Exam 10: Accounting for Long-Term Liabilities

On January 1,$300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock.The entry to record the conversion of the bonds includes all of the following entries except:

A company purchased two new delivery vans for a total of $250,000 on January 1,Year 1.The company paid $40,000 cash and signed a $210,000,3-year,8% note for the remaining balance.The note is to be paid in three annual end-of-year payments of $81,487 each,with the first payment on December 31,Year 1.Each payment includes interest on the unpaid balance plus principal. (1)Prepare a note amortization table using the format below: (2)Prepare the journal entries to record the purchase of the vans on January 1,Year 1 and the second annual installment payment on December 31,Year 2.

On January 1,a company issued a $500,000,10%,8-year bond payable,and received proceeds of $473,845.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The amount of discount amortized each period is $1,634.69.

________ bonds are bonds that mature at more than one date,often in a series,and thus are usually repaid over a number of periods.

An installment note is a liability of the issuing company that requires a series of payments to the lender.

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.

________ bonds have specific assets of the issuing company pledged as collateral.

The contract rate on previously issued bonds changes as the market rate of interest changes.

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

An annual rate of 4% is applied as a semiannual rate of 1%.

On January 1,a company issues 8%,5-year,$300,000 bonds that pay interest semiannually each June 30 and December 31.On the issue date,the annual market rate of interest is 6%.Compute the price of the bonds on their issue date.The following information is taken from present value tables: