Question

1.

Bonds		Coupon		Maturity Date		Bid $		Yield %
Bombardier		7.350		Dec. 22/26		103.12		6.35

The contractual interest rate of the Bombardier bonds is

less than the market rate of interest.

greater than the market rate of interest.

equal to the market rate of interest.

not determinable.

2.

The basic expense recognition criteria states that expenses should be recognized when:

there is an increase in an asset of decrease in a liability, excluding transactions with owners

all of the above

cash is paid

there is a decrease in an asset or increase in a liability, excluding transactions with owners

3.If a fully depreciated long-lived asset is still used by a company, the

estimated remaining useful life must be revised to calculate the correct revised depreciation.

asset is removed from the books.

accumulated depreciation account is removed from the books but the asset account remains.

asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired.

4.

The following selected information has been provided from the December 31, 2017 year end results of the Edgar Poodle Company: Revenues - $1,725,000; Operating Expenses - $955,000; Interest Expense - $48,900; Income Tax Expense - $216,330. The interest coverage ratio for the Edgar poodle Company at December 31, 2017 would be

14.7 times.

11.3 times.

10.3 times.

15.7 times.

Answer 1

1.
Answer is b. greater than the market rate of interest.
Since coupon rate is greater than yield

2.
Answer is d. there is a decrease in an asset or increase in a liability, excluding transactions with owner

3.
Answer is d. asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired

4.
Income from Operations = $1725000 - 955000 = $770000
Times Interest Earned = Income from Operations / Interest Expense
= $770000 / 48900 = 15.7 times

Answer is d. 15.7 times