MGMT 200 EXAM 3 PURDUE UNIVERSITY QUESTIONS WITH
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VERIFIED DETAILED SOLUTIONS || ||
Interest expense is recorded in the period ___________, not in the period in which
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we pay it. - ✔✔incurred
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principle x interest rate x time (in years) - ✔✔interest payable
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a contingency is best described as a - ✔✔potential liability
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ford estimates engine warranty expense in the year a car is sold. this best follows
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which accounting principle? - ✔✔matching principle
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the balance in the warranty liability account is always equal to warranty expense -
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✔✔false
we do NOT record gain __________ until the gain is certain - ✔✔contingencies
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the mixture of debt and equity securities is generally the same for most companies -
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✔✔false
a debt to equity ratio of 1 means that half of the company's assets are financed by
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creditors - ✔✔true || ||
matures on a single date - ✔✔term bond
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, allows the borrower or the company to repay the bonds before their scheduled
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maturity date at a specified call price - ✔✔callable bond
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bonds that are unsecured as to principal - ✔✔debenture bonds
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allow the bondholder or investor to convert each bond into a specified number of
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shares of common stock - ✔✔convertible bonds
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the rate quoted in the bond contract used to calculate the cash payments for interest -
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✔✔stated rate ||
a _______ occurs when the issue price of a bond is above its face amount -
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✔✔premium
the price of a bond is equal to the _________ __________ of the face amount plus
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the present value of the stated interest payments - ✔✔present value
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the market interest rate is _________ than the stated interest rate - ✔✔greater
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bonds payable should be reported as a long-term liability in the balance sheet at -
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✔✔carrying value ||
the cash payment each period is calculated as the ______ _______ times the stated
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interest rate - ✔✔face value || || || ||
= carrying value * the market interest rate - ✔✔interest expense on bonds
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VERIFIED DETAILED SOLUTIONS || ||
Interest expense is recorded in the period ___________, not in the period in which
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we pay it. - ✔✔incurred
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principle x interest rate x time (in years) - ✔✔interest payable
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a contingency is best described as a - ✔✔potential liability
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ford estimates engine warranty expense in the year a car is sold. this best follows
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which accounting principle? - ✔✔matching principle
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the balance in the warranty liability account is always equal to warranty expense -
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✔✔false
we do NOT record gain __________ until the gain is certain - ✔✔contingencies
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the mixture of debt and equity securities is generally the same for most companies -
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✔✔false
a debt to equity ratio of 1 means that half of the company's assets are financed by
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creditors - ✔✔true || ||
matures on a single date - ✔✔term bond
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, allows the borrower or the company to repay the bonds before their scheduled
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maturity date at a specified call price - ✔✔callable bond
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bonds that are unsecured as to principal - ✔✔debenture bonds
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allow the bondholder or investor to convert each bond into a specified number of
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shares of common stock - ✔✔convertible bonds
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the rate quoted in the bond contract used to calculate the cash payments for interest -
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✔✔stated rate ||
a _______ occurs when the issue price of a bond is above its face amount -
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✔✔premium
the price of a bond is equal to the _________ __________ of the face amount plus
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the present value of the stated interest payments - ✔✔present value
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the market interest rate is _________ than the stated interest rate - ✔✔greater
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bonds payable should be reported as a long-term liability in the balance sheet at -
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✔✔carrying value ||
the cash payment each period is calculated as the ______ _______ times the stated
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interest rate - ✔✔face value || || || ||
= carrying value * the market interest rate - ✔✔interest expense on bonds
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