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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 121

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On January 1,a company issued a $500,000,10%,8-year bond payable,and received proceeds of $473,845.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The amount of discount amortized each period is $1,634.69.

A) True
B) False

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Question 122

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An advantage of bonds is:

A) Bonds do not affect owner control.
B) Bonds require payment of par value at maturity.
C) Bonds can decrease return on equity.
D) Bond payments can be burdensome when income and cash flow are low.
E) Bonds require payment of periodic interest.

F) All of the above
G) A) and C)

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Question 123

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Bonds issued in the names and addresses of their holders are ________ bonds.

A company issues 9%,5-year bonds with a par value of $100,000 on January 1 at a price of $104,055,when the market rate of interest was 8%.The bonds pay interest semiannually.The amount of each semiannual interest payment is:

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The carrying value of the bonds immediately after the first interest payment is:

Interest on bonds is tax deductible,while dividend payments are not tax deductible.

On January 1,a company issued a $500,000,10%,8-year bond payable,and received proceeds of $473,845.Interest is payable each June 30 and December 31.The total interest expense on the bond over its eight-year life is $400,000.

A 10-year bond issue with a $100,000 par value,8% annual contract rate,with interest payable semiannually means that the issuer must repay $100,000 at the end of 10 years and make 20 semiannual interest payments of $4,000 each.

A basic present value concept is that cash paid or received in the future has more value now than the same amount of cash received today.

Describe the journal entries required to record the issuance of bonds at a premium and the payment of bond interest,including any applicable amortization.

A company's debt-to-equity ratio was 1.0 at the end of Year 1.By the end of Year 2,it had increased to 1.7.Since the ratio increased from Year 1 to Year 2,the degree of risk in the firm's financing structure decreased during Year 2.