Exam 9: Long-Term Liabilities

A company wishes to issue $600,000 of 10-year, 6.8% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the selling price?

On January 1, 2013, a company issued $5,000,000 of 8 percent bonds at par. These bonds are due in five years with interest payable annually on December 31. Required:

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 -Occurs when a bond is issued for an amount that is less than the principal.

The bond's ____________________ price is typically quoted as a percentage of the face value of the bond.

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 contract that gives one party the right to use an asset that belongs to another party.

Kay Animal Hospital leased a building to expand its services downtown. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true?

On January 2, 2013, Kangaroo Convenience Stores issued 10-year, $5,000,000, zero-coupon bonds at 75. What is the amount of interest expense recorded in 2013 using the straight line amortization method?

A Premium on Bonds Payable account would appear on the balance sheet as

The relative cost of issuing debt (interest payments)is often lower than the cost of issuing equity.

Discount on Bonds Payable is shown on the balance sheet as a ____________________.

A company issued 5-year bonds with a par value of $5,000,000 and a 7% annual stated rate of interest on January 2, 2013. The issue price of the bond issue was $4,431,850 which reflected a 10% effective interest rate. Interest payments are made annually. Any premiums or discounts should be amortized using the effective interest rate method.Required:

On January 1, 2013, Kaiser Permanente issued $2,000,000 of 8% bonds at par. These bonds are due in 10 years with interest payable semi-annually on June 30 and December 31. What is the amount of the interest expense in 2013 assuming the use of the effective interest amortization method?

Refer to Kaleidoscope Paint. The cash payment on June 30, 2013, is

When evaluating a company's solvency, an investor's major concern is whether all debt has been properly recorded.

When will bonds sell at a discount?

On the issuance date, the Bonds Payable account has a balance of $55,000,000 and Premium on Bonds Payable has a balance of $5,000,000. These bonds issued at

The amount of money the borrower agrees to repay at maturity is usually referred to as the ____________________.

-Refer to King Cotton Company. What is the percent increase/decrease of long-term liabilities from 2012 to 2013? Which liability appears to have caused the greatest change?

If bonds were initially issued at a discount, the carrying value of the bonds on the issuer's books will

A company issued $10,000,000 of bonds. Assuming the most common denomination of bonds, the number of bonds sold was