Exam 10: Accounting for Long-Term Debt

Name some of the restrictive covenants often included in bond indentures.

Use the following to answer questions Jones Company issued bonds with a $200,000 face value on January 1,2016.The five-year term bonds were issued at 97 and had a 7 ½ % stated rate of interest that is payable in cash on December 31st of each year.Jones amortizes the bond discount using the straight-line method.Based on this information: -The total amount of liabilities shown on Jones's December 31,2017 balance sheet would be:

Compute the amount of cash a company will receive from the following bond issues. a)_______________ Issued $200,000 of 5-yr,8% bonds at 98. b)_______________ Issued $800,000 of 4-yr,9% bonds at 95. c)_______________ Issued $400,000 of 10-yr,8% bonds at 102 ½. d)_______________ Issued $100,000 of 5-yr,12% bonds at 103.

Rodgers Equipment Company sold a ten-year,6% bond issue at 102 ½.Rodgers received proceeds of $256,250 from the sale of these bonds.Calculate the face amount of these bonds.

On January 1,2016,Mayberry Company borrowed cash from Central Bank by issuing a $75,000 face value 3-year installment note payable that carried a 9% interest rate.The note is to be repaid by making annual cash payments of $29,629.11,which includes both principal and interest.The payments are to be made on December 31 of each year. Required: a)Prepare an amortization schedule for the term of the loan,showing the amounts to be paid on principal and interest for 2016,2017,and 2018 and the loan balance at the end of each year. b)What amount of interest expense will be shown on the 2017 income statement? c)What amount of liability for the note will be shown on the balance sheet as of December 31,2017? d)Prepare the journal entry to record the payment made on December 31,2017.

Use the following to answer questions Jones Company issued bonds with a $200,000 face value on January 1,2016.The five-year term bonds were issued at 97 and had a 7 ½ % stated rate of interest that is payable in cash on December 31st of each year.Jones amortizes the bond discount using the straight-line method.Based on this information: -The amount of cash outflow from operating activities shown on Jones's December 31,2017 statement of cash flows would be:

What is meant by the "spread" in banking? What does the "spread" have to do with the issuance of bonds?

Marvin Corp.issued $500,000 of 8%,10 year bonds for 98 on January 1,2016.Interest is payable annually on December 31. Required: Assuming that Marvin uses the straight-line method for amortization of premium or discount on bonds payable, a)Prepare the journal entry to record the issuance of the bond. b)Prepare the required journal entry on December 31,2016. c)Prepare the liabilities section of the December 31,2016 balance sheet. d)What amount of interest expense will be shown on the 2016 income statement? e)Prepare the operating activities section of the 2016 statement of cash flows.

Discuss one advantage of issuing bonds versus borrowing money from a bank.

The after-tax interest cost of debt equals total interest expense multiplied by the tax rate.

Indicate how each event affects the elements of financial statements.Use the following letters to record your answer in the box shown below each element.Use only one letter for each element.You do not need to enter amounts. -On January 1,2016,Morris Co.issued $100,000 of bonds at the face value.Indicate the effects of issuing these bonds.

On January 1,2016,Sheffield Co.issued bonds with a face value of $200,000,a term of ten years,and a stated interest rate of 6%.The bonds were issued at 105,and interest is payable each December 31.Sheffield uses the straight-line method to amortize the bond discount.The carrying value of the bonds that would be reported on the December 31,2019 balance sheet is:

On January 1,2016,O'Keefe Co.issued bonds with a face value of $400,000 and a stated interest rate of 10%.The bonds have a life of ten years and were sold at 108.O'Keefe uses the straight-line method to amortize bond discounts and premiums.On December 31,2019,O'Keefe called the bonds at 106.Indicate whether each of the following statements is true or false. _____ a)The interest expense for 2016 was $40,000. _____ b)The balance in the bonds payable account on December 31,2016 was $400,000. _____ c)The carrying value of bonds payable on December 31,2019 was $419,200. _____ d)When O'Keefe repurchased the bonds,total assets decreased by $419,200. _____ e)When O'Keefe repurchased the bonds,it had to recognize a loss in the amount of $4,800.

Use the following to answer questions The Gordon Corporation issued $70,000 of 6%,5-year bonds on January 1,2016 at 98.The interest payments are due on December 31 each year.Gordon uses the straight-line method of amortization. -Which of the following answers shows the effect of the first interest payment and amortization of premium or discount?

If $200,000 of 12% bonds are issued at 101 ½,what amount of cash will be received by the corporation?

If the stated interest rate for bonds is the same as the effective interest rate,the bonds will be issued at their face value.

If a company uses the effective interest method of amortizing a bond discount,the interest expense that is recognized each year

Indicate whether each of the following statements is true or false. _____ a)Interest expense on long-term installment notes increases each year. _____ b)Cash for machinery or buildings is often obtained by issuing long-term debt. _____ c)Short-term notes payable normally mature within a year. _____ d)Long-term installment notes are repaid all at once two to five years after the issue date. _____ e)Most long-term loans are obtained from the corporation's stockholders.

Use the following to answer questions Wayne Company issued bonds with a face value of $600,000,a 6% stated rate of interest,and a 10-year term.The bonds were issued on January 1,2016,and Wayne uses the straight-line method of amortization.Interest is paid annually on December 31. -If Wayne issued the bonds for 96,

Use the following to answer questions Weller Company issued bonds with a face value of $400,000,a 10% stated rate of interest,and a 10-year term.The bonds were issued on January 1,2016,and Weller uses the effective interest method of amortization.The market rate of interest on the date of issue was 8%.Interest is paid annually on December 31. -Assuming Weller issued the bond for $431,940,the amount of interest expense appearing on the 2018 income statement would be: