Exam 11: Long-Term Liabilities

Bondholders share voting rights with stockholders.

Unamortized Bond Discount is a contra-liability account.

On December 31,20x5,the balance sheet of the Nowicki Company reported 2,000 bonds outstanding with a face value of $1,000,000 and a related unamortized discount of $70,000.The bonds are convertible at the rate of 25 shares of common stock for each $1,000 bond.On January 1,20x6 ,the bondholders presented $800,000 of the bonds for conversion.The entry to record this conversion contained a credit to Additional Paid-in Capital for $344,000.Calculate the par value per share of the common stock.

The interest coverage ratio measures the degree of protection a company has from default on interest payments.

When there are material differences between the results of using the straight-line method and using the effective interest method of amortization,the effective interest method should be used.

Issuing bonds at a discount has the effect of increasing interest expense above the face amount of interest.

Under the effective interest method of amortizing a bond discount,the bond interest expense recorded for each period decreases over the life of the bond.

On January 2,20x5,Barham Corporation issued ten-year bonds payable with a face value of $400,000 and a face interest rate of 9 percent.The bonds were issued to yield a market interest rate of 10 percent.Interest is payable semiannually on January 2 and July 1.In calculating the present value of the bond issue on January 2,20x5,

The interest coverage ratio equals

A bond indenture is

The carrying value of a bond is also referred to as its present value.

Bondholders are creditors of the issuing corporation.

Tomkin Company had current liabilities of $400,000,current assets of $650,000,total liabilities of $1,300,000,and total assets of $2,200,000.What is Tomkin's debt to equity ratio,rounded to one decimal place?

If the market interest rate at the date of issuance of a bond exceeds the face interest rate,the present value of the face value plus the present value of all the future interest payments will equal an amount less than the face value of the bond.

A company with income before income taxes of $194,000,and $20,000 in interest expense,has an interest coverage ratio of

Serial bonds are bonds that

Which of the following statements is not true about trading on the equity?

When a bond has been issued at a discount,the carrying value at the end of one period is equal to the carrying value at the beginning of the period minus the amount of discount that was amortized during the period.

Leases of short-term assets are operating leases,and leases of long-term assets are capital leases.

Which of the following statements best describes the behavior over time of the components of equal mortgage payments?