Exam 10: Accounting for Long-Term Liabilities

Match each of the following terms with the appropriate definitions. -Bonds that mature at more than one date and are usually paid over a number of periods.

On January 1,Year 1,Stratton Company borrowed $100,000 on a 10-year,7% installment note payable.The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years.The required general journal entry to record the first payment on the note on December 31,Year 1 is:

The ________ concept is the idea that cash paid (or received)in the future has less value now than the same amount of cash paid (or received)today.

On January 1,a company issues bonds dated January 1 with a par value of $400,000.The bonds mature in 5 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $383,793. -The journal entry to record the first interest payment using the effective interest method of amortization is:

Match each of the following terms with the appropriate definitions. -Bonds that have specific assets of the issuer pledged as collateral.

Match each of the following terms with the appropriate definitions. -Bonds that are backed by the issuer's general credit standing.

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: Present Value of an = = Annuity Present value of \ 1 5 8\% 3.9927 0.6806 10 4\% 8.1109 0.6756 5 6\% 4.2124 0.7473 10 3\% 8.5302 0.7441

Explain the amortization of a bond discount.Identify and describe the amortization methods available.

When a bond sells at a premium:

Match each of the following terms with the appropriate definitions. -The amount by which the bond par value exceeds the bond issue (selling)price

The market value (price)of a bond is equal to:

When the contract rate is above the market rate,a bond sells at a discount.

Explain the present value concept as it applies to long-term liabilities.

A disadvantage of bond financing over equity financing is the burden on the cash flows of the company.

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: Present value of an annuity for 10 periods at 4\% 8.1109 Present value of an annuity for 10 periods at 5\% 7.7217 Present value of 1 for 10 periods at 4\% 0.6756 Present value of 1 for 10 periods at 5\% 0.6139

Bonds owned by investors whose names and addresses are recorded by the issuing company,and for which interest payments are made with checks or cash transfers to the bondholders,are called:

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount. -The carrying value of the bonds immediately after the second interest payment is:

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 amount of interest expense will be included in the first annual payment?

Match each of the following terms with the appropriate definitions. -Bonds that are payable to whoever holds them; also called unregistered bonds.

Chang Industries has bonds outstanding with a par value of $200,000 and a carrying value of $203,000.If the company calls these bonds at a price of $201,000,the gain or loss on retirement is: