Exam 14: Long-Term Liabilities

The face value of a bond is $71,000,its stated rate is 7%,and the term of the bond is five years.The bond pays interest semiannually.At the time of issue,the market rate is 8%.Determine the present value of the bonds at issuance. Present value of $1: 4\% 5\% 6\% 7\% 8\% 5 0.822 0.784 0.747 0.713 0.681 6 0.790 0.746 0.705 0.666 0.630 7 0.760 0.711 0.665 0.623 0.583 8 0.731 0.677 0.627 0.582 0.540 9 0.703 0.645 0.592 0.544 0.500 10 0.676 0.614 0.558 0.508 0.463 Present value of ordinary annuity of $1: 4\% 5\% 6\% 7\% 8\% 5 4.452 4.329 4.212 4.100 3.993 6 5.242 5.076 4.917 4.767 4.623 7 6.002 5.786 5.582 5.389 5.206 8 6.733 6.463 6.210 5.971 5.747 9 7.435 7.108 6.802 6.515 6.247 10 8.111 7.722 7.360 7.024 6.710

The Employee Bonus Payable would normally be shown on the balance sheet under long-term liabilities.

When using the effective-interest amortization method,the discount amortization is the excess of the calculated interest expense based on the stated interest rate over the interest payment.

When computing a bond's cash flow for interest,which interest rate is used? Why?

Federal Unemployment Taxes Payable is typically shown on the balance sheet under the long-term liabilities section.

England Corporation issued a $400,000,5.5%,10-year bonds payable at 101 on January 1,2009.The bonds are retired on January 1,2019.Prepare the journal entries on the date of issuance and at the date of retirement.Omit explanations.

Define financial leverage and discuss how it is used to increase earnings per share.

If bonds with a face value of $205,000 are issued at 110,the amount of cash proceeds is ________.

Using the effective-interest amortization method,the amount of premium amortization remains the same over the life of the bond.

The time value of money is used to determine the market price of a bond.

On January 1,2018,Gadsby Cabinetry Company purchases $300,000 of equipment by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.Gadsby will make yearly payments of $46,072.The amortization schedule for the first five payments is provided. Beginning Balance Principal Payment Interest Expense Total Payment Ending Balance 1/01/2018 \ 250,000 1/01/2019 \ 250,000 \ 13,572 \ 32,500 \ 46,072 236,428 1/01/2020 236,428 15,336 30,736 46,072 221,092 1/01/2021 221,092 17,330 28,742 46,072 203,762 1/01/2022 203,762 19,583 26,489 46,072 184,179 1/01/2023 184,179 22,129 23,943 46,072 162,050 Prepare the journal entries for the purchase of the equipment and for the January 1,2019 mortgage payment.Omit explanations.

Compound interest means that interest is calculated only on the principal amount.

Unlike cash dividends,which are optional payments to stockholders,the interest payments on bonds are required.

The effective-interest amortization method allocates an amount of bond discount or premium,based on the stated rate of interest,to each interest period over the life of the bond.

The interest rate that investors demand to earn for loaning their money is known as the ________.

FICA-OASDI Taxes Payable would normally be shown on the balance sheet under long-term liabilities.

On January 1,2018,Statewide Sales issued $29,000 in bonds for $20,700.These are six-year bonds with a stated rate of 12% and pay semiannual interest.Statewide Sales uses the straight-line method to amortize the Bond Discount.Immediately after the issue of the bonds,the ledger balances appeared as follows: Discount on Bonds Payable After the second interest payment on December 31,2018,what is the balance of Discount on Bonds Payable? (Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar.)

If a bond is issued at a discount,the issue price is greater than face value.

Secured bonds give bondholders the right to take specified assets of the issuer if the issuer fails to pay principal or interest.

If a company is financing more assets with debt than with equity,the ________.