Exam 10: Accounting for Long-Term Liabilities

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 for the bonds is 10%.Compute the price of the bonds on their issue date.The following information is taken from present value tables:

Marwick Corporation issues 8%,5-year bonds with a par value of $1,000,000 and semiannual interest payments.On the issue date,the annual market rate for these bonds is 6%.What is the bond's issue (selling)price,assuming the following Present Value factors:

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Johanna Corporation issued $3,000,000 of 8%,20-year bonds payable at par value on January 1.Interest is payable each June 30 and December 31. (a)Prepare the general journal entry to record the issuance of the bonds on January 1. (b)Prepare the general journal entry to record the first interest payment on June 30.

On July 1,Shady Creek Resort borrowed $250,000 cash by signing a 10-year,8% installment note requiring equal payments each June 30 of $37,258.What is the appropriate journal entry to record the issuance of the note?

When calculating the issuance price of a bond,use the market rate to compute the present value of the bond's future cash flows.

The issue price of a bond is equal to the present value of all future cash payments discounted at the bond's market rate.

The contract between the bond issuer and the bondholders identifying the rights and obligations of the parties,is called a(n):

Long-term notes are typically transacted with multiple lenders.

On January 1,the Rodrigues Corporation leased some equipment on a 2-month lease,paying $1,500 per month.The lease is considered to be a short-term lease.Prepare the general journal entry to record the second lease payment on February 1.

A company holds $150,000 par value of bonds with a carrying value of $147,950.The company calls the bonds at $151,000.Prepare the journal entry to record the retirement of the bonds.

A 10-year bond issue with a $100,000 par value,8% annual contract rate,with interest payable semiannually means that the issuer must repay $100,000 at the end of 10 years and make 20 semiannual interest payments of $4,000 each.

Payments on installment notes include accrued interest plus a portion of the amount borrowed (principal).

When the contract rate of a bond is greater than the market rate on the date of issuance,the bond sells at a discount.

Zhang Company has a loan agreement that provides it with cash today,and the company must pay $25,000 4 years from today.Zhang agrees to a 6% interest rate.The present value of 1 (single sum)for 4 periods at 6% is 0.7921.What is the amount of cash that Zhang Company receives today?

Amortizing a bond discount:

A company's debt-to-equity ratio was 1.0 at the end of Year 1.By the end of Year 2,it had increased to 1.7.Since the ratio increased from Year 1 to Year 2,the degree of risk in the firm's financing structure decreased during Year 2.

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177. -The journal entry to record the first interest payment using the effective interest method of amortization is:

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring equal annual payments each December 31 of $32,136.What journal entry would the issuer record for the first payment?

A discount reduces the interest expense of a bond over its life.