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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 61

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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. ($500,000 - $473,845)/16 = $1,634.69

A) True
B) False

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Question 62

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A company's total liabilities divided by its total stockholders' equity is called the:

A) Equity ratio.
B) Return on total assets ratio.
C) Pledged assets to secured liabilities ratio.
D) Debt-to-equity ratio.
E) Times secured liabilities earned ratio.

F) B) and D)
G) A) and B)

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Question 63

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One of the similarities of bond and equity financing is that both interest and equity payments are tax deductible.

_________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6. If total assets and total liabilities are $350,000 and $200,000, respectively, stockholders' equity must be $150,000. Thus, the debt-to-equity ratio is $200,000/$150,000 or 1.3.

A company issues 9% bonds with a par value of $100,000 at par on April 1, which is 4 months after the most recent interest date. The journal entry to record the bond issue includes a:

Debentures always have specific assets of the issuing company pledged as collateral.

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.

The issue price of bonds is found by computing the future value of the bond's cash payments, discounted at the market rate of interest.

A company purchased two new delivery vans for a total of $250,000 on January 1, Year 1. The company paid $40,000 cash and signed a $210,000, 3-year, 8% note for the remaining balance. The note is to be paid in three annual end-of-year payments of $81,487 each, with the first payment on December 31, Year 1. Each payment includes interest on the unpaid balance plus principal. (1) Prepare a note amortization table using the format below: (2) Prepare the journal entries to record the purchase of the vans on January 1, Year 1 and the second annual installment payment on December 31, Year 2.

An advantage of bond financing is that issuing bonds does not affect owner control.

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the first interest payment using straight-line amortization is:

On August 1, a company issues 6%, 10 year, $600,000 par value bonds that pay interest semiannually each February 1 and August 1. The bonds sold at $592,000. The company uses the straight-line method of amortizing bond discounts. The company's year-end is December 31. Prepare the general journal entry to record the interest accrued at December 31.

On January 1, a company issued 10%, 10-year bonds with a par value of $720,000. The bonds pay interest each July 1 and January 1. The bonds were sold for $817,860 cash, based on an annual market rate of 8%. Prepare the issuer's journal entry to record the first semiannual interest payment assuming the effective interest method is used.

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

The carrying value of a long-term note payable is computed as:

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

A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.

A company issued 10%, 5-year bonds with a par value of $2,000,000, on January 1. Interest is to be paid semiannually each June 30 and December 31. The bonds were sold at $2,162,290 based on an annual market rate of 8%. The company uses the effective interest method of amortization. (1) Prepare an amortization table for the first two semiannual payment periods using the format shown below. (2) Prepare the journal entry to record the first semiannual interest payment.

Secured bonds: