Exam 11: Long-Term Liabilities

Lassen Corporation issued ten-year term bonds on January 1,20x5,with a face value of $800,000.The face interest rate is 6 percent and interest is payable semiannually on June 30 and December 31.The bonds were issued for $690,960 to yield an effective annual rate of 8 percent.The effective interest method of amortization is to be used.The entry to record the bond interest expense on the first interest payment date is: (Round answer to the nearest dollar. )

On January 1,20x5,Ed Bradley Co.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.Ed Bradley reported Bond Interest Expense of $65,457 on its income statement for the year ended December 31,20x5.Calculate the effective interest rate for these bonds.

Contributed capital by owners is one source of long-term funds and is considered a type of long-term liability.

On January 2,20x5,Preston Corporation issued 20-year bonds payable with a face value of $300,000 and a face interest rate of 8 percent.The bonds were issued to yield a market interest rate of 9 percent.Interest is payable semi-annually on January 1 and July 1.In calculating the present value of the bond issue of January 2,20x5,the periodic interest payments to be used are

Long-term notes and bonds have similar effects on the financial statements.

Accounting for capital leases can be thought of as similar to accounting for mortgage payments.

The entry to record the issuance of bonds at a discount includes a credit to the Unamortized Bond Discount account.

Lassen Corporation issued ten-year term bonds on January 1,20x5,with a face value of $800,000.The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $690,960 to yield an effective annual rate of 8 percent.The effective interest method of amortization is to be used.The entry to be recorded on December 31,20x5,for the payment of interest (rounded to the nearest dollar)and the amortization of discount is:

A $300,000 bond issue with a carrying value of $311,000 is called at 103 and retired.The entry to record the retirement of bonds is:

The lower the debt to equity ratio,the greater the financial risk the company is taking.

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

The fewer debt securities a corporation issues,the greater the risk of default.

Comment on the change in both the carrying value and the balance of the Unamortized Bond Discount account over the life of a bond issue.

Under a capital lease,the lessee records both an asset and a liability.

In 20x5,Horwitz Corporation issued ten-year,9 percent bonds when the market interest rate was 11 percent.Interest is payable annually.During 20x8,the market rate of interest for similar bonds was 12 percent.Using the effective interest method of amortization,what interest rate will be used to calculate interest expense for 20x8?

Other postretirement benefits should be expensed

If bonds payable were issued initially at a premium,the carrying value of the bonds at a balance sheet date will be calculated by

When a bond issue is converted into common stock,total contributed capital is increased by the fair market value of the bonds converted.

Deferred income taxes are a type of long-term liability that result from using different accounting methods to calculate income taxes on the income statement and income tax liability on the income tax return.

The debt to equity ratio is expressed in terms of dollars.