Exam 13: Long Term Liabilities

The advantages of financial leverage accrue primarily to

Alby Corporation purchased a warehouse by signing a long-term $800,000 mortgage with monthly payments of $6,200. The mortgage carries an interest rate of 9 percent. Prepare entries in journal form without explanations to record the purchase and the first two monthly payments. Round answers to the nearest dollar.

On January 1, 2009, Woodvale Corporation issued five-year term bonds with a face value of $700,000. Interest is payable annually on December 31. The bonds were issued for $727,300. The effective interest method of amortization is used. Ryan reported Bond Interest Expense of $65,457 on its income statement for the year ended December 31, 2009. Calculate the effective interest rate for these bonds.

A company with income before income taxes of $97,000, and $20,000 in interest expense, has an interest coverage ratio of

Hooper Corporation has bonds outstanding with a face value of $100,000 and a carrying value of $103,000 on December 31, 2010. If the company calls in and retires these bonds on December 31, 2010, for $105,000, the entry to record the retirement will include a

On March 1, 2010, Darby Corporation sold 102 of its 9 percent, $1,000 bonds for a price of 96 plus accrued interest. The accrued interest amounted to $1,000. If a balance sheet were to be prepared at the end of the day, March 1, 2010, the carrying value reported for the bonds payable would be

When bonds are converted to common stock, which of the following could be part of the entry?

Financial leverage refers to the issuance of stock to raise cash.

Serial bonds are bonds that

Crowley Corporation purchased a building on January 2 by signing a long-term $600,000 mortgage with monthly payments of $5,500. The mortgage carries an interest rate of 10 percent. The entry to record the mortgage will include a

Which of the following is not needed in calculating the value of a bond?

Valdez Corporation has outstanding $1,500,000 of 10 percent bonds callable at 103. On July 1, a semiannual interest payment date, the unamortized bond premium equaled $60,000. On that date, $900,000 of the bonds were called and retired. Prepare an entry in journal form without explanation to record the retirement of the bonds on July 1.

If bonds are issued at a premium, the face interest rate is

McPherson Corporation has $1,000,000 of 20-year, 9 percent bonds dated October 1, with interest payment dates of September 30 and March 31. The company's fiscal year ends July 31, and it uses the effective interest method to amortize premium or discount. a. Prepare entries in journal form for November 1, March 31, and July 31, assuming that the bonds were issued at face value plus accrued interest on November 1. Round answers to the nearest dollar and omit explanations. b. Prepare entries in journal form for October 1, March 31, and July 31, assuming that the bonds were issued at 98 on October 1 to yield an effective interest rate of 9.2 percent. Round answers to the nearest dollar and omit explanations.