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Exam 10: Accounting for Long-Term Liabilities

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Question 51

True/False

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Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

A) True
B) False

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Question 52

Multiple Choice

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Match each of the following terms with the appropriate definitions. -Bonds that give the issuer an option of retiring them at a stated dollar amount prior to maturity.

A) Secured bonds
B) Sinking fund bonds
C) Carrying value
D) Serial bonds
E) Bond indenture
F) Annuity
G) Premium on bonds
H) Contract rate
I) Debt-to-equity ratio
J) Callable bonds

K) D) and E)
L) D) and I)

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Question 53

Multiple Choice

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On January 1,$300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock.The entry to record the conversion of the bonds includes all of the following entries except:

A ________ is a contractual agreement between an employer and its employees for the employer to provide benefits (payments)to employees after they retire.

A pension plan:

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

Describe the recording procedures for the issuance,retirement,and paying of interest for installment notes.

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

A company issued 10-year,7% bonds with a par value of $100,000.The company received $96,526 for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

On January 1,Year 1 Cleaver Company borrowed $85,000 cash by signing a 7% installment note that is to be repaid with 4 annual year-end payments of $25,094,the first of which is due on December 31,Year 1. (a)Prepare the company's journal entry to record the note's issuance. (b)Prepare the journal entries to record the first installment payment.

A bond's par value is not necessarily the same as its market value.

A company borrows $10,000 and issues a 5-year,6% installment note with interest payable annually.The factor for the present value of an annuity at 6% for 5 years is 4.2124.The factor for the present value of a single sum at 6% for 5 years is 0.7473.The amount of the annual payment is $2,373.94.

________ bonds have specific assets of the issuing company pledged as collateral.

On July 1 of the current year a corporation issued (sold)$1,000,000 of its 12% bonds at par.The bonds pay interest June 30 and December 31.What amount of bond interest expense should the company report on its current year income statement?

Match each of the following terms with the appropriate definitions. -The ratio of total liabilities to total stockholders' equity.

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.

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.

A company issued 10-year,9% bonds with a par value of $500,000 when the market rate was 9.5%.The company received $484,087 in cash proceeds.Using the effective interest method,prepare the issuer's journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.

The Premium on Bonds Payable account is a(n) :