Question 1

Describe installment notes and the nature of the typical payment pattern.

Accepted Answer

Installment notes are agreements to repa

Question 2

How are bond issue prices determined?

Accepted Answer

The issue price of bonds is found by com

Question 3

On January 1, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:

Accepted Answer

A)  Debit Cash $2,000,000; credit Bonds Payable $2,000,000. 
B)  Debit Cash $1,864,097; credit Bonds Payable $1,864,097. 
C)  Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000. 
D)  Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000. 
E)  Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903. 
A)  Debit Cash $2,000,000; credit Bonds Payable $2,000,000. 
B)  Debit Cash $1,864,097; credit Bonds Payable $1,864,097. 
C)  Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000. 
D)  Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000. 
E)  Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903.

Question 4

Match between columns
                        Premises:  Bonds that have specific assets of the issuer pledged as collateral.
 A series of equal payments at equal time intervals.
 The amount by which the bond issue (selling) price exceeds the bond par value.
 Bonds that give the issuer an option of retiring them at a stated dollar amount prior to maturity.
 The interest rate specified in the bond indenture.
 The contract between the bond issuer and the bondholder(s) that identifies the rights and obligations of the parties.
 Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity.
 The net amount at which bonds are reported on the balance sheet.
 The ratio of total liabilities to total stockholders' equity.
 The amount by which the bond par value exceeds the bond issue (selling) price

Accepted Answer

The Answer of Discount on bonds and Callable bonds and is...

Question 5

Match each of the following terms with the appropriate definitions.
(a) Discount on bonds
(b) Callable bonds
(c) Annuity
(d) Debt-to-equity ratio
(e) Sinking fund bonds
(f) Secured bonds
(g) Carrying value
(h) Premium on bonds
(i) Bond indenture
(j) Contract rate

Accepted Answer

1. F; 2. C; 3. H; 4.

Question 6

On January 1, a company issues 8%, 5-year, $300,000 bonds that pay interest semiannually. On the issue date, the annual market rate of interest is 6%. The following information is taken from present value tables: Present value of an annuity for 10 periods at $ 3 \% $$\quad $$\quad $$\quad $8.5302
Present value of an annuity for 10 periods at $ 4 \% $$\quad $$\quad $$\quad $8. 1109
Present value of 1 due in 10 periods at $ 3 \% $$\quad $$\quad $$\quad $$\quad $$\quad $0.7441
Present value of 1 due in 10 periods at $ 4 \% $$\quad $$\quad $$\quad $$\quad $$\quad $0.6756  What is the issue (selling) price of the bond?

Accepted Answer

A)  $402,362 
B)  $300,010 
C)  $420,000 
D)  $308,107 
E)  $325,592 
A)  $402,362 
B)  $300,010 
C)  $420,000 
D)  $308,107 
E)  $325,592

Question 7

A bond is issued at par value when:

Accepted Answer

A)  Straight line amortization is used by the company. 
B)  The bond pays no interest. 
C)  The bond is callable. 
D)  The bond is not between interest payment dates. 
E)  The market rate of interest is the same as the contract rate of interest. 
A)  Straight line amortization is used by the company. 
B)  The bond pays no interest. 
C)  The bond is callable. 
D)  The bond is not between interest payment dates. 
E)  The market rate of interest is the same as the contract rate of interest.

Question 8

A company issued 10%, 5-year bonds with a par value of $2,000,000, on January 1. Interest is to be paid semiannually each June 30 and December 31. The bonds were sold at $2,162,290 based on an annual market rate of 8%. The company uses the effective interest method of amortization.
(1) Prepare an amortization table for the first two semiannual payment periods using the format shown below.
 $\begin{array} { l | l | l | l | l | l } 
\text { Semiannual } & \text { Cash } & \text { Bond } & & & \
\hline \text { Interest } & \text { Interest } & \text { Interest } & \text { Premium } & \text { Unamortized } & \text { Carrying } \
\hline \text { Period } & \text { Paid } & \text { Expense } & \text { Amortization } & \text { Premium } & \text { Value } \
\hline & & & & & \
\hline
\end{array}$ (2) Prepare the journal entry to record the first semiannual interest payment.

Accepted Answer

(1)
6/30
Cash payment: $2,000,000 * 10%

Question 9

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.

Accepted Answer

\[\begin{array} { l | l | l | l } 
\text

Question 10

A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $102,105 cash for the bonds.
- Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Accepted Answer

A)  $6,633.70. 
B)  $7,000.00. 
C)  $3,500.00. 
D)  $3,289.50. 
E)  $3,613,70. 
A)  $6,633.70. 
B)  $7,000.00. 
C)  $3,500.00. 
D)  $3,289.50. 
E)  $3,613,70.

Question 11

Morgan Company issues 9%, 20-year bonds with a par value of $750,000 that pay interest semiannually. The current market rate is 8%. The amount paid to the bondholders for each semiannual interest payment is:

Accepted Answer

A)  $375,000. 
B)  $67,500. 
C)  $33,750. 
D)  $60,000. 
E)  $30,000. 
A)  $375,000. 
B)  $67,500. 
C)  $33,750. 
D)  $60,000. 
E)  $30,000.

Question 12

A company previously issued $2,000,000, 10% bonds, receiving a $120,000 premium. On the current year's interest date, after the bond interest was paid and after 40% of the total premium had been amortized, the company purchased the entire bond issue on the open market at 98 and retired it. Prepare the journal entry to record the retirement of these bonds on January 1 of the current year.

Accepted Answer

* $120,000 * 60% = $

Question 13

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

Accepted Answer

A) True 
 B)False

Question 14

The debt-to-equity ratio:

Accepted Answer

A)  Is not relevant to secured creditors. 
B)  Is calculated by dividing book value of secured liabilities by book value of pledged assets. 
C)  Can always be calculated from information provided in a company's income statement. 
D)  Must be calculated from the market values of assets and liabilities. 
E)  Is a means of assessing the risk of a company's financing structure. 
A)  Is not relevant to secured creditors. 
B)  Is calculated by dividing book value of secured liabilities by book value of pledged assets. 
C)  Can always be calculated from information provided in a company's income statement. 
D)  Must be calculated from the market values of assets and liabilities. 
E)  Is a means of assessing the risk of a company's financing structure.

Question 15

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:

Accepted Answer

A)  $10,000 loss. 
B)  $22,000 gain. 
C)  $0. 
D)  $10,000 gain. 
E)  $22,000 loss. 
A)  $10,000 loss. 
B)  $22,000 gain. 
C)  $0. 
D)  $10,000 gain. 
E)  $22,000 loss.

Question 16

Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

Accepted Answer

A) True 
 B)False

Question 17

A company borrows $40,000 and issues a 3-year, 10% installment note with interest payable annually. The factor for the present value of an annuity at 10% for 3 years is 2.4869. The factor for the present value of a single sum at 10% for 3 years is 0.7513. The amount of the annual payment is $12,000.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

On April 1, a company issues 6%, 10-year, $600,000 par value bonds that pay interest semiannually each March 31 and September 30. The bonds sold at $592,000. The company uses the straight-line method of amortizing bond discounts. Prepare the general journal entry to record the first interest payment on September 30.

Accepted Answer

\[\begin{array} { | l | l | l | l } 
9 /

Question 20

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

Accepted Answer

The answer of An ________ is an obligation requiring a...

Describe installment notes and the nature of the typical payment pattern.

How are bond issue prices determined?

On January 1, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:

Match each of the following terms with the appropriate definitions. (a) Discount on bonds (b) Callable bonds (c) Annuity (d) Debt-to-equity ratio (e) Sinking fund bonds (f) Secured bonds (g) Carrying value (h) Premium on bonds (i) Bond indenture (j) Contract rate

A bond is issued at par value when:

A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $102,105 cash for the bonds. - Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Morgan Company issues 9%, 20-year bonds with a par value of $750,000 that pay interest semiannually. The current market rate is 8%. The amount paid to the bondholders for each semiannual interest payment is:

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

The debt-to-equity ratio:

Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

A company borrows $40,000 and issues a 3-year, 10% installment note with interest payable annually. The factor for the present value of an annuity at 10% for 3 years is 2.4869. The factor for the present value of a single sum at 10% for 3 years is 0.7513. The amount of the annual payment is $12,000.

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

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

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters

Exam 14: Long-Term Liabilities

Describe installment notes and the nature of the typical payment pattern.

How are bond issue prices determined?

On January 1, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:

Match each of the following terms with the appropriate definitions. (a) Discount on bonds (b) Callable bonds (c) Annuity (d) Debt-to-equity ratio (e) Sinking fund bonds (f) Secured bonds (g) Carrying value (h) Premium on bonds (i) Bond indenture (j) Contract rate

A bond is issued at par value when:

A company issued 5-year, 7% bonds with a par value of $100,000. The market rate when the bonds were issued was 6.5%. The company received $102,105 cash for the bonds. - Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Morgan Company issues 9%, 20-year bonds with a par value of $750,000 that pay interest semiannually. The current market rate is 8%. The amount paid to the bondholders for each semiannual interest payment is:

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

The debt-to-equity ratio:

Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

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

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

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters