of the principal at maturity. The present value of these cash flows is determined by discounting them at the market rate of interest.
The information needed to calculate the selling price of the bonds includes:
- The face value of the bonds: This is the principal amount that the company will repay at the end of the bond term. In this case, it is $600,000.
- The stated rate of interest (coupon rate): This is the rate at which the company will pay interest to the bondholders. It is given as 6.8%.
- The market rate of interest (yield to maturity): This is the rate at which the market is willing to lend money. It is given as 5%.
- The bond life (term or maturity): This is the duration until the bonds mature, which is 10 years in this case.
The bond rating and the purpose of the issue are not required to calculate the selling price of the bonds. The bond rating could affect the market rate of interest if it wasn't already provided, as it indicates the creditworthiness of the issuer and therefore the risk associated with the bond. However, since the market rate of interest is already given, the bond rating is not necessary for this calculation. The purpose of the issue is also not relevant to the calculation of the selling price.
Therefore, the correct information needed is:
b. The face value of the bonds, the stated rate of interest, the market rate of interest, and the bond life.
Using this information, the selling price of the bonds can be calculated by discounting the annual interest payments and the face value at the market rate of interest over the bond life. The sum of the present value of the interest payments and the present value of the face value will give us the selling price of the bonds.

Question 11

The current portion of long-term debt would appear on the balance sheet as

Accepted Answer

The current portion of long-term debt would appear on the balance sheet as a current liability. This is because the current portion represents the amount of the debt that is due to be paid within the next year. It is separated from the remaining balance of the long-term debt, which is not due within the next year and is thus listed as a long-term liability. Therefore, the correct answer is:

Question 12

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
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-Refer to King Cotton Company. What is the percent increase/decrease of long-term liabilities from 2019 to 2020? Which liability appears to have caused the greatest change?

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 13

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
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-Refer to Kids R Kids Company. The interest coverage (cash basis) ratio at December 31, 2020, is:
King Cotton Company
The liabilities section of the company's most recent consolidated balance sheets is provided below:

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 14

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
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-Refer to King Cotton Company. What percent of the total liabilities for 2020 and 2019 are long-term liabilities? What implication does this have?

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 15

Keller Company issued $1,000,000, 8%, 7 year bonds with interest payable semiannually when the yield rate was 8%. The bonds issued at

Accepted Answer

In this case, Keller Company is issuing bonds with a face value of $1,000,000 and a coupon rate of 8%. The bonds are to pay interest semiannually, which means interest payments will be made twice a year. The yield rate in the market is also 8%, which matches the coupon rate.
Since the coupon rate (8%) is equal to the yield rate (8%), the bonds will be issued at par value. This means that the price at which the bonds are sold will be equal to their face value.
Therefore, the correct answer is:
b. $1,000,000
The bonds will be issued at their face value because the coupon rate and the market yield rate are the same. There is no need for time value of money tables in this case because the bonds are issued at par when the rates match.

Question 16

A Premium on Bonds Payable account would appear on the balance sheet as

Accepted Answer

The answer of A Premium on Bonds Payable account would...

Question 17

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
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-Refer to Kids R Kids Company.
A)The total liabilities at December 31, 2020, are (in thousands):
B)The debt-to-equity ratio at December 31, 2020, is:

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 18

A twenty-year lease obligation would appear on the balance sheet as

Accepted Answer

When a company enters into a lease agreement, it is essentially committing to make payments over the term of the lease. If the lease term is for a period longer than one year, it is considered a long-term commitment. According to accounting standards, such as the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP), companies are required to recognize a right-of-use asset and a lease liability at the commencement of the lease term.
The right-of-use asset represents the company's right to use the leased asset over the lease term and is shown under non-current assets on the balance sheet. The lease liability represents the company's obligation to make lease payments and is shown under long-term liabilities if the lease term is more than one year. The portion of the lease liability that is due within one year is classified as a current liability.
Therefore, the correct answer is:
b. long-term liability.

Question 19

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
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-Refer to King Cotton Company. Which one of the liabilities shown in the balance sheets is used in the calculation of the debt-to-equity ratio? If we can assume that the stockholders' equity total remained relatively constant for the two years, how would the ratio change (increase/decrease) from 2019 to 2020? What would this say about the company's financial position?

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Question 20

Kids R Kids Company
Selected data from the comparative financial statements are provided below:
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-Refer to Kids R Kids Company. The total long-term liabilities at December 31, 2020, are (in thousands):

Accepted Answer

The answer of Kids R Kids Company
Selected data from the...

Quiz 9: Long Term Liabilities

Current assets are $200,000, long term assets are $300,000, current liabilities are $100,000, long-term liabilities are $200,000, paid-in capital is $150,000, and retained earnings total $50,000. What is the debt-to-total-assets ratio?

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to Kids R Kids Company. The interest coverage (accrual basis) ratio at December 31, 2020, is:

A long-term leased asset would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to King Cotton Company. Which long-term liability would also be listed in the short-term liability section? Why?

The bond issue price is determined by calculating the

A Discount on Bonds Payable account would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to King Cotton Company. What are the total long-term liabilities for each of the two years presented?

A company with operating income of $200,000, cash flow from operating activities of $75,000 and gross profit of $380,000, has interest payments of $25,000. What is the company's interest coverage ratio (cash basis) ?

Rent owed to the lessor under a short-term lease would appear on the balance sheet as

A company wishes to issue $600,000 of 10-year, 6.8% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the selling price?

The current portion of long-term debt would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to King Cotton Company. What is the percent increase/decrease of long-term liabilities from 2019 to 2020? Which liability appears to have caused the greatest change?

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to King Cotton Company. What percent of the total liabilities for 2020 and 2019 are long-term liabilities? What implication does this have?

Keller Company issued $1,000,000, 8%, 7 year bonds with interest payable semiannually when the yield rate was 8%. The bonds issued at

A Premium on Bonds Payable account would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to Kids R Kids Company. A)The total liabilities at December 31, 2020, are (in thousands): B)The debt-to-equity ratio at December 31, 2020, is:

A twenty-year lease obligation would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to Kids R Kids Company. The total long-term liabilities at December 31, 2020, are (in thousands):

Quiz 9: Long Term Liabilities

Current assets are $200,000, long term assets are $300,000, current liabilities are $100,000, long-term liabilities are $200,000, paid-in capital is $150,000, and retained earnings total $50,000. What is the debt-to-total-assets ratio?

Kids R Kids Company Selected data from the comparative financial statements are provided below: ​ ​ -Refer to Kids R Kids Company. The interest coverage (accrual basis) ratio at December 31, 2020, is:

A long-term leased asset would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: ​ ​ -Refer to King Cotton Company. Which long-term liability would also be listed in the short-term liability section? Why?

The bond issue price is determined by calculating the

A Discount on Bonds Payable account would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: ​ ​ -Refer to King Cotton Company. What are the total long-term liabilities for each of the two years presented?

A company with operating income of $200,000, cash flow from operating activities of $75,000 and gross profit of $380,000, has interest payments of $25,000. What is the company's interest coverage ratio (cash basis) ?

Rent owed to the lessor under a short-term lease would appear on the balance sheet as

A company wishes to issue $600,000 of 10-year, 6.8% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the selling price?

The current portion of long-term debt would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: ​ ​ -Refer to King Cotton Company. What is the percent increase/decrease of long-term liabilities from 2019 to 2020? Which liability appears to have caused the greatest change?

Kids R Kids Company Selected data from the comparative financial statements are provided below: ​ ​ -Refer to King Cotton Company. What percent of the total liabilities for 2020 and 2019 are long-term liabilities? What implication does this have?

Keller Company issued $1,000,000, 8%, 7 year bonds with interest payable semiannually when the yield rate was 8%. The bonds issued at

A Premium on Bonds Payable account would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: ​ ​ -Refer to Kids R Kids Company. A)The total liabilities at December 31, 2020, are (in thousands): B)The debt-to-equity ratio at December 31, 2020, is:

A twenty-year lease obligation would appear on the balance sheet as

Kids R Kids Company Selected data from the comparative financial statements are provided below: ​ ​ -Refer to Kids R Kids Company. The total long-term liabilities at December 31, 2020, are (in thousands):

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to Kids R Kids Company. The interest coverage (accrual basis) ratio at December 31, 2020, is:

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to King Cotton Company. Which long-term liability would also be listed in the short-term liability section? Why?

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to King Cotton Company. What are the total long-term liabilities for each of the two years presented?

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to King Cotton Company. What is the percent increase/decrease of long-term liabilities from 2019 to 2020? Which liability appears to have caused the greatest change?

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to King Cotton Company. What percent of the total liabilities for 2020 and 2019 are long-term liabilities? What implication does this have?

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to Kids R Kids Company. A)The total liabilities at December 31, 2020, are (in thousands): B)The debt-to-equity ratio at December 31, 2020, is:

Kids R Kids Company Selected data from the comparative financial statements are provided below: -Refer to Kids R Kids Company. The total long-term liabilities at December 31, 2020, are (in thousands):