Exam 10: Financing: Long-Term Liabilities

On June 1, 2012, Bellamy Corporation borrowed $400,000 on a 15-year mortgage to purchase land and a building. The land and building are pledged as collateral on the mortgage, which has an interest rate of 12 percent compounded monthly. The payments of $4,800 are made at the end of each month, beginning on June 30, 2012. (Round amounts to the nearest dollar.)

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The effective interest rate on bonds is lower than the stated rate when bonds sell

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Hakeem, Inc. reported the following data in its 2011 financial statements: total liabilities $38,400; total stockholders' equity, $19,200; net income, $4,320; income tax expense, $2,880; and interest expense, $2,400. The debt ratio is

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. - Byers Corporation purchased equipment by issuing a 10-year, $400,000 interest-bearing note at a stated rate of 10 percent (payable annually). Given this information and assuming that a market interest rate of 8%, the equipment would be entered in the accounting records at

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. - You have just purchased an automobile for $15,000 and will be financing it at 12 percent interest compounded monthly for 5 years. Your monthly payment will be

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -An $18,000, 8 percent (payable annually), one-year note is accepted by the bank on April 1. If the note is prematurely repaid on November 1 of the same year (without penalty), how much interest is paid?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -A $200,000 bond with a carrying value of $208,000 was called at 103 and retired. In recording the retirement, the issuing company should

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The net amount required to retire a bond before maturity (assuming no call premium and constant interest rates) is the

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Which of the following has the smallest present value?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -The issuance price of a bond does NOT depend on the

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Which of the following has the smallest present value?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Which of the following is NOT a synonymous term to the others?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -On January 1, 2012, Cabuki Corporation issued $500,000 of 10 percent, 10-year bonds at 88.5. Interest is payable on December 31. If the market rate of interest was 12 percent at the time the bonds were issued, how much was interest expense in 2012 (assuming Cabuki uses the effective-interest amortization method)?

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. - Riverview County issued a $500,000, 10 percent, 10-year bond on January 1, 2012, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Riverview uses the effective-interest method to amortize all premiums and discounts. How much interest expense should Riverview record on December 31, 2012?

On January 1, 2011, Bixby Corporation borrowed $80,000 on a 2-year interest bearing note from Cache Bank at an annual interest rate of 8 percent (Note A). Also on January 1, 2011, Bixby borrowed $50,000 from Dewey Bank, signing a 3-year interest bearing note at an annual interest rate of 14 percent (Note B). For both notes, interest is payable yearly on January 1. Prepare the following journal entries. (Round all amounts to the nearest dollar.) 1. January 1, 2011 borrowings on: a. Note A b. Note B 2. Recognition of interest December 31, 2011 (Interest on both notes can be in one entry). 3. Interest payment on January 1, 2012 (Interest on both notes can be in one entry). 4. Repayment of Note B on January 1, 2014.

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 9 percent. These bonds will be issued for

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. - A long-term, noncancelable lease for a period that is equal to the life of the leased asset is accounted for as a(n)

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -On January 1, 2012, Lawton Corporation issued 10-year, $1,000,000 bonds with a stated interest rate of 10%. The effective interest rate is 10% and interest is paid semi-annually on January 1 and July 1. The journal entry to record the bond issuance would include a

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. -On January 1, Cromwell Corp. leased a mainframe computer from Fairview Company for $42,000 per year (payable on each December 31) for 10 years. The lease is a capital lease, and the current market rate of interest is 12 percent. The market value of the computer is $237,300, which is equal to its discounted present value at 12 percent. Given this data, interest expense on the lease for the first year is