Question : 117. Amortizing a premium bonds payable: A. Increases interest expense.B. Increases periodic cash payments : 1229345

117. Amortizing a premium on bonds payable: 
A. Increases interest expense.
B. Increases periodic cash payments to bondholders.
C. Decreases interest expense.
D. Decreases periodic cash payments to bondholders.

118. On November 1, Metro Corporation borrowed $55,000 from a bank and signed a 12%, 90-day note payable in the amount of $55,000. The November 30 adjusting entry will be: (assume 360 days in year) 
A. Debit Interest Expense $550 and credit Notes Payable $550.
B. Debit Interest Expense $550 and credit Interest Payable $550.
C. Debit Discount on Notes Payable $1,100 and credit Interest Payable $1,100.
D. Debit Interest Expense $550 and credit Cash $550.

$55,000 x 12% x 30/360 = $550

The current balance sheet of Apex reports total assets of $20 million, total liabilities of $2 million, and owners’ equity of $18 million. Apex is considering several financing possibilities in order to expand operations. Each question based on this data is independent of any others.

119. What will be the effect on Apex’s debt ratio if Apex’s owner invests an additional $2 million to finance its expansion? 
A. The debt ratio will decrease from .1 (2/20) to .0909 (2/22) after the additional investment.
B. The debt ratio will decrease from 2/9 before to 2/11 after the additional investment.
C. The debt ratio will increase from 20 before to 22 after the additional investment.
D. Additional investment by owner will have no effect on the debt ratio.

120. Assume Apex borrows $2 million to finance its expansion. Apex’s debt ratio immediately after the borrowing will be: 
A. .10.
B. .20.
C. .33 (rounded).
D. .18.

121. What is the approximate maximum amount Apex can borrow and not exceed a debt ratio of .3? 
A. $4,000,000.
B. $5,500,000.
C. $5,000,000.
D. $600,000.

On November 1, Year 1, Noble Co. borrowed $80,000 from South Bank and signed a 12%, six-month note payable, all due at maturity. The interest on this loan is stated separately.

122. How much must Noble pay South Bank on May 1, Year 2, when the note matures? 
A. $80,000.
B. $89,600.
C. $84,800.
D. $82,400.

123. How much interest expense will Noble recognize on this note in Year 2? 
A. $9,600.
B. $4,800.
C. $2,400.
D. $3,200.

124. At December 31, Year 1, Noble Co.’s overall liability for this loan amounts to: 
A. $80,000.
B. $81,600.
C. $83,200.
D. $84,800.

125. At December 31, Year 1, the adjusting entry with respect to this note includes a: 
A. Credit to Interest Payable for $1,600.
B. Credit to Notes Payable for $1,600.
C. Debit to Interest Expense for $3,200.
D. Credit to Cash for $3,200.

On September 1, 2009, Able Company purchased a building from Regal Corporation by paying $200,000 cash and issuing a one-year note payable for the balance of the purchase price. Interest on the note is stated at an annual rate of 9% and is paid at maturity. In its December 31, 2009, balance sheet, Able correctly presented the note and interest payable as follows:
 

126. How much must Able pay Regal Corporation on September 1, 2010, when the note matures? 
A. $600,000.
B. $618,000.
C. $654,000.
D. Some other amount.