111. Indicate whether each of the following statements is true or false.
_____ a) Interest expense on long-term installment notes increases each year.
_____ b) Cash for machinery or buildings is often obtained by issuing long-term debt.
_____ c) Short-term notes payable normally mature within a year.
_____ d) Long-term installment notes are repaid all at once two to five years after the issue date.
_____ e) Most long-term loans are obtained from the corporation's stockholders.
112. Indicate whether each of the following statements about lines of credit is true or false.
_____ a) Line-of-credit agreements generally involve a fluctuating rate of interest.
_____ b) A line-of-credit agreement allows a company to borrow on an as-needed basis.
_____ c) Interest rates on line-of-credit agreements are often pegged to the consumer price index.
_____ d) The signing of a line-of-credit agreement is an asset source transaction.
_____ e) The expense recognition for the payment of monthly interest is an asset exchange transaction.
113. Indicate whether each of the following statements about bonds is true or false.
_____ a) The carrying value of a bond increases over time if the bond was issued at a premium.
_____ b) At the end of the term of the bonds, the carrying value of a bond issue is equal to the issue price.
_____ c) If bonds are sold below face value, the difference between the issue price and the face value is called the bond discount.
_____ d) The payment of interest is an operating activity on the statement of cash flows.
_____ e) The issuance of bonds does not appear on the statement of cash flows.
114. Indicate whether each of the following statements about bonds payable is true or false.
_____ a) A convertible bond may be converted into stock of the issuing company at the option of the bondholder.
_____ b) Businesses issue bonds to banks to borrow large amounts of cash.
_____ c) A debenture is an unsecured bond.
_____ d) Callable bonds may be turned in for early retirement at the option of the bondholder.
_____ e) The issuer of a bond receives cash when the bond is issued.
115. On January 1, 2016, O’Keefe Co. issued bonds with a face value of $400,000 and a stated interest rate of 10%. The bonds have a life of ten years and were sold at 108. O’Keefe uses the straight-line method to amortize bond discounts and premiums. On December 31, 2019, O’Keefe called the bonds at 106. Indicate whether each of the following statements is true or false.
_____ a) The interest expense for 2016 was $40,000.
_____ b) The balance in the bonds payable account on December 31, 2016 was $400,000.
_____ c) The carrying value of bonds payable on December 31, 2019 was $419,200.
_____ d) When O’Keefe repurchased the bonds, total assets decreased by $419,200.
_____ e) When O’Keefe repurchased the bonds, it had to recognize a loss in the amount of $4,800.
116. Indicate whether each of the following statements about bonds payable is true or false.
_____ a) Premium on Bonds Payable is recorded when bonds are issued at less than their face value.
_____ b) Premium on Bonds Payable is a liability account.
_____ c) The balance in the Discount on Bonds Payable account increases liabilities.
_____ d) Discount on Bonds Payable is an expense account.
_____ e) A discount on bonds payable occurs when the stated interest rate on the bonds is less than the market or effective interest.
117. Indicate whether each of the following statements about bonds payable is true or false.
_____ a) At the time of issue, the effective interest rate of a particular bond is equal to the market rate of interest for bonds with a similar level of risk.
_____ b) When bonds are sold at 105, the stated interest rate of the bonds is lower than the market rate for investments with a similar level of risk.
_____ c) When bonds are sold at 95, the stated interest rate of the bonds is lower than the market rate for investments with a similar level of risk.
_____ d) When bonds are sold at 100, the stated interest rate of the bonds is lower than the market rate for investments with a similar level of risk.
_____ e) When bonds are sold at 101, the bonds were issued at a premium.
118. Indicate whether each of the following statements regarding effective interest amortization is true or false.
_____ a) The effective interest method of bond premium amortization matches interest expense with the declining carrying value of the bond.
_____ b) Interest expense on a bond issued at a discount will be lower in the bond's first year than if the company had used straight-line amortization.
_____ c) The carrying value of a bond issued at a premium will decrease by smaller and smaller amounts each year.
_____ d) Interest expense is calculated by multiplying the beginning carrying value of the bond by the stated rate of interest.
_____ e) Effective interest amortization can only be used on bonds that pay interest annually.
119. Indicate whether each of the following statements is true or false.
_____ a) EBIT stands for earnings before income taxes.
_____ b) EBIT is used in the computation of the return-on-assets ratio.
_____ c) A low times-interest-earned ratio is a sign of a high-risk company.
_____ d) Dividends are deductible in the determination of taxable income.
_____ e) Interest is deducted on the income statement but is ignored on the tax return.
120. Loans that require payment of interest at regular intervals and payment of principal at maturity are installment notes.