Exam 15: Long-Term Liabilities

The discount on bonds payable or premium on bonds payable is shown on the balance sheet as an adjustment to bonds payable to arrive at the carrying value of the bonds. Indicate the appropriate addition or subtraction to bonds payable:

Nicholson Inc. issues a $1,200,000, 10%, 10-year mortgage note on December 31, 2010, to obtain financing for a new building. The terms provide for semiannual installment payments of $96,291. Instructions Prepare the entry to record the mortgage loan on December 31, 2010, and the first installment payment.

Roman Company issued $600,000 of 6%, 5-year bonds at 98, with interest paid annually. Assuming straight-line amortization, what is the total interest cost of the bonds?

On January 1, 2010, Stine Inc. entered into an agreement to lease equipment from Finley Corporation. The lease agreement requires five annual rental payments of $90,000 beginning December 31, 2010. The present value of the rental payments is $341,172. The lease transfers substantially all the benefits and risks of ownership to Stine. Instructions Prepare the entry to record the lease agreement on the books of Stine Inc. on January 1, 2010.

Jantz Company issued $500,000, 11%, 10-year bonds on December 31, 2010, for $460,000. Interest is payable semiannually on June 30 and December 31. Jantz uses the straight-line method of amortization and has a calendar year end. Instructions Prepare the appropriate journal entries on (a) December 31, 2010. (b) June 30, 2011.

Stockholders of a company may be reluctant to finance expansion through issuing more equity because

If a corporation issued $3,000,000 in bonds which pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

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

A corporation recognizes a gain or loss

The following exhibit is for Kmart bonds. On the day of trading referred to above,

On January 1, Polk Corporation issued $2,000,000, 14%, 5-year bonds with interest payable on July 1 and January 1. The bonds sold for $2,197,080. The market rate of interest for these bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to Bond Interest Expense is for:

The market value (present value) of a bond is a function of all of the following except the

Thirty $1,000 bonds with a carrying value of $38,400 are converted into 3,000 shares of $5 par value common stock. The common stock had a market value of $9 per share on the date of conversion. The entry to record the conversion is

Presented here is a partial amortization schedule for Courtney Company who sold $200,000, five year 10% bonds on January 1, 2010 for $208,000 and uses annual straight-line amortization. Which of the following amounts should be shown in cell (i)?

The following section is taken from Brown Corp's balance sheet at December 31, 2009. Current liabilities Interest is payable semiannually on January 1 and July 1. The bonds are callable on any interest date. Instructions (a) Journalize the payment of the bond interest on January 1, 2010. (b) Assume that on January 1, 2010, after paying interest, Brown calls bonds having a face value of $800,000. The call price is 104. Record the redemption of the bonds. (c) Prepare the entry to record the payment of interest on July 1, 2010, assuming no previous accrual of interest on the remaining bonds.

Three plans for financing a $20,000,000 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%. It is estimated that income before interest and taxes will be $5,000,000. Instructions Determine for each plan, the expected net income and the earnings per share on common stock.

On January 1, 2010, Zooland Enterprises sold 8%, 20-year bonds with a face amount of $1,000,000 for $960,000. Interest is payable semiannually on July 1 and January 1. Instructions Calculate the carrying value of the bond at December 31, 2010 and 2011.

The times interest earned ratio is computed by dividing net income by interest expense.

If bonds can be converted into common stock,

Lahey Corporation retires its $800,000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $829,960. The entry to record the redemption will include a A) credit of $10,040 to Loss on Bond Redemption. B) debit of $10,040 to Premium on Bonds Payable. C) credit of $10,040 to Loss on Bond Redemption. D) debit of $40,000 to Premium on Bonds Payable.