Exam 14: Long-Term Liabilities

The carrying value of a long-term note is computed as the present value of all remaining future payments,discounted using the market rate at the time of issuance.

The market value of a bond is equal to:

A 10-year bond issue with a $100,000 par value,8% annual contract rate,with interest payable semiannually means that the issuer must repay $100,000 at the end of 10 years and make 20 semiannual interest payments of $4,000 each.

The issue price of bonds is found by computing the future value of the bond's cash payments,discounted at the market rate of interest.

On January 1,Year 1 a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 annual year-end payments of $21,607,the first of which is due on December 31,Year 1. (a)Prepare the company's journal entry to record the note's issuance. (b)Prepare the journal entries to record the first and second installment payments.

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

On June 1,a company issued $200,000 of 12% bonds at their par value plus accrued interest.The interest on these bonds is payable semiannually on January 1 and July 1.Prepare the issuer's journal entry to record the bond issuance of June 1.

The market value or issue price of a bond is equal to the present value of all future cash payments provided by the bond.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

An advantage of bond financing is:

______________ bonds are bonds that are scheduled for maturity on one specified date.

The ______________ ratio is used to assess the risk of a company's financing structure.

On January 1,a company issued a $500,000,10%,8-year bond payable,and received proceeds of $487,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The amount of interest expense to be recorded on June 30 is $25,000.

On January 1,the Plimpton Corporation leased some equipment on a 2-year lease,paying $15,000 per year each December 31.The lease is considered to be an operating lease.Prepare the general journal entry to record the first lease payment on December 31.

On August 1,a company issues bonds with a par value of $600,000.The bonds mature in 10 years,and pay 6% annual interest,payable each February 1 and August 1.The bonds sold at $592,000.The company uses the straight-line method of amortizing bond discounts.The company's year-end is December 31.Prepare the general journal entry to record the interest accrued at December 31.

Explain how to record the issuance and sale of a bond between interest payment dates.

The carrying value of bonds at maturity is always equal to:

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ____________________________________.

Bonds that mature at different dates with the result that the entire principal amount is repaid gradually over a number of periods are known as:

What are methods that a company may use to retire its bonds?