Exam 12: Debt Financing

On July 1, 2011, Houston Company purchased as a long-term investment Essex Company's ten-year, 9 percent bonds, with a face value of $100,000 for $95,200. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2015. Houston uses the straight-line method of amortization. What is the amount of interest revenue that Houston should report in its income statement for the year ended December 31, 2011?

Which of the following represents a liability?

Which of the following is true of accrued interest on bonds that are sold between interest dates?

A $50,000 bond with a carrying value of $52,000 was called at 103 and retired. In recording the retirement, the issuing company should record

When a company issues bonds, how are unamortized bond discounts and premiums classified on the balance sheet?

White Sox Corporation issued $200,000 of 10-year bonds on January 1. The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of interest at the time the bonds are sold is 12 percent, what will be the issuance price of the bonds?

On January 1, 2011, Felipe Hospital issued a $250,000, 10 percent, 5-year bond for $231,601. Interest is payable on June 30 and December 31. Felipe uses the effective-interest method to amortize all premiums and discounts. Assuming an effective interest rate of 12 percent, approximately how much discount will be amortized on December 31, 2011?

In theory (disregarding any other marketplace variables), the proceeds from the sale of a bond will be equal to the

Which one of the following is true when the effective-interest method of amortizing bond discount is used?

On January 1, 2011, $50,000 of 20-year, 6 percent debentures were issued for $56,275.20. Interest payment dates on the bonds are January 1 and July 1. The amount of premium to be amortized on July 1, 2011, when using the straight-line method is

The effective interest rate of a 10-year, 8 percent, $1,000 bond issued at 103 would be approximately

On January 1, 2011, Matlock Inc. issued its 10 percent bonds in the face amount of $1,500,000. They mature on January 1, 2021. The bonds were issued for $1,329,000 to yield 12 percent, resulting in bond discount of $171,000. Matlock uses the effective-interest method of amortizing bond discount. Interest is payable July 1 and January 1. For the six months ended June 30, 2011, Matlock should report bond interest expense of

On December 31, 2011, Anderson Company's current liabilities total $55,000 and long-term liabilities total $155,000. Working capital at December 31, 2011, is equal to $85,000. If Anderson Company's debt-to-equity ratio is .30 to 1, total long-term assets must equal

A short-term note payable with no stated rate of interest should be

Footnote disclosures for long-term liabilities provide information that is not conveniently presented in the balance sheet. Although detailed disclosure requirements exist for certain specialized obligations, a set of general disclosure requirements is applicable to most enterprises. Identify the general disclosure requirements for long-term liabilities.

Debentures are

To compute the price to pay for a bond, you use

A portion of the long-term liability footnote to the 2011 annual report of ACF Corporation follows: The debentures were issued on January 1 of a previous year and pay interest each December 31. The debentures retired were scheduled to mature December 31, 2021. The retirement of the debentures occurred December 31, 2011. ACF paid the market value of the bonds which represented a yield rate of 8%. Required:

ABC Corporation is authorized to issue $500,000 of 6 percent, 10-year bonds dated July 1, 2011, with interest payments on December 31 and June 30. When the bonds are issued on November 1, 2011, ABC Corporation receives cash of $515,000, including accrued interest. The journal entry to record the issuance of the bonds would include

On October 1, 2011, Westridge Inc. issued, at 101 plus accrued interest, 800 of its 10 percent, $1,000 bonds. The bonds are dated July 1, 2011, and mature on July 1, 2018. Interest is payable semiannually on January 1 and July 1. At the time of issuance, Westridge would receive cash of