Exam 14: Long-Term Liabilities

On March 1,a company issues bonds with a par value of $300,000.The bonds mature in 10 years,and pay 6% annual interest,payable each June 30 and December 31.The bonds sell at par value plus interest accrued since January 1.Prepare the general journal entry to record the issuance of the bonds on March 1.

Match each of the following terms with the appropriate definitions. -Job order cost accounting system

A company issued 8%,15-year bonds with a par value of $550,000.The current market rate is 8%.The journal entry to record each semiannual interest payment is:

Explain the amortization of a bond discount.Identify and describe the amortization methods available.

The use of debt financing insures an increase in return on equity.

Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.

Bonds payable to whoever holds them are called _________________ bonds.

Match each of the following terms with the appropriate definitions. -Materials consumption report

Explain the accounting procedures when a bond's interest period does not coincide with the issuer's accounting period.

Premium on Bonds Payable is an adjunct or accretion liability account.

Pitt Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000.Management is considering issuing $5,000,000 of par value bonds (at par)with a maturity date of ten years and a contract rate of 7%.What effect,if any,would issuing the bonds have on the company's debt-to-equity ratio?

A bond's par value is not necessarily the same as its market value.

The carrying value of a long-term note payable:

Shin Company has a loan agreement that provides it with cash today,and the company must pay $25,000 4 years from today.Shin agrees to a 6% interest rate.The present value factor for 4 periods,6% is 0.7921.What is the amount of cash that Shin Company receives today?

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

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 issuance of the bond is:

The Discount on Bonds Payable account is:

Explain the present value concept as it applies to long term liabilities.

An ________________________________ is an obligation requiring a series of payments to the lender.

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.