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 -The rate that reflects the provisions of the debt instrument, the credit standing of the borrowing business, and the current conditions in the credit markets and the economy as a whole.

Debenture bonds are backed by specific collateral of the issuing company.

With the Effective Interest Method of Amortization, the amortization of a bond discount results in a(n)

"You Decide" Essay You are the Chief Financial Officer of Kyoto Mining Company. Your company issued $10,000,000 in bonds payable at the beginning of the year at a sizable discount. You are getting ready to make your December 31 adjusting entries. The owners, who are worried about their tax bill for the year, have asked you to select whichever method of amortizing bond discounts that maximizes interest expense.Respond to the owners.

Keystone Corporation's balance sheet showed the following liability and stockholders' equity amounts: Current Liabilities, $100,000; Bonds Payable, $150,000; Capital Lease Obligations, $20,000; Deferred Income Tax Liability, $5,000; and total stockholders' equity, $500,000. The debt-to-equity ratio is

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 -The rate found in the debt contract that determines the amount of the interest payment.

A company issued 10-year, 9%, $1,000,000 bonds paying interest on an annual basis, at a premium. Which one of the following statements is true?

Under the effective interest method, the cash paid on each interest payment date will

The interest rate used to calculate interest expense in the effective interest method of amortization is equal to the market rate of interest at the time the bonds are issued.

Refer to Kalahari Limited. What is the carrying value of the bonds after the first interest payment is made on June 30, 2013?

The Discount on Bonds Payable account is shown on the balance sheet as

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 secured by real estate.

The ____________________ rate of interest is a function of economic factors and the creditworthiness of the borrower.

A potential advantage of debt financing over equity financing is that it fixes the amount of compensation to the lender.

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

A company's balance sheet showed the following amounts for liabilities and stockholders' equity accounts: Current Liabilities, $50,000; Bonds Payable, $600,000; Capital Lease Obligations, $120,000; and Deferred Income Tax Liability, $20,000. Total stockholders' equity was $520,000. What is the debt-to-equity ratio?

-Refer to King Cotton Company. What are the total long-term liabilities for each of the two years presented?

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, equal amounts of premium or discount are amortized to interest expense each period.

If the yield rate of interest is greater then the stated rate, then the bonds are issued at a ____________________.

A convertible bond is one where