Exam 14: Long-Term Liabilities

On November 1, 2014, Archangel Services issued $300,000 of 5-year bonds with a stated rate of 10%. The bonds were sold at par, and Archangel makes semiannual payments on April 30 and October 31. At December 31, 2014, Archangel made an adjusting entry to accrue interest at year-end. No further entries were made until April 30, 2015, when the first payment was sent out. How much interest expense was recorded for the period of January 1 to April 30, 2015?

On June 1, 2015, Smith Services issued $36,000 of 8% bonds that mature in five years for $45,000. The bonds pay semiannual interest payments on June 30 and December 31 of each year. On December 31, 2015, how much is the total interest paid to bondholders?

An alternative to calling the bonds is to purchase them in the open market at their current market price.

A bond is issued at discount:

On January 1, 2015, Carter Sales issued $15,000 in bonds for $14,300. They were 8-year bonds with a stated rate of 9%, and pay semiannual interest. Carter Sales uses the straight-line method to amortize the bond discount. After the second interest payment on December 31, 2015, what was the bond carrying amount?

On January 1, 2015, Anderson Company purchases property of $300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance. Anderson will make yearly payments of $46,072. Prepare the amortization schedule for the first five payments. (Round your answers to the nearest dollar.)

A bond is issued at premium :

On January 1, 2014, Zing Services issued $165,000 of 6-year bonds with a stated rate of 12%. The market rate at time of issue was 11%, so the bonds were issued with a premium and sold for $172,110. Zing uses the effective-interest method to amortize bond premium. Semiannual interest payments are made on June 30 and December 31 of each year. Which of the following is the correct journal entry to record the first interest payment?

Trek Company signed a 9%, 10-year note for $150,000. The company paid $1,900 as the installment for the first month. After the first payment, what is the updated principal balance?

On December 31, 2013, Clark Sales has a Bonds Payable Balance of $89,000 and a Discount on Bonds Payable of $2,350. On the balance sheet, how will this information be shown?

Issuance of a note by the issuer is recorded by crediting the Cash account and debiting the Note Receivable account.

Installment payments for mortgages typically contain both an amount for principal repayment and an amount for interest.

On January 1, 2013, Davie Services issued $20,000 of 8% bonds that mature in five years. They were sold for a total of $19,000. Provide the journal entry to issue bonds.

If a bond is issued at a discount, it will sell for more than face value.

Alexander Corp. has the following balances as on December 31, 2015: Calculate the debt to equity ratio.

The Amazing Widget Company issues $500,000 of 6%, 10-year bonds at 103 on March 31, 2014. The bonds pay interest on March 31 and September 30. Assume that the company uses the straight-line method for amortization. The journal entry to record the issuance would include a:

In order to expand business, the management of Vereos Inc. decided to issue long-term notes payable for $50,000. The instrument carries interest at the rate of 12% with 10 equal yearly installments, beginning in one year. What will be the journal entry at the inception?

Blanding Company issues $1,000,000 of 8%, 10-year bonds at 98 on February 28, 2014. The bonds pay interest on February 28 and August 31. Assume that Blanding uses the straight-line method for amortization. What net balance will be reported for the bonds on the balance sheet on August 31, 2014?

FICA-OASDI tax payable would normally be shown on the balance sheet under long-term liabilities.

Campbell Inc. has net income of $500,000 and 200,000 shares of common stock. The company is considering a project which requires $800,000 and is considering two options: • Option 1 is to borrow $800,000 at 12%. • Option 2 is to issue 100,000 shares of common stock for $800,000. Considering all relevant facts and figures, Campbell's management is of the opinion that the funds raised can be used to increase income before interest and taxes by $300,000 each year. The company estimates income tax expense to be 40%. Analyze the Campbell situation to determine which plan will result in higher earnings per share.