Exam 11: Long-Term Liabilities

Once a corporation issues bonds,it need only pay interest to the bondholders over the life of the bonds,usually semi-annually,and not repay principal of the bonds at maturity.

An $160,000 bond issue priced at 97-3/4 is sold for $156,400.

On November 1,2012,Fields Corporation issued $800,000 worth of ten-year,9 percent bonds.The semi-annual interest dates are November 1 and May 1.Because the market interest rate of similar investments was 8.5 percent,the bonds were issued at a price of 103.Ignoring year-end accruals,prepare entries in journal form without explanations to record the bond issue on November 1,2012,and the payments of interest and amortization of premium on May 1 and November 1,2013.Use the effective interest method of amortization.Round answers to the nearest dollar.

When a bond issue is converted into common stock,total contributed capital is increased by the face value of the bonds converted.

When the terms of a lease require that the lessee record an asset and a liability,the two accounts are recorded at the present value of the total lease payments required.

If a bond has a face interest rate of 6 percent,a face value of $40,000,and pays interest semi-annually,each interest payment will amount to $2,400.

Discounts or premiums are contra-accounts that are subtracted from or added to bonds payable on the balance sheet.

Which of the following qualifies as a capital lease?

Alby Corporation purchased a warehouse by signing a long-term $800,000 mortgage with monthly payments of $6,200.The mortgage carries an interest rate of 9 percent.Prepare entries in journal form without explanations to record the purchase and the first two monthly payments.Round answers to the nearest dollar.

Whether a bond is sold at a discount or a premium,its carrying value will not equal its face value on the maturity date.

When all the bonds of an issue mature at the same time,they are called serial bonds.

On January 2,2013,Owsley Corporation issued 20-year bonds payable with a face value of $600,000 and a face interest rate of 10 percent.The bonds were issued to yield a market interest rate of 12 percent.Interest is payable annually on January 2.In calculating the present value of the bond issue of January 2,2013,the

Secured bonds are also known as debentures.

West Valley Corporation issues $800,000 of 20-year,9 percent bonds at 95.Interest is paid semi-annually,and the effective interest method is used for amortization.Assume that the market interest rate for similar investments is 10 percent and that the bonds are issued on an interest date. a.What amount was received for the bonds? b.How much interest is paid each interest period? c.How much bond interest expense is recorded on the first interest date (after the issue date)? d.What is the carrying value of the bonds after the first interest date (after the issue date)?

Under a capital lease,the lessee does not record which of the following?

On December 31,2012,the balance sheet of L and H Corporation reported bonds outstanding with a face value of $1,000,000 and a related unamortized premium of $50,000.Interest is payable semiannually on January 1 and July 1. a.Prepare an entry in journal form without explanations to record the retirement of bonds with a face value of $600,000 on January 1,2013,assuming the bonds were redeemed at a call price of 103. b.Prepare an entry in journal form without explanation on January 1,2013,to record the conversion of bonds with a face value of $400,000 into common stock.Each $1,000 bond is convertible into 25 shares of $10 par value common stock.

Trimble Corporation has $1,000,000 worth of 7 percent convertible bonds outstanding.On September 1,2013,there is $40,000 of unamortized discount associated with these bonds.The bonds are convertible at the rate of 30 shares of $10 par value common stock for each $1,000 bond.On September 1,2013,an interest payment date,bondholders presented $700,000 of the bonds for conversion.Prepare an entry in journal form without explanation to record the conversion of the bonds.

If the market interest rate is higher than the face interest rate at the date of issuance,bonds will

Bracken Corporation had income before income taxes of $8,000,000 and interest expense of $900,000.Calculate Bracken's interest coverage ratio,rounded to one decimal place.

A company issued $300,000 of 20-year,8 percent bonds at 96.If interest is paid semi-annually,the entry to record the amount of bond interest expense (assuming the straight-line method of amortization)on any interest date is