Exam 14: Long Term Liabilities

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

Tire Corp.had income before income taxes of $4,000,000 and interest expense of $450,000.Calculate Tire's interest coverage ratio,rounded to one decimal place.

A bond indenture is

The entry to record the issuance of bonds between interest payment dates will include a debit to Bond Interest Expense.

What is a capital lease,in substance? How is a capital lease recorded? At what amount is a capital lease recorded?

The effective interest method produces a constant dollar amount of bond interest expense to be reported each interest period.

If the market interest rate is lower than the face interest rate at the date of issuance,bonds will

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. )

Interest coverage ratio is a measure of

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

A capital lease represents both an asset and a liability.

When the effective interest method of amortization is used for a bond premium,the amount of interest expense for an interest period is calculated by multiplying the

Bond issue costs

Yount,Inc.issues $400,000 of 20-year,9 percent bonds at 95.Interest is paid semiannually,and the effective interest method is used for amortization.Assume that the market interest rate for similar investments is 10 percent and that the bonds are issued on an interest date. a.What amount was received for the bonds? b.How much interest is paid each interest period? c.How much bond interest expense is recorded on the first interest date (after the issue date)? d.What is the carrying value of the bonds after the first interest date (after the issue date)?

When bonds are converted to stock,any excess carrying value of the bonds over the par value of the stock is to be recorded as Additional Paid-in Capital.

It is the issuer rather than the bond holder who may exercise the call feature of a callable bond.

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.

If the face interest rate at the date of bond issuance exceeds the market interest rate,the bond will probably be sold at a premium.

A bond agreement is referred to as the bond indenture.