Exam 11: Long-Term Liabilities

Under the effective interest method of amortizing a bond discount,the bond interest expense recorded for each period increases over the life of the bond.

Which of the following is an example of off-balance-sheet financing?

Match each definition with the correct term below. a. A security that represents money that a corporation borrows from the investing public. b. A long-term debt secured by real property. c. Bonds that are issued in the name of the bondholder. d. The method of bond amortization that uses a constant interest rate each period to amortize the bond premium or discount. e. Bonds that do not require periodic interest payments but instead promise to pay a fixed amount at the maturity date. f. The excess of the face value over the issue price of a bond. g. A contract that requires a company to pay benefits to its employees after they retire. h. The excess of the issue price over the face value of a bond. i. A liability or an asset that results from using different methods to calculate income taxes on the income statement and income tax liability on the income tax return. j. The method of bond amortization that equalizes amortization of a bond discount or premium for each interest period over the life of the bond. -Zero coupon bonds

Match each definition with the correct term below. a. A security that represents money that a corporation borrows from the investing public. b. A long-term debt secured by real property. c. Bonds that are issued in the name of the bondholder. d. The method of bond amortization that uses a constant interest rate each period to amortize the bond premium or discount. e. Bonds that do not require periodic interest payments but instead promise to pay a fixed amount at the maturity date. f. The excess of the face value over the issue price of a bond. g. A contract that requires a company to pay benefits to its employees after they retire. h. The excess of the issue price over the face value of a bond. i. A liability or an asset that results from using different methods to calculate income taxes on the income statement and income tax liability on the income tax return. j. The method of bond amortization that equalizes amortization of a bond discount or premium for each interest period over the life of the bond. -Mortgage

On January 1,2013,Lurline Corporation issued ten-year,8 percent bonds with a face value of $500,000.The semi-annual interest dates are June 30 and December 31.The bonds were issued for $437,740 to yield an effective annual rate of 10 percent.The accounting year ends on December 31.Prepare entries in journal form without explanations to record the bond issue on January 1,2013,and the payments of interest and amortization of discount on June 30 and December 31,2013.Use the effective interest method of amortization.Round answers to the nearest dollar.

Dennis Corporation entered into a long-term lease for a piece of equipment.The lease term calls for an annual payment of $2,000 for six years,which approximates the useful life of the equipment.Assume a discount factor of 16 percent.(Note: Present value of a single sum factor at six years and 16% is 0.410; present value of an annuity factor at six years and 16% is 3.685.)Round answers to the nearest dollar. a.Prepare the entry without explanation to record the leased equipment. b.Prepare the entry without explanation to record annual depreciation,assuming the straight-line method and no residual value. c.Prepare the entry without explanation to record the first annual payment of $2,000,after the company has had the equipment for one year.

Other postretirement benefits should be expensed

On January 1,2013,Woolfe Corporation issued five-year term bonds with a face value of $1,400,000.Interest is payable annually on December 31.The bonds were issued for $1,454,600.The effective interest method of amortization is used.Woolfe reported Bond Interest Expense of $130,914 on its income statement for the year ended December 31,2013.Calculate the effective interest rate for these bonds.

When bonds are converted to stock,no gain or loss is recognized.

All of the following are advantages of issuing bonds rather than stock except

The market interest rate is also called the face interest rate.

A capital lease is a lease of property,plant,or equipment that is in effect an installment purchase.

Financial leverage refers to the issuance of stock to raise cash.

When the straight-line method of amortization is used for a bond discount,the amount of interest expense for an interest period is calculated by

The effective interest method produces a constant dollar amount of bond interest expense to be reported each interest period.

A company with income before income taxes of $192,000,and $40,000 in interest expense,has an interest coverage ratio of

Interest coverage ratio is a measure of

The calculation of cash for interest to be paid each interest period in connection with a bond payable is influenced by any premium or discount upon issuance.

A deferred income tax liability arises when

Match each definition with the correct term below. a. A security that represents money that a corporation borrows from the investing public. b. A long-term debt secured by real property. c. Bonds that are issued in the name of the bondholder. d. The method of bond amortization that uses a constant interest rate each period to amortize the bond premium or discount. e. Bonds that do not require periodic interest payments but instead promise to pay a fixed amount at the maturity date. f. The excess of the face value over the issue price of a bond. g. A contract that requires a company to pay benefits to its employees after they retire. h. The excess of the issue price over the face value of a bond. i. A liability or an asset that results from using different methods to calculate income taxes on the income statement and income tax liability on the income tax return. j. The method of bond amortization that equalizes amortization of a bond discount or premium for each interest period over the life of the bond. -Deferred income taxes