Exam 15: Long-Term Liabilities

A corporation issues $500000 8% 5-year bonds on January 1 2017 for $479000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount the amount of interest expense to be recognized on December 31 2017 is

The following section is taken from Greene Corp's balance sheet at December 31 2016. Current liabilities Interest Payable $ 180000 Long-term liabilities Bonds Payable 9% due January 1 2021 2000000 Interest is payable annually on January 1. The bonds are callable on any interest date. Instructions (a) Journalize the payment of the bond interest on January 1 2017. (b) Assume that on January 1 2017 after paying interest Greene calls bonds having a face value of $800000. The call price is 106. Record the redemption of the bonds. (c) Prepare the entry to record the accrual of interest on December 31 2017 assuming no previous accrual of interest on the remaining bonds.

In the balance sheet the account Premium on Bonds Payable is

If bonds with a face value of $140000 are converted into common stock when the carrying value of the bonds is $135000 the entry to record the conversion will include a debit to

A mortgage note payable with a fixed interest rate requires the borrower to make installment payments over the term of the loan. Each installment payment includes interest on the unpaid balance of the loan and a payment on the principal. With each installment payment indicate the effect on the portion allocated to interest expense and the portion allocated to principal. Portion Allocated Portion Allocated A) Increases Increases B) Increases Decreases C) Decreases Decreases D) Decreases Increases

Norton Company purchased a building on January 2 by signing a long-term $480000 mortgage with monthly payments of $4500. The mortgage carries an interest rate of 10 percent. The amount owed on the mortgage after the first payment will be

A $600000 bond was retired at 98 when the carrying value of the bond was $590000. The entry to record the retirement would include a

Premium on Bonds Payable is a contra account to Bonds Payable.

Three plans for financing a $20000000 corporation are under consideration by its organizers. Under each of the following plans the securities will be issued at their par or face amount and the income tax rate is estimated at 30%. 9 \% Bonds - - \1 0,000,000 6\% Preferred Stock, \ 100 par - \1 0,000,000 5,000,000 Common Stock, \1 0 par Total It is estimated that income before interest and taxes will be $5000000. Instructions Determine for each plan the expected net income and the earnings per share on common stock.

The effective-interest method for amortization of bond discounts is required under

The carrying value of bonds is calculated by adding the balance of the Discount on Bonds Payable account to the balance in the Bonds Payable account.

A corporation issues $500000 8% 5-year bonds on January 1 2017 for $479000. Interest is paid annually on January 1. If the corporation uses the straight-line method of amortization of bond discount the amount of bond interest expense to be recognized in December 31 2017's adjusting entry is

Bond Corporation issues 5000 10-year 8% $1000 bonds dated January 1 2017 at 103. The journal entry to record the issuance will show a

When bonds are converted into common stock the carrying value of the bonds is transferred to paid-in capital accounts.

Bond interest paid is

Autumn Company purchased a building on January 2 by signing a long-term $630000 mortgage with monthly payments of $5400. The mortgage carries an interest rate of 10 percent. The entry to record the first monthly payment will include a

Capital Company issued $600000 10% 20-year bonds on January 1 2017 at 103. Interest is payable annually January 1. Capital uses the straight-line method of amortization and has a calendar year end. Instructions Prepare all journal entries made in 2017 related to the bond issue.

On January 1 Borge Inc. issued $3000000 8% bonds for $2817000. The market rate of interest for these bonds is 9%. Interest is payable annually on December 31. Borge uses the effective-interest method of amortizing bond discount. At the end of the first year Borge should report unamortized bond discount of:

Corporations are granted the power to issue bonds through

The board of directors of Les Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5000000 6% 20-year bonds at face value. Plan #2 would require the issuance of 100000 shares of $5 par value common stock which is selling for $50 per share on the open market. Les Corporation currently has 100000 shares of common stock outstanding and the income tax rate is expected to be 35%. Assume that income before interest and income taxes is expected to be $500000 if the new factory equipment is purchased. Instructions Prepare a schedule which shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering.