Exam 10: Long-Term Liabilities

A company issued five-year bonds with a par value of $35,000,000 and a 7% annual face on January 2,2017.The issue price of the bond issue was $35,216,127 which reflected a 6.85% effective interest rate. Required a)Determine the effect on the accounting equation upon recording the issuance of the bonds. b)Determine the effect on the accounting equation upon recording the recognition of interest expense at December 31,2017.Any premium or discount should be amortized using the effective interest rate method. c)Determine the effect on the accounting equation upon recording the interest paid to the bondholders on January 2,2018. d)Determine the effect on the accounting equation upon recognizing the interest expense at December 31,2018.Any premium or discount should be amortized using the effective interest rate method.

If a company's bonds are callable,

Fox Chapel Company wishes to issue $400,000 of five-year,6% bonds,with interest paid annually at the end of the year.The market rate of interest is currently 5%.What information is needed in order to determine the selling price?

On January 2,2017,Hi-Tech Master Construction,Inc.issued $500,000,ten-year bonds for $574,540.The bonds pay interest on June 30 and December 31.The face rate is 8%,and the market rate is 6%.The annual cash payment (paid in semiannual payments)on the bonds is

Most investors would prefer to see equity rather than debt on the balance sheet.

The most obvious risk to bond investors is that a company will fail and be unable to pay its debts.

Amortization of a bond premium results in

Most long-term liabilities are related to a firm's investing activities.

Bonds will sell at a discount when

If an investor has the right to retire the bonds,they are referred to as callable.

When a bond issue is retired early,the amount of unamortized discount or premium is not considered in the calculation of a gain or loss.

The excess of the face value of bonds over the issue price is known as a premium.

Bonds are a popular source of financing because

The accounting for leases is an excellent example of the differences in how U.S.and IFRS accounting standards are applied.

A gain on bond redemption

Discount on Bonds Payable is a balance sheet item for Covington Products Company.How would it most likely be classified on the balance sheet?

Carrying value is computed annually when a bond is issued for other than its face value.For a bond issued at a premium,how will this component change as the bond approaches maturity?

Interest expense is computed annually when a bond is issued for other than its face value.For a bond issued at a discount,how will this component change under the effective interest method as the bond approaches maturity?

Debenture bonds are backed by specific collateral of the issuing company.

In calculating deferred income taxes,__________ occur when an item is included in the tax calculation and is never included for financial accounting purposes,or vice versa.