Exam 9: Long-Term Liabilities

Match these terms with their definitions. a.Bond i.Lessor b.Contract, coupon, stated rate j.Leverage c.Discount k.Long-term debt d.Effective interest rate method l.Market rate, yield e.Face value, par value, principal m.Maturity f.Interest amortization n.Premium g.Lease o.Straight-line method h.Lessee -Under this method, interest expense for the period is always the yield (i.e., effective interest rate)times the carrying value of the bonds at the beginning of the period.

Which of the following statements regarding amortization is true?

Convertible bonds normally allow bondholders to convert the bond into another security.

Match these terms with their definitions. a. Callable bonds f. Mortgage bonds b. Capital lease g. Notes payable c. Convertible bonds h. Operating lease d. Debenture bonds i. Secured bonds -Debt that is so risky that it must pay a high rate of interest to compensate the lender for the added risk.

Which of the following statements regarding leases is false?

Bonds sell at a premium when the

Match these terms with their definitions. a. Callable bonds f. Mortgage bonds b. Capital lease g. Notes payable c. Convertible bonds h. Operating lease d. Debenture bonds i. Secured bonds -This debt, evidenced by a formal agreement or contract to repay, is frequently issued in exchange for a noncash asset such as equipment.

On January 1, 2013, a company issued $5,000,000 of a 10-year, zero-coupon bonds at 55. Required:

Mortgage bonds are secure bonds.

One way analysts measure the ability of a company to meet its obligations is to calculate the times interest earned ratio for any outstanding debt the company may have. How would a company with $100,000 of outstanding bonds paying 8.5% annually and income before interest and taxes of $50,000, calculate the interest coverage (accrual basis)ratio?

____________________ bonds may be retired by the issuing company before their specified due date.

Kauffman Tire Repair leased a machine that will enable it to repair tires found on monster vehicles. The annual payments are $9,000 and the life of the lease is 7 years. It is estimated that the useful life of the machine is 8 years. How would the company record the acquisition of the machine?

If a bondholder has the right to retire the bonds, they are referred to as callable.

Selected data from the comparative financial statements are provided below: -Refer to Kids R Kids Company. The total long-term liabilities at December 31, 2013, are (in thousands):

A company issued 10-year bonds with a par value of $20,000,000 and an 8% annual face rate of interest on January 2, 2013. The issue price of the bond issue was $19,866,397 which reflected an 8.1% effective interest rate. Interest payments are made annually. Required:

When the market rate of interest was 9%, Kennesaw Van Lines leased several transfer trucks. The annual payments are $1,000,000 and the life of the lease is 8 years. It is estimated that the useful life of the trucks is 10 years. The present value interest factors for 9% are provided below: The company should record the acquisition of the trucks (rounded to nearest thousand)as an asset with a cost of:

Which of the following terms does not describe the interest rate printed on the bond certificate?

Match these terms with their definitions. a.Bond i.Lessor b.Contract, coupon, stated rate j.Leverage c.Discount k.Long-term debt d.Effective interest rate method l.Market rate, yield e.Face value, par value, principal m.Maturity f.Interest amortization n.Premium g.Lease o.Straight-line method h.Lessee -A type of liability which requires the issuing entity to pay the face value to the holder on the maturity date and to pay interest periodically at a specified rate.

Selected data from the comparative financial statements are provided below: -Refer to Kids R Kids Company. The interest coverage (accrual basis)ratio at December 31, 2013, is:

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will