Exam 15: Long-Term Liabilities

Banks Company is considering two alternatives to finance its purchase of a new $4,000,000 office building. (a) Issue 400,000 shares of common stock at $10 per share. (b) Issue 8%, 10-year bonds at par ($4,000,000). Income before interest and taxes is expected to be $3,000,000. The company has a 30% tax rate and has 600,000 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.

Silcon Company issued $500,000 of 6%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. Interest is paid annually. The journal entry on the first interest payment date, to record the payment of interest and amortization of discount will include a

Wood Company retired $500,000 face value, 9% bonds on June 30, 2010 at 98. The carrying value of the bonds at the redemption date was $508,000. Instructions Prepare the journal entry to record the redemption of the bonds.

In a recent year Hill Corporation had net income of $140,000, interest expense of $40,000, and tax expense of $20,000. What was Hill Corporation's times interest earned ratio for the year?

A $600,000 bond was retired at 98 when the carrying value of the bond was $592,000. The entry to record the retirement would include a

In the balance sheet, the account, Premium on Bonds Payable, is

The effective-interest method of amortization results in varying amounts of amortization and interest expense per period but a constant interest rate.

Silcon Company issued $500,000 of 6%, 10-year bonds on one of its interest dates for $431,850 to yield an effective annual rate of 8%. The effective-interest method of amortization is to be used. How much bond interest expense (to the nearest dollar) should be reported on the income statement for the end of the first year?

On January 1, 2010, Morten Corporation issued $4,000,000, 9%, 5-year bonds dated January 1, 2010, at 96. The bonds pay semiannual interest on January 1 and July 1. The company uses the straight-line method of amortization and has a calendar year end. Instructions Prepare all the journal entries that Morten Corporation would make related to this bond issue through January 1, 2011. Be sure to indicate the date on which the entries would be made.

If the market interest rate is 10%, a $10,000, 12%, 10-year bond, that pays interest semiannually would sell at an amount

Herman Company received proceeds of $188,500 on 10-year, 8% bonds issued on January 1, 2009. The bonds had a face value of $200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Herman uses the straight-line method of amortization. What is the carrying value of the bonds on January 1, 2011?

The debt to total assets ratio is computed by dividing

The contractual interest rate is always stated as a(n)

If bonds sell at a premium, the interest expense recognized each year will be greater than the contractual interest rate.

On the date of issue, Chudzick Corporation sells $5 million of 5-year bonds at 97. The entry to record the sale will include the following debits and credits:

On July 1, 2010, Frodo Corporation issued $600,000, 6%, 10-year bonds at face value. Interest is payable semiannually on January 1 and July 1. Frodo Corporation has a calendar year end. Instructions Prepare all entries related to the bond issue for 2010.

On June 30, 2010, Wayne, Inc. sold $3,000,000 (face value) of bonds. The bonds are dated June 30, 2010, pay interest semiannually on December 31 and June 30, and will mature on June 30, 2013. The following schedule was prepared by the accountant for 2010. Instructions On the basis of the above information, answer the following questions. (Round your answer to the nearest dollar or percent.) 1. What is the stated interest rate for this bond issue? 2. What is the market interest rate for this bond issue? 3. What was the selling price of the bonds as a percentage of the face value? 4. Prepare the journal entry to record the sale of the bond issue on June 30, 2010. 5. Prepare the journal entry to record the payment of interest and amortization on December 31, 2010.

Which of the following statements concerning bonds is not a true statement?

Which of the following statements regarding the effective-interest method of accounting for bonds characteristics is false?

If bonds are originally sold at a discount using the straight-line amortization method: