Question 1

If $800000 6% bonds are issued on January 1 and pay interest annually the amount of interest paid the following January 1 will be $48000.

Accepted Answer

A) True 
 B)False  True

Question 2

If $150000 face value bonds are issued at 103 the proceeds received will be $103000.

Accepted Answer

A) True 
 B)False  False

Question 3

If the present value of lease payments equals or exceeds 90% of the fair value of the leased property the

Accepted Answer

A)  conditions are met for the lease to be considered a capital lease. 
B)  lease is uneconomical and should not be entered into. 
C)  lease may be classified as an operating lease. 
D)  recording of a lease liability is optional-that is the off-balance sheet approach can be elected. 
A)  conditions are met for the lease to be considered a capital lease. 
B)  lease is uneconomical and should not be entered into. 
C)  lease may be classified as an operating lease. 
D)  recording of a lease liability is optional-that is the off-balance sheet approach can be elected. A

Question 4

Loren Company is considering two alternatives to finance its purchase of a new $4000000 office building.
(a) Issue 400000 shares of common stock at $10 per share.
(b) Issue 7% 10-year bonds at par ($4000000).
Income before interest and taxes is expected to be $3500000. The company has a 30% tax rate and has 600000 shares of common stock outstanding prior to the new financing.
Instructions
Calculate each of the following for each alternative:
(1) Net income.
(2) Earnings per share.

Accepted Answer

None

Question 5

Presented below are three different aircraft lease transactions that occurred for Northwest Airways in 2017. All the leases start on January 1 2017. In no case does Northern receive title to the aircraft during or at the end of the lease period; nor is there a bargain purchase option. $$\begin{array} { l r r r } 
&&  { \text { Lessor } } \
& \text { Yale Insurance } & \text { Nexcs Leasing } & \text { Banner Leasing } \
\hline \text { Type of property } & 747 \text { Aircraft } & 727 \text { Aircraft } & \text { L-1011 Aircraft } \
\text { Yearly rental } & \$ 8,508,645 & \$ 6,357,660 & \$ 2,851,861 \
\text { Lease term } & 15 \text { years } & 20 \text { years } & 15 \text { years } \
\text { Estimated economic life } & 25 \text { years } & 25 \text { years } & 25 \text { years } \
\text { Fair value of } & & & \
\quad \text { leased asset } & \$ 80,000,000 & \$ 63,000,000 & \$ 32,000,000 \
\text { Present value of lease } & & & \
\quad \text { rental payments } & \$ 73,000,000 & \$ 54,000,000 & \$ 28,000,000
\end{array}$$ Instructions
(a) Which of the above leases are operating leases and which are capital leases? Explain your answer.
(b) How should the lease transaction with Yale Insurance be recorded in 2017?
(c) How should the lease transaction with Banner Leasing be recorded in 2017?

Accepted Answer

(a) The Yale Insurance lease is a capita

Question 6

Bonds are frequently issued at amounts greater or less than face value. Describe how the market interest rate relative to the contractual interest rate affects the selling price of bonds.

Accepted Answer

The market interest rate often is differ

Question 7

The 2017 financial statements of Barker Co. contain the following selected data (in millions). $$\begin{array} { l r } 
\text { Current Assets } & \$ 75 \
\text { Total Assets } & 140 \
\text { Current Liabilities } & 40 \
\text { Total Liabilities } & 90 \
\text { Cash } & 8
\end{array}$$ The debt to assets ratio is

Accepted Answer

A)  64.3%. 
B)  53.3%. 
C)  28.6%. 
D)  147.4%. 
A)  64.3%. 
B)  53.3%. 
C)  28.6%. 
D)  147.4%.

Question 8

Each bondholder may vote for the board of directors in proportion to the number of bonds held.

Accepted Answer

A) True 
 B)False

Question 9

The market interest rate is often called the

Accepted Answer

A)  stated rate. 
B)  effective rate. 
C)  coupon rate. 
D)  contractual rate. 
A)  stated rate. 
B)  effective rate. 
C)  coupon rate. 
D)  contractual rate.

Question 10

Bonds that have specific assets of the issuer pledged as collateral are

Accepted Answer

A)  secured bonds. 
B)  callable bonds. 
C)  convertible bonds. 
D)  debenture bonds. 
A)  secured bonds. 
B)  callable bonds. 
C)  convertible bonds. 
D)  debenture bonds.

Question 11

Presented here is a partial amortization schedule for Graceland Company who sold $100000 five year 10% bonds on January 1 2016 for $108000 and uses annual straight-line amortization. $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\text { BOND AMORTIZATION SCHEDULE }$
$\begin{array}{|c|c|c|c|c|c|}
\hline\text { Interest Period } & \begin{array}{c}
\text { Interest } \
\text { Paid }
\end{array} & \begin{array}{c}
\text { Interest } \
\text { Expense }
\end{array} & \begin{array}{c}
\text { Premium } \
\text { Amortization }
\end{array} & \begin{array}{c}
\text { Unamortized } \
\text { Premium }
\end{array} & \begin{array}{c}
\text { Bond Carrying } \
\text { Value }
\end{array} \
\hline \text { January 1,2016 } & & & & \$ 8,000 & \$ 108,000 \
\hline \text { January 1,2017 } & \text { (i) } & \text { (ii) } & \text { (iii) } & \text { (iv) } & \text { (v) }\
\hline
\end{array}$ Which of the following amounts should be shown in cell (v)?

Accepted Answer

A)  $109600 
B)  $108800 
C)  $106400 
D)  $107200 
A)  $109600 
B)  $108800 
C)  $106400 
D)  $107200

Question 12

Kirk Company issued a $3500000 10% 10-year mortgage note payable to finance the construction of a building at December 31 2017. The terms provide for annual installment payments of $569609.
Instructions
Prepare the entry to record:
(a) the mortgage loan on December 31 2017.
(b) the first installment payment.

Accepted Answer

None

Question 13

A 10% stock dividend is the equivalent of a $1000 par value bond paying annual interest of 10%.

Accepted Answer

A) True 
 B)False

Question 14

A $600000 bond was retired at 102 when the carrying value of the bond was $622000. The entry to record the retirement would include a

Accepted Answer

A)  gain on bond redemption of $12000. 
B)  loss on bond redemption of $10000. 
C)  loss on bond redemption of $12000. 
D)  gain on bond redemption of $10000. 
A)  gain on bond redemption of $12000. 
B)  loss on bond redemption of $10000. 
C)  loss on bond redemption of $12000. 
D)  gain on bond redemption of $10000.

Question 15

A debenture bond is an unsecured bond which is issued against the general credit of the borrower.

Accepted Answer

A) True 
 B)False

Question 16

Garland Company received proceeds of $188000 on 10-year 6% bonds issued on January 1 2015. The bonds had a face value of $200000 pay interest annually on January 1 and have a call price of 101. Garland uses the straight-line method of amortization. What is the carrying value of the bonds on January 1 2017?

Accepted Answer

A)  $200000 
B)  $190400 
C)  $197350 
D)  $189200 
A)  $200000 
B)  $190400 
C)  $197350 
D)  $189200

Question 17

A method of amortizing bond discount or premium that allocates an equal amount each period is the ________________ method.

Accepted Answer

The answer of  A method of amortizing bond discount...

Question 18

If bonds are issued at face value (par) it indicates that the ________________ interest rate must be equal to the ________________ interest rate.

Accepted Answer

stated (co

Question 19

Presented here is a partial amortization schedule for Graceland Company who sold $200000 six year 10% bonds on January 1 2016 for $212000 and uses annual straight-line amortization. $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\text { BOND AMORTIZATION SCHEDULE }$
$\begin{array}{|c|c|c|c|c|c|}
\hline \text { Interest Period } & \begin{array}{c}
\text { Interest } \
\text { Paid }
\end{array} & \begin{array}{c}
\text { Interest } \
\text { Expense }
\end{array} & \begin{array}{c}
\text { Premium } \
\text { Amortization }
\end{array} & \begin{array}{c}
\text { Unamortized } \
\text { Premium }
\end{array} & \begin{array}{c}
\text { Bond Carrying } \
\text { Value }
\end{array} \
\hline \text { January 1,2016 } & & & & \$ 12,000 & \$ 212,000 \
\hline \text { January 1,2017 } & \text { (i) } & \text { (ii) } & \text { (iii) } & \text { (iv) } & \text { (v) }\
\hline
\end{array}$ Which of the following amounts should be shown in cell (iv)?

Accepted Answer

A)  $10800 
B)  $6000 
C)  $11400 
D)  $10000 
A)  $10800 
B)  $6000 
C)  $11400 
D)  $10000

Question 20

A lease may be classified as an _______________ lease or as a ________________ lease.

Accepted Answer

The answer of A lease may be classified as an...

Exam 15: Long-Term Liabilities

If $800000 6% bonds are issued on January 1 and pay interest annually the amount of interest paid the following January 1 will be $48000.

If $150000 face value bonds are issued at 103 the proceeds received will be $103000.

If the present value of lease payments equals or exceeds 90% of the fair value of the leased property the

Bonds are frequently issued at amounts greater or less than face value. Describe how the market interest rate relative to the contractual interest rate affects the selling price of bonds.

The 2017 financial statements of Barker Co. contain the following selected data (in millions). Current Assets \ 75 Total Assets 140 Current Liabilities 40 Total Liabilities 90 Cash 8 The debt to assets ratio is

Each bondholder may vote for the board of directors in proportion to the number of bonds held.

The market interest rate is often called the

Bonds that have specific assets of the issuer pledged as collateral are

A 10% stock dividend is the equivalent of a $1000 par value bond paying annual interest of 10%.

A $600000 bond was retired at 102 when the carrying value of the bond was $622000. The entry to record the retirement would include a

A debenture bond is an unsecured bond which is issued against the general credit of the borrower.

A method of amortizing bond discount or premium that allocates an equal amount each period is the ________________ method.

If bonds are issued at face value (par) it indicates that the ________________ interest rate must be equal to the ________________ interest rate.

A lease may be classified as an _______________ lease or as a ________________ lease.

Accounting in Action

The Recording Process

Adjusting the Accounts

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Investments

Statement of Cash Flows

Financial Statement Analysis

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Incremental Analysis and Capital Budgeting

Time Value of Money

Filters

If bonds are issued at face value (par) it indicates that the interest rate must be equal to the interest rate.

A lease may be classified as an _ lease or as a __ lease.