A company issued 10%,10-year bonds with a par value of $1,000,000 on January 1,at a selling price of $885,295 when the annual market interest rate was 12%.The company uses the effective interest amortization method.Interest is paid semiannually each June 30 and December 31. (1)Prepare an amortization table for the first two payment periods using the format shown below: \[\begin{array} { | l | l | l | l | l | l | } \hline \text { Semiannual } & \text { Cash } & \text { Bond } & & & \\ \hline \text { Interest } & \text { Interest } & \text { Interest } & \text { Discount } & \text { Unamortized } & \text { Carrying } \\ \hline \text { Period } & \text { Paid } & \text { Expense } & \text { Amortization } & \text { Discount } & \text { Value } \\ \hline & & & & & \\ \hline & & & & & \\ \hline & & & & & \\ \hline \end{array}\] (2)Prepare the journal entry to record the first semiannual interest payment.

(1) \[\begin{array} { | l | l | l | l |

Exam 10: Accounting for Long-Term Liabilities

On January 1,a company issued 10%,10-year bonds with a par value of $720,000.The bonds pay interest each July 1 and January 1.The bonds were sold for $817,860 cash,based on an annual market rate of 8%.Prepare the issuer's journal entry to record the first semiannual interest payment assuming the effective interest method is used.

(Essay)

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Question 161

The relationship between the market rate of a bond and the rate of return on the borrowed funds affects the company's return on equity.

(True/False)

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Question 162

A company issued 10%,10-year bonds with a par value of $1,000,000 on January 1,at a selling price of $885,295 when the annual market interest rate was 12%.The company uses the effective interest amortization method.Interest is paid semiannually each June 30 and December 31. (1)Prepare an amortization table for the first two payment periods using the format shown below: Semiannual Cash Bond Interest Interest Interest Discount Unamortized Carrying Period Paid Expense Amortization Discount Value (2)Prepare the journal entry to record the first semiannual interest payment.

(Essay)

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Question 163

The carrying (book)value of a bond at the time it is issued is always equal to its par value.

(True/False)

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Question 164

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

(True/False)

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Question 165

A company has 10%,20-year bonds outstanding with a par value of $500,000.The company calls the bonds at 96 when the unamortized discount is $24,500.Calculate the gain or loss on the retirement of these bonds.

(Essay)

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Question 166

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

(True/False)

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Question 167

________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

(Short Answer)

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Question 168

Bonds that give the issuer an option of retiring them before they mature are:

(Multiple Choice)

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Question 169

Describe the journal entries required to record the issuance of bonds at par and the payment of bond interest.

(Essay)

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Question 170

A disadvantage of bond financing is:

(Multiple Choice)

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Question 171

A corporation issued 8% bonds with a par value of $1,000,000,receiving a $20,000 premium.On the interest date 5 years later,after the bond interest was paid and after 40% of the premium had been amortized,the corporation purchased the entire issue on the open market at 99 and retired it.The gain or loss on this retirement is:

(Multiple Choice)

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Question 172

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.

(Essay)

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Question 173

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

(True/False)

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Question 174

An ________ is an obligation requiring a series of payments to the lender.

(Short Answer)

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Question 175

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 principal will be included in the first annual payment?

(Multiple Choice)

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Question 176

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 interest expense to be recorded on June 30 is $25,000.

(True/False)

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Question 177

A basic present value concept is that cash paid or received in the future has more value now than the same amount of cash received today.

(True/False)

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Question 178

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

(True/False)

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Question 179

A company may retire bonds by all but which of the following means?

(Multiple Choice)

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Question 180

Showing 161 - 180 of 250

The relationship between the market rate of a bond and the rate of return on the borrowed funds affects the company's return on equity.

The carrying (book)value of a bond at the time it is issued is always equal to its par value.

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

A company has 10%,20-year bonds outstanding with a par value of $500,000.The company calls the bonds at 96 when the unamortized discount is $24,500.Calculate the gain or loss on the retirement of these bonds.

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

________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

Bonds that give the issuer an option of retiring them before they mature are:

Describe the journal entries required to record the issuance of bonds at par and the payment of bond interest.

A disadvantage of bond financing is:

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

An ________ is an obligation requiring a series of payments to the lender.

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 principal will be included in the first annual payment?

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 interest expense to be recorded on June 30 is $25,000.

A basic present value concept is that cash paid or received in the future has more value now than the same amount of cash received today.

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

A company may retire bonds by all but which of the following means?

Accounting in Business

Analyzing for Business Transactions

Adjusting Accounts for Financial Statements

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash, fraud, and Internal Controls

Accounting for Receivables

Accounting for Long-Term Assets

Accounting for Current Liabilities

Corporate Reporting and Analysis

Reporting Cash Flows

Analysis of Financial Statements

Time Value of Money

Investments

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