Exam 14: Long-Term Liabilities

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 $632,000.The company uses the straight-line method of amortizing bond premiums.The company's year-end is December 31.Prepare the general journal entry to record the interest accrued at December 31.

On January 1,a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195.The first payment is due on December 31.Prepare the journal entries to record the first and second installment payments.

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 total interest expense on the bond over its eight-year life is $400,000.

Bonds that give the issuer an option of retiring them before they mature are:

A basic present value concept is that cash paid or received in the future is worth less than the same amount of cash today.

The present value of an annuity factor for 6 years at 10% is 4.3553.This implies that an annuity of six $2,000 payments at 10% would equal $8,710.60.

A disadvantage of bonds is:

All of the following statements regarding accounting treatments for liabilities under U.S.GAAP and IFRS are true except:

A pension plan is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire.

The present value of an annuity factor at 8% for 10 years is 6.7101.This implies that an annuity of ten $15,000 payments at 8% yields a present value of $2,235.

A company issues 9%,20-year bonds with a par value of $750,000.The current market rate is 8%.The amount of interest owed to the bondholders for each semiannual interest payment is.

Compound interest means that interest in a second period is based on the total amount borrowed plus the interest accrued in the first period.

An annuity is a series of equal payments at equal time intervals.

Owners of coupon bonds are not required to pay tax on the interest earned.

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the first interest payment using straight-line amortization is:

The contract between the bond issuer and the bondholders,which identifies the rights and obligations of the parties,is called a(n):

The Premium on Bonds Payable account is a(n):

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

The debt-to-equity ratio is calculated by dividing total stockholders' equity by total liabilities.

On January 1,a company issued 10%,10-year bonds payable with a par value of $720,000.The bonds pay interest on July 1 and January 1.The bonds were issued for $817,860 cash,which provided the holders an annual yield of 8%.Prepare the journal entry to record the first semiannual interest payment,assuming it uses the straight-line method of amortization.