Question 1

When an installment note is structured as a "fully amortizing" loan with equal monthly payments (such as a traditional mortgage):

Accepted Answer

The term "fully amortizing" means that the loan is structured in such a way that all payments combined will cover both the principal amount and the interest over the loan's term. Therefore, the difference between the sum of all payments and the principal amount represents the interest paid over the life of the loan.

Question 2

Over the 15-year life of the mortgage,the total amount Bradley will pay for interest charges is:

Accepted Answer

The total amount of interest charges is the difference between the total amount paid and the principal amount. The total amount paid is $592,000 and the principal amount is $232,000. Therefore, the total amount of interest charges is $592,000 - $232,000 = $360,000.

Question 3

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Stone Corporation has 25 employees and incurs total wages and salaries expense of $900,000 per year.The following table shows various payroll amounts as a percentage of this annual wage and salaries expense: In addition,Stone provides group health insurance for its entire workforce.The cost of this insurance is $350 per month per employee.
  In addition,Stone provides group health insurance for its entire workforce.The cost of this insurance is $350 per month per employee.
-Some of the payroll-related expenses incurred by Stone Corporation are mandated by law,rather than negotiated with employees.During the current year,these mandated amounts increased Stone's payroll-related expenses by approximately:

Accepted Answer

The mandated payroll-related expenses are calculated by adding the specific amounts given for Social Security taxes ($62,000), unemployment taxes ($19,850), and workers' compensation insurance ($50,000). When these amounts are summed up ($62,000 + $19,850 + $50,000), the total is $131,850.

Question 4

When a company sells bonds between interest dates they will pay which of the following at the first interest payment date?

Accepted Answer

The answer of When a company sells bonds between interest...

Question 5

Suppose investors decided to sell their holdings of capital stock in order to purchase outstanding bonds payable and as a result,the prices of bonds payable increased.What would be the likely impact on market interest rates?

Accepted Answer

The demand for bonds payable has increased due to investors selling their holdings of capital stock, which has driven up the prices of bonds payable. As a result, interest rates will fall since there is a inverse relationship between bond prices and interest rates. When the bond prices rise, the yield on those bonds fall as the numerator (coupon payment) remains the same but the denominator (bond price) increases. Therefore, when the bond prices increase, the interest rates may fall.

Question 6

The total liability related to this mortgage reported in Bradley's balance sheet at December 31,Year 1,is:

Accepted Answer

The answer of The total liability related to this mortgage...

Question 7

In preparing an amortization table,it is necessary to include:

Accepted Answer

In order to prepare an amortization table, we need to know the original amount of the liability, the amount of periodic payments, and the interest rate. These three factors are necessary to calculate the amount of interest and principal in each payment and to track the decreasing balance of the liability over time. The amount of past payments is not needed to prepare the table, although it may be included to show the remaining balance at various points in time.

Question 8

One advantage of issuing bonds instead of stock is that:

Accepted Answer

Interest paid on bonds is tax deductible for the issuing company, whereas dividends paid on stock are not tax deductible. This makes issuing bonds a more tax-efficient way for companies to raise capital compared to issuing stock.

Question 9

The portion of the second monthly payment (made on January 31,Year 2)that represents repayment of principal is:

Accepted Answer

The portion of the second monthly payment that represents repayment of principal increases slightly with each payment due to the decreasing interest portion as the principal balance decreases. Given the options and the typical structure of such payments (assuming a standard amortizing loan), the correct answer is $404, which is slightly higher than a round number like $400, indicating the effect of decreasing interest and thus more of the payment going towards the principal.

Question 10

If a bond is issued at par between interest dates:

Accepted Answer

When a bond is issued at par between interest dates, the corporation receives the face value of the bond plus accrued interest from the last interest payment date to the issuance date, resulting in cash received being greater than the face value.

Question 11

[The following information applies to the questions displayed below.]
Stone Corporation has 25 employees and incurs total wages and salaries expense of $900,000 per year.The following table shows various payroll amounts as a percentage of this annual wage and salaries expense: In addition,Stone provides group health insurance for its entire workforce.The cost of this insurance is $350 per month per employee.
  In addition,Stone provides group health insurance for its entire workforce.The cost of this insurance is $350 per month per employee.
-Employees' annual "take-home-pay," totals approximately:

Accepted Answer

The answer of [The following information applies to the questions...

Question 12

How much of the first payment made on December 31,Year 1,represents interest expense?

Accepted Answer

The answer of How much of the first payment made...

Question 13

Assume that the federal government implements a 10% payroll tax upon employers to finance health insurance for all citizens and residents.Stone will pay this tax instead of purchasing group health insurance.This will cause Stone 's total annual payroll-related expenses to:

Accepted Answer

The payroll tax replaces the cost of purchasing group health insurance, leading to a decrease in total payroll-related expenses by $15,000.

Question 14

[The following information applies to the questions displayed below.]
On December 1,Year 1,Bradley Corporation incurs a 15-year $200,000 mortgage liability in conjunction with the acquisition of an office building.This mortgage is payable in monthly installments of $2,400,which include interest computed at the rate of 12% per year.The first monthly payment is made on December 31,Year 1.
-Compute the total amount to be paid by Bradley over the 15-year life of the mortgage.

Accepted Answer

The total amount paid over the life of the mortgage is the monthly payment multiplied by the number of payments: $2,400 * 180 months = $432,000.

Question 15

The term "junk bonds" describes bonds with:

Accepted Answer

Junk bonds are high-yield, high-risk bonds issued by companies with a poor credit rating or unstable financials, making them significantly riskier than investment-grade bonds.

Question 16

Temple Corporation purchased a piece of real estate,paying $400,000 cash and financing $700,000 of the purchase price with a 10-year,15% installment note.The note calls for equal monthly payments that will result in the debt being completely repaid by the end of the tenth year.In this situation:

Accepted Answer

Each monthly payment will include both principal and interest payments. Since the total amount of the note is $700,000 and the interest rate is 15%, the interest expense for the first month will be $700,000 x 15% / 12 months = $8,750. Since the payments are designed to completely repay the debt by the end of the 10th year, each payment will include an increasing amount of principal repayment as the debt gets smaller. Therefore, the amount of interest expense will decrease over time, while the amount of principal repaid will increase. Since the monthly payment remains the same, the portion of each monthly payment representing repayment of principal will increase over time, while the portion representing interest expense will decrease. This means that the monthly payment will be greater than the amount of interest accruing each month.

Question 17

Some of the payroll-related expenses incurred by Rockland Corporation are mandated by law,rather than negotiated with employees.During the current year,these mandated amounts increased Rockland's payroll-related expenses by approximately:

Accepted Answer

Since the payroll-related expenses were mandated by law, they could not have been negotiated with employees. Therefore, any increase in these expenses must be due to changes in the law. The increase can be calculated by taking the difference between the mandated amounts in the current year and the previous year. None of the answer choices provided the previous year's mandated amounts, so we cannot calculate the exact increase. However, we can eliminate answer choices that are too low or too high. Answer choice A is too low and answer choice D is too high. Between answer choices B and C, answer choice C is higher, so it is the best choice.

Question 18

Choose the statement that correctly summarizes the tax advantage of raising money by issuing bonds instead of common stock:

Accepted Answer

The correct statement is that interest payments are deductible in determining income subject to corporate income tax, but dividends are not deductible. This makes issuing bonds a more tax advantageous way to raise money than issuing common stock.

Question 19

Employees' annual "take-home-pay," totals approximately:

Accepted Answer

The answer of Employees' annual "take-home-pay," totals approximately:
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Question 20

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Rockland Corporation has 22 employees and incurs total wages and salaries expense of $800,000 per year.The following table shows various payroll amounts as a percentage of this annual wage and salaries expense:
  In addition,Rockland provides group health insurance for its entire workforce.The cost of this insurance is $450 per month per employee.
-The company's annual payroll-related expenses amount to approximately:

Accepted Answer

First, we need to calculate the total cost of group health insurance for the entire workforce:

$450/month/employee * 22 employees * 12 months/year = $118,800/year

Next, we can calculate the total annual payroll-related expenses:

$800,000/year * (0.63 + 0.12 + 0.04 + 0.02 + 0.03) = $800,000 * 0.84 = $672,000

Finally, we add the cost of group health insurance to the total annual payroll-related expenses to get the overall annual payroll-related expenses:

$672,000 + $118,800 = $790,800

The closest answer is B) $1,076,000.

Quiz 10: Liabilities

When an installment note is structured as a "fully amortizing" loan with equal monthly payments (such as a traditional mortgage) :