Exam 7: Accounting for Liabilities

Amortizing a bond premium will ________.

On January 1,2011,Ajax Corporation signed a $1,000,000,7%,10-year mortgage note to buy a new warehouse.The note will be repaid in 10 equal annual installments of $142,378.Over the 10-year period,as each installment payment is made,the amount that Ajax Corporation will show on its balance sheet for mortgage payable will ________.

Team instructions: Provide students with copies of real merchandising companies' annual reports,or give students the Web addresses of real merchandising companies and ask them to print out the annual reports. Divide the class into teams of three or four people.All team members should work with the same company's annual report.Give the students time in class to answer the following questions for their company.Each team should turn in only one copy of the answers for grading,along with a copy of the annual report that they used.All team members will receive the same grade.

In May,Fish Nets,Inc.sold 8,000 nets with a three-month warranty for $10 each on account.Fish Nets estimates that warranty costs will be approximately $100 on these sales.The actual warranty cost for the sales made in May was $30 in June and $50 in July.Fish Nets should ________.

Each time a company makes a payment on a mortgage interest expense will increase.

Each time a company makes a payment on a mortgage the amount of the payment that reduces the principal increases.

Tina's Wear issued 10-year bonds with a face value of $50,000.The bonds carry a 7% stated interest rate and pay interest once a year.They were issued when the market interest rate was 8%. a.Calculate the present value of the bond issue. b.Were these bonds issued at a premium or at a discount? c.What is the amount of the premium or discount on the bond issue? d.Calculate the amount of the amortization of the bond premium or discount for the first year,using the effective interest method.

Salary payable is considered an estimated liability.

On June 30,2011,Xanadu Corporation issued $200,000 of 10-year,8% bonds at 99.The bonds pay interest semi-annually on June 30 and December 31.These bonds sold at 99 because the ________.

If a bond is sold at a discount,the carrying value reported on the balance sheet in subsequent years ________.

Explain the concept of time value of money.

Lockwood Corporation had $1,523,000 in total assets,$758,000 in total liabilities,and $765,000 in stockholders' equity.Interest expense for the period was $151,350.Income from operations was $380,750.Calculate the debt-to-equity ratio.Round your answer to the nearest tenth of a percent.

Calculate the cash received by the issuing company:

Toby's Wear issued 10-year bonds with a face value of $60,000.The bonds carry a 7% stated interest rate and pay interest once a year.They were issued when the market interest rate was 6%. a.Calculate the present value of the bond issue. b.Were these bonds issued at a premium or at a discount? c.What is the amount of the premium or discount on the bond issue? d.Calculate the amount of the amortization of the bond premium or discount for the first year,using the effective interest method.

On January 1,2012,Ace Electronics borrowed $40,000 on a five-year,7% note.Ace will pay $\bold{\text{only the interest}}$ on the loan on December 31 each year.The entire principal will be repaid on December 31,2016,the last interest payment date.Interest expense for the year ended December 31,2013 will be ________ interest expense for 2012.

Ima Baroque wants to borrow $100,000 in order to expand Bank,Rupp & Baroque,Inc.If she repays the money in equal monthly installments over two years,she can get an interest rate of 12%.What interest rate and periods should you use to calculate the amount of each installment payment?

On January 1,2011,Nadir Company issued $1,000,000 of 6%,20-year bonds when the market rate of interest was 5%.The bonds pay interest annually on December 31.Nadir uses the effective interest method of amortization.On its income statement for the year ended December 31,2011,Nadir will show interest expense of ________.

Discounting means ________.

When interest is computed on the principal only,it is called simple interest.

Discount on bonds payable is subtracted from ________.