Question : 77. One advantage of issuing bonds instead of stock that: A. Interest tax : 1229341

77. One advantage of issuing bonds instead of stock is that: 
A. Interest is tax deductible, whereas dividends are not.
B. Bonds have a longer maturity date.
C. Interest rates are lower than dividend rates.
D. The issuance of bonds does not affect earnings per share.

78. Choose the statement that correctly summarizes the tax advantage of raising money by issuing bonds instead of common stock: 
A. The amount paid by the corporation to redeem bonds at maturity date is deductible in computing income subject to corporate income tax.
B. Interest payments are deductible in determining income subject to corporate income tax; dividends are not deductible.
C. A corporation must pay tax on the sales price of stock issued, but is not taxed on the amount received when bonds are issued.
D. Both interest and dividends paid are deductible in computing taxable income, but since interest must be paid annually, the corporation usually gets a larger tax deduction over the life of the bonds payable.

79. Elm Corporation plans to invest $300 million to earn about 15% before income taxes. The company is considering whether it should raise the $300 million by issuing 10% bonds payable or capital stock. If the company issues the bonds, it will probably report: 
A. Lower net income and lower income taxes expense than if it issues capital stock.
B. Higher net income and higher income taxes expense than if it issues capital stock.
C. Lower net income and higher income taxes expense than if it issues capital stock.
D. Higher net income and lower income taxes expense than if it issues capital stock.

80. The current portion of long-term debt should be reported: 
A. Separately in the long-term liabilities section of the balance sheet.
B. In the long-term liabilities section of the balance sheet, along with the other long-term debt.
C. In the current liabilities section of the balance sheet.
D. In a separate section of the balance sheet, between long-term liabilities and shareholders’ equity.

81. An operating lease: 
A. Creates an asset and a liability on the balance sheet.
B. Is a form of off-balance sheet financing.
C. Is always preferable to a capital lease.
D. Transfers title to the asset being leased.

82. 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? 
A. Market interest rates will be unaffected.
B. Market interest rates will increase.
C. Market interest rates will fall.
D. Although interest rates will change, it is impossible to predict the direction of change.

83. Which one of the following is not considered a criteria to capitalize a lease? 
A. The lease contains a bargain purchase option.
B. The lease transfers ownership at the end of the lease term.
C. The lease term is more than 75% of economic life of the property.
D. The present value of minimum lease payments is less than 90% of the fair market value of the asset.

84. Which of the following payroll taxes do not stop once an employee reaches a certain level of income? 
A. Medicare taxes.
B. Social security taxes.
C. Unemployment taxes.
D. Medicare, Social security, and unemployment taxes all have a cap on salaries where the tax ends.

85. The price at which a bond sells is equal to the: 
A. Maturity value of the bonds plus the present value to investors of the future interest payments.
B. Sum of the future interest payments, minus the maturity value of the bonds.
C. Present value to investors of the future principal and interest payments.
D. Sum of the future interest payments, plus the maturity value of the bonds.

86. After bonds have been issued, their market value can be expected to: 
A. Rise as any premium is amortized.
B. Fall if interest rates rise.
C. Fall as any discount is amortized.
D. Rise if interest rates rise.