Exam 9: Long-Term Liabilities

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 -Agreement whereby the legal owner of the asset retains substantially all of the risks and obligations of ownership

Kid Karate issued $100,000 of 6%, 10 year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,000. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually.

Rent owed to the lessor under an operating lease would appear on the balance sheet as

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

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's issue price exceeds its face value.

The times interest earned ratio divides __________________________ by interest expense.

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 amount that must be repaid at maturity.

Convertible bonds are attractive to bondholders because

Karuna Consulting leased a building on January 2, 2013. The lease qualifies as an operating lease. The annual payments are $25,000 at the beginning of each year, and the life of the lease is 10 years. What entry would the company make on January 2, 2013?

A capital lease liability would appear on the balance sheet as

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 -Liabilities that do not mature within one year.

Selected data from the comparative financial statements are provided below: -Refer to Kids R Kids Company.

Refer to Kaleidoscope Paint. The interest expense on the bonds at June 30, 2013, is

The amortization of a bond premium increases the effective interest expense incurred each period for the issuer.

When bonds are issued by a company, the accounting entry shows an

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

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 use of borrowed capital to produce more income than needed to pay the interest on the debt.

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 does not have collateral and is thus unsecured.

On January 01, 2013, Kale Farms purchased a tractor for $20,000. The company signed a 6% installment note to pay off the debt with 48 monthly payments over four years. Each payment is $469.70. How much interest must be paid over the life of the loan?

A graphics design company issued bonds in the amount of $1,000,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what would be the total amount of interest paid over the life of the bonds?