Exam 10: Long-Term Liabilities

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

Match the following bond and long-term liability related terms to the appropriate definition. -The total of the present value of the cash flows produced by a bond.It is calculated as the present value of the annuity of interest payments plus the present value of the principal.

Stock investors view equity as a claim against the company that must be satisfied before they get a return on their money.

For a capital lease, the lessee must record both an asset and a liability.The amount of the asset is subsequently reduced by the process of __________________________.

All changes in long-term liabilities are reflected in the financing activities category of the statement of cash flows.

The excess of the face value of bonds over the issue price is known as a premium.

The effective interest rate method of amortization amortizes the discount or premium in a manner that produces a constant amount of interest expense from period to period.

On January 1, 2016, Chain, Inc.issued $400,000, 10-year, 10% bonds for $354,200.The bonds pay interest on June 30 and December 31.The market rate is 12%.The interest expense on the bonds at June 30, 2016, is

A company issued 5-year bonds with a par value of $35,000,000 and a 7% annual face on January 2, 2016.The issue price of the bond issue was $35,216,127 which reflected a 6.85% effective interest rate. Required: a) Determine the effect on the accounting equation upon recording the issuance of the bonds. b) Determine the effect on the accounting equation upon recording the recognition of interest expense at December 31, 2016.Any premium or discount should be amortized using the effective interest rate method. c) Determine the effect on the accounting equation upon recording the interest paid to the bondholders on January 2, 2017. d) Determine the effect on the accounting equation upon recognizing the interest expense at December 31, 2017.Any premium or discount should be amortized using the effective interest rate method.

[APPENDIX] Temporary differences occur when an item affects both book and tax calculations but not in the same time period.

If a company's bonds are callable,

On January 2, 2016, Concrete Master Construction, Inc.issued $500,000, 10-year bonds for $574,540.The bonds pay interest on June 30 and December 31.The face rate is 8% and the market rate is 6%.What is the carrying value of the bonds after the first interest payment is made on June 30, 2016?

The _____________________ rate of interest is the rate that bondholders could obtain by investing in other bonds that are similar to the issuing firm's bonds.

A ten-year lease obligation appears on the balance sheet of Generic Products Company.How would it most likely be classified on the balance sheet?

The face rate is also called the nominal or stated rate.

Which of the following statements regarding serial bonds is true?

If the market rate of interest is greater than the face rate, then the bonds are issued at a(n) ________________________.

The asset leased under an operating lease requires the lessee to record depreciation expense.

On January 1, 2016, the long-term liability section of Quick Silver Co.balance sheet showed a balance of $800,000 in the bonds payable account.On December 31, 2016, the balance in that same account was $765,000.This change would appear on the statement of cash flows as

With the effective interest method of amortization, the amortization of bond discount results in a(n)