Question 1

Which of the following would be a "non-current liability"?

Accepted Answer

A) Payment due after 3 years,but the company has violated the debt covenants. 
B) Payment due to a supplier 45 days after year end for supplies received before year end. 
C) Payment due to a supplier in 18 months for goods to be received 3 months after year end. 
D) Payment due after 3 years,on which the debt covenants have been not been violated. 
A) Payment due after 3 years,but the company has violated the debt covenants. 
B) Payment due to a supplier 45 days after year end for supplies received before year end. 
C) Payment due to a supplier in 18 months for goods to be received 3 months after year end. 
D) Payment due after 3 years,on which the debt covenants have been not been violated.

Question 2

On June 1,2012,Bean LTD.provides a vendor with a $125,500 non-interest-bearing note due on July 1,2015 in exchange for equipment with a list price of $118,100.At what amount will the equipment be recorded in the accounting records? The company's banker has suggested that an appropriate market rate is 6% per annum for loans that mature in one year or less and 9% for loans with longer maturities.

Accepted Answer

A) $118,100 
B) $105,372 
C) $96,909 
D) $91,195 
A) $118,100 
B) $105,372 
C) $96,909 
D) $91,195

Question 3

Explain 3 instances when the fair value of the non-current liability will not equal the cash proceeds.

Accepted Answer

Some common departures include receiving

Question 4

There are three independent situations summarized below.In all three cases the bonds are sold on January 1,2011 and the issuing company has a December 31 year-end.In situation three,the bonds were all repurchased at par on January 1,2015.
   Requirement:
Prepare journal entries to record:
a.The issuance of the three bonds.
b.Payment of interest and related amortization on December 31,2011.Prepare the amortization table to help you.
c.Retirement of the situation 3 bond on January 1,2015.

Accepted Answer

Using a BAII PLUS financial calculator:

Question 5

How should non-current financial liabilities be recorded initially?

Accepted Answer

A) At face value. 
B) At fair value. 
C) At fair value less transactions costs. 
D) At face value less transactions costs. 
A) At face value. 
B) At fair value. 
C) At fair value less transactions costs. 
D) At face value less transactions costs.

Question 6

Blue Sky Travel Inc.issues $2,000,000 of ten-year,8% bonds dated January 1,2012.Interest is payable on January 1 and July I each year.The proceeds realized from the issue were the $1,821,367 sales price less the $20,000 fee charged by Blue Sky's investment bank.Blue Sky's year-end is December 31.
Requirement:
Prepare journal entries:
a.The issuance of the bonds.
b.Payment of interest and related amortization on July 1,2012.
c.Accrual of interest and related amortization on December 31,2012.

Accepted Answer

Determining the effective interest rate

Question 7

A $100,000 5-year 7% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 6%.What is the selling premium or discount on the bonds,rounded to nearest dollar?

Accepted Answer

A) $4,213 discount 
B) $4,213 premium 
C) $100,000 
D) $104,213 
A) $4,213 discount 
B) $4,213 premium 
C) $100,000 
D) $104,213

Question 8

Legally Yours,a law firm,sells $8,000,000 of four-year,8% bonds priced to yield 6.6%.The bonds are dated January 1,2011,but due to some regulatory hurdles are not issued until March 1,2011.Interest is payable on January 1 and July 1 each year.The bonds sell for $8,388,175 plus accrued interest.
In mid-June,Legally Yours earns an unusually large fee of $11,000,000 for one of its cases.They use part of the proceeds to buy back the bonds in the open market on July 1,2011 after the interest payment has been made.Legally Yours pays a total of $8,456,234 to reacquire the bonds and retires them.
Required:
Prepare journal entries to record:
a.The issuance of the bonds-assume that Legally Yours has adopted a policy of crediting interest expense for the accrued interest on the date of sale.
b.Payment of interest and related amortization on July 1,2011.
c.Reacquisition and retirement of the bonds.

Accepted Answer

a.Journal entry on issuance (M

Question 9

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 8%.What is the selling price of the bonds,rounded to nearest dollar?

Accepted Answer

A) $7,986 
B) $92,014 
C) $100,000 
D) $108,425 
A) $7,986 
B) $92,014 
C) $100,000 
D) $108,425

Question 10

What is a "covenant"?

Accepted Answer

A) Guarantee of the price to the borrower. 
B) Contract that outlines the terms of the borrowing agreement. 
C) Promise from the borrower to restrict certain activities. 
D) Feature that permits the issuer to redeem before maturity. 
A) Guarantee of the price to the borrower. 
B) Contract that outlines the terms of the borrowing agreement. 
C) Promise from the borrower to restrict certain activities. 
D) Feature that permits the issuer to redeem before maturity.

Question 11

What is a bond indenture?

Accepted Answer

A) Guarantee of the price to the borrower. 
B) Contract that outlines the terms of the borrowing agreement. 
C) Promise from the borrower to restrict certain activities. 
D) Feature that permits the borrower to redeem before maturity. 
A) Guarantee of the price to the borrower. 
B) Contract that outlines the terms of the borrowing agreement. 
C) Promise from the borrower to restrict certain activities. 
D) Feature that permits the borrower to redeem before maturity.

Question 12

Which statement is not correct about financial leverage?

Accepted Answer

A) There are many ways to calculate financial leverage. 
B) It represents the relative debt to a company's equity base. 
C) It allows a shareholder to increase their return on equity. 
D) There is only one way to calculate financial leverage. 
A) There are many ways to calculate financial leverage. 
B) It represents the relative debt to a company's equity base. 
C) It allows a shareholder to increase their return on equity. 
D) There is only one way to calculate financial leverage.

Question 13

Non-current debt instruments exchanged for assets are recognized at:

Accepted Answer

A) book value. 
B) fair value. 
C) cash paid. 
D) cash equivalents paid. 
A) book value. 
B) fair value. 
C) cash paid. 
D) cash equivalents paid.

Question 14

Cindy Corp sold $400,000 of three-year bonds for $300,500.Interest is of 7.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

Accepted Answer

A) 19.15% 
B) 14.57% 
C) 13.88% 
D) 7.50% 
A) 19.15% 
B) 14.57% 
C) 13.88% 
D) 7.50%

Question 15

Missouri Wheels Ltd.(MW)sold $9,000,000 of fourteen-year,3% bonds at par on January 1,2012.Interest is payable on June 30 and December 31 each year.The bonds can be called at any time at 103 plus accrued interest.On April 1,2013,MW bought back $3,500,000 of bonds on the open market for $2,600,000 including accrued interest and retired them.On August 1,2014,MW called $4,500,000 of bonds and retired them.MW prepares accrual entries only at year-end.
Requirement:
Prepare journal entries to record:
a.The open market purchase of the bonds on April 1,2013.
b.The calling of the bonds on August 1,2014.
c.Retirement of the remaining bonds on December 31,2025,assuming that the final interest payment has already been recorded in the company's books.

Accepted Answer

a.Journal entry for open marke

Question 16

Over the River Co.(OTRC)sells $1,200,000 of 6-year,10% bonds at par plus accrued interest.The bonds are dated January 1,2012 but due to market conditions are not issued until May 1,2012.Interest is payable on June 30 and December 31 each year.
Requirement:
Prepare journal entries to record:
a.The issuance of the bonds on May I,2012.Assume that OTRC has adopted a policy of crediting accrued interest payable for the accrued interest on the date of sale.
b.Payment of interest on June 30,2012.
c.Payment of interest on December 31,2012.

Accepted Answer

a.Journal entry on issuance (M

Question 17

When will bonds sell at a premium?

Accepted Answer

A) When the coupon rate is equal to the par value. 
B) When the coupon rate is below the market rate. 
C) When the coupon rate is above the market rate. 
D) When the coupon rate is equal to market value. 
A) When the coupon rate is equal to the par value. 
B) When the coupon rate is below the market rate. 
C) When the coupon rate is above the market rate. 
D) When the coupon rate is equal to market value.

Question 18

When can a non-current liability not be derecognized?

Accepted Answer

A) When the company discharges the obligation or it expires. 
B) When the company pays the debt and continues to be liable for the liability. 
C) When the underlying debt contract is canceled. 
D) When the creditor provides the services specified in the debt contract. 
A) When the company discharges the obligation or it expires. 
B) When the company pays the debt and continues to be liable for the liability. 
C) When the underlying debt contract is canceled. 
D) When the creditor provides the services specified in the debt contract.

Question 19

Which step is not required to record the derecognition of a financial liability?

Accepted Answer

A) Update the accounting records to account for the interim interest expense. 
B) Amortize any unamortized discount or premium to the derecognition date. 
C) Record the difference between the future value and book value as the gain or loss. 
D) Record the difference between the amount paid and book value as the gain or loss. 
A) Update the accounting records to account for the interim interest expense. 
B) Amortize any unamortized discount or premium to the derecognition date. 
C) Record the difference between the future value and book value as the gain or loss. 
D) Record the difference between the amount paid and book value as the gain or loss.

Question 20

Universal Inc.is in the process of acquiring another business.In light of the acquisition,shareholders are currently re-evaluating the appropriateness of the firm's capital structure (the types of and relative levels of debt and equity).The two proposals being contemplated are detailed below:
   Requirements:
a.Calculate the estimated return on equity (ROE)under the two proposals.(ROE ~ net income after taxes / market value of equity; net income after taxes = (EBIT - interest on long-term debt)× (I - tax rate).)
b.Which proposal will generate the higher estimated ROE?

Accepted Answer

The answer of Universal Inc.is in the process of acquiring...

Which of the following would be a "non-current liability"?

Explain 3 instances when the fair value of the non-current liability will not equal the cash proceeds.

How should non-current financial liabilities be recorded initially?

A $100,000 5-year 7% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 6%.What is the selling premium or discount on the bonds,rounded to nearest dollar?

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 8%.What is the selling price of the bonds,rounded to nearest dollar?

What is a "covenant"?

What is a bond indenture?

Which statement is not correct about financial leverage?

Non-current debt instruments exchanged for assets are recognized at:

Cindy Corp sold $400,000 of three-year bonds for $300,500.Interest is of 7.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

When will bonds sell at a premium?

When can a non-current liability not be derecognized?

Which step is not required to record the derecognition of a financial liability?

Current Liabilities and Contingencies

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Accounting for Leases

Statement of Cash Flows

Filters

Exam 12: Non-Current Financial Liabilities

Which of the following would be a "non-current liability"?

Explain 3 instances when the fair value of the non-current liability will not equal the cash proceeds.

How should non-current financial liabilities be recorded initially?

A $100,000 5-year 7% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 6%.What is the selling premium or discount on the bonds,rounded to nearest dollar?

A $100,000 5-year 6% bonds bond is issued on January 1,2012.The bond pays interest annually.The market rate is 8%.What is the selling price of the bonds,rounded to nearest dollar?

What is a "covenant"?

What is a bond indenture?

Which statement is not correct about financial leverage?

Non-current debt instruments exchanged for assets are recognized at:

Cindy Corp sold $400,000 of three-year bonds for $300,500.Interest is of 7.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

When will bonds sell at a premium?

When can a non-current liability not be derecognized?

Which step is not required to record the derecognition of a financial liability?

Current Liabilities and Contingencies

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Accounting for Leases

Statement of Cash Flows

Filters