31. Bonds with a face amount $1,000,000, are sold at 98. The entry to record the issuance is:
A. Cash 1,000,000
Premium on Bonds Payable 20,000
Bonds Payable 1,020,000
B. Cash 980,000
Premium on Bonds Payable 20,000
Bonds Payable 1,000,000
C. Cash 980,000
Discount on Bonds Payable 20,000
Bonds Payable 1,000,000
D. Cash 980,000
Bonds Payable 980,000
32. Victor Corporation issues $1,000,000, 10-year, 8% bonds at 96. The journal entry to record the issuance will show a:
A. debit to Cash of $1,000,000.
B. credit to Discount on Bonds Payable for $40,000.
C. credit to Bonds Payable for $960,000.
D. debit to Cash for $960,000.
33. The Miracle Corporation issues $1,000,000, 10-year, 8% bonds at 96. The journal entry to record the issuance will show a:
A. debit to Discount on Bonds Payable for $40,000.
B. debit to Cash of $1,000,000.
C. credit to Bonds Payable for $960,000.
D. credit to Cash for $960,000.
34. If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount:
A. less than face value.
B. equal to the face value.
C. greater than face value.
D. that cannot be determined.
35. Which of the following would describe a callable bond?
A. Borrower has the right to pay off the bonds prior to due date.
B. Borrower has the right to issue more bonds prior to due date.
C. Borrower has the right to call off the interest payments on the bonds.
D. Investor has the right to call off the interest payments on the bonds.
36. If a company’s bonds are callable:
A. the bondholder has the right to sell an option on the bond.
B. the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest is 4%.
C. the bonds are never allowed to remain outstanding until the maturity date.
D. the investor never knows what the redemption price will be until the bonds are actually called.
37. Which of the following lease conditions would result in a capital lease to the lessee?
A. The lessee will return the property to the lessor at the end of the lease term.
B. The lessee obtains enough rights to use the asset and is in substance the owner.
C. The leased asset is not capitalized on the balance sheet.
D. The lease term is 70% of the property’s economic life.
38. On January 2, 2012, Tech Metals Co. leased a mining machine from BX Leasing Corporation. The lease qualifies as an operating lease. The annual payments are $50,000 at the end of each year, and the life of the lease is 10 years. What entry would Tech Metals Co. make when the machine is delivered by BX Leasing Corporation.?
A. Machine 500,000
Lease Obligation 500,000
B. Prepaid Rent 250,000
Lease Obligation 250,000
C. Rent Expense 50,000
Cash 50,000
D. No entry is necessary.
39. Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?
A. Accumulated depreciation on the leased asset.
B. Capital lease liability in the current liability section.
C. Capital lease liability in the long-term liability section.
D. Rent expense on the leased asset.
40. Which of the following statements regarding contingent liabilities is true?
A. If they are probable and estimable, then they must be recorded even before the outcome of the future event.
B. If they are probable and estimable, then they should be disclosed in the notes to the financial statements.
C. The accounting principle that determines whether a contingent liability is to be recorded is that of historical cost.
D. Contingencies that are not estimable should not be recorded or disclosed in the financial statements even if they are probable.
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