1. A bond with a face value of $80,000 and an unamortized discount of $2,000 is redeemed...

Question:

1. A bond with a face value of $80,000 and an unamortized discount of $2,000 is redeemed at a price of $81,000. What is the gain or loss on redemption?

a. $1,000 loss

b. $3,000 loss

c. $1,000 gain

d. $3,000 gain

2. An operating lease:

a. allows a company to finance an asset without reporting a liability on the balance sheet.

b. can be disclosed in the notes to the financial statements.

c. Both a and b

d. Neither a nor b

3. Which of the following is necessary for a contingent liability to exist?

a. There must be an existing condition

b. The resolution of the condition must depend on some event in the future

c. The outcome of the condition must be unknown

d. All of the above

4. Which of the following is a common contingent liability that is often reported on the balance sheet as a liability because of its probable nature?

a. Warranties

b. Bonds

c. Taxes

d. Salaries

5. The debt to assets ratio is a measure of a company's:

a. liquidity.

b. solvency.

c. capital structure.

d. both b and c.

6. A company's current ratio increases. What does this mean?

a. The company is less liquid.

b. The company is more liquid.

c. The company's liquidity is unchanged.

d. None of the above.

7. A company issues bonds. The issuance price will be equal to:

a. the present value of the interest payments.

b. the present value of the principal payment.

c. the present values of both the interest payments and the principal payment.

d. the sum of the interest payments and the principal payment.

8. Under the effective interest method of amortization, interest expense is calculated as:

a. face value times the stated interest rate.

b. carrying value times the market interest rate.

c. face value times the market interest rate.

d. carrying value times the stated interest rate.

9. Under the effective interest method of amortization, the amount of discount or premium amortized each interest payment is equal to:

a. the difference between interest expense and interest paid.

b. the original discount or premium divided by the number of interest payments.

c. the carrying value times the market rate of interest.

d. None of the above.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...