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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 51

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A bondholder that owns a $1,000,10%,10-year bond has:

A) Ownership rights in the issuing company.
B) The right to receive $10 per year until maturity.
C) The right to receive $1,000 at maturity.
D) The right to receive $10,000 at maturity.
E) The right to receive dividends of $1,000 per year.

F) D) and E)
G) A) and C)

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Question 52

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________ bonds are bonds that mature at more than one date,often in a series,and thus are usually repaid over a number of periods.

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Question 53

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A company retires its bonds at 105.The face value is $100,000 and the carrying value of the bonds at the retirement date is $103,745.The issuer's journal entry to record the retirement will include a:

An ________ is a series of equal payments at equal time intervals.

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

The factor for the present value of an annuity for 6 years at 10% is 4.3553.This implies that an annuity of six $2,000 payments at 10% is the equivalent of $8,710.60 today.

Wasp Corporation has a loan agreement that provides it with cash today,and the company must pay $25,000 one year from today,$15,000 two years from today,and $5,000 three years from today.Wasp agrees to pay 10% interest.The following are factors from a present value table: What is the amount of cash that Wasp receives today?

Mortgage bonds are backed only by the good faith and credit of the issuing company.

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the first interest payment using the effective interest method of amortization is:

On January 1 of Year 1,Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1.The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%.The bond premium or discount is being amortized at a rate of $10,087 every six months. The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:

Which of the following statements is true?

All of the following statements regarding leases are true except:

A disadvantage of an operating lease is the inability to deduct rental payments in computing taxable income.

Bonds payable to whoever holds them are called ________ bonds.

Return on equity increases when the expected rate of return from the acquired assets is ________than the rate of interest on the bonds used to finance the asset acquisition.

A bond with a par value of $1,000 trading at 97½ sells for a premium.

What are methods that a company may use to retire its bonds?

A bond with a par value of $1,000 trading at 102½ sells for $1,025.

A pension plan:

When convertible bonds are converted to a company's stock,the carrying value of the bonds is transferred to equity accounts and no gain or loss is recorded.