Exam 10: Long-Term Liabilities

Happy Corporation leased a building from Sensor Company.The 10-year lease is recorded as a capital lease.The annual payments are $10,000 and the recorded cost of the asset is $67,100.The straight-line method is used to calculate depreciation.Which of the following statements is true?

____________________ bonds may be retired by the issuing company before their specified due date.

In an operating lease,the lessee has acquired sufficient rights of ownership and control of the property to be considered its owner.

[APPENDIX] Wabasso Corporation has made an accounting entry to record deferred taxes as a liability resulting from temporary differences between accounting income and taxable income.Which of the following statements is true?

The bond issue price is determined by calculating the

On January 1,2012,Breaker,Inc.issued $400,000,10-year,10% bonds for $354,200.The bonds pay interest on June 30 and December 31.The market rate is 12%.What is the carryingvalue of the bonds at the end of the ten years?

Stock investors view equity as a claim against the company that must be satisfied before they get a return on their money.

Callable bonds may be retired by the issuer before their specified due date.

[APPENDIX] A decrease in deferred taxes (liability)would appear on the statement of cash flows,prepared using the indirect method as a(n)

The current balance sheet of Handyman Inc.reports total assets of $20 million,total liabilities of $2 million,and owners' equity of $18 million.Handyman Inc.is considering several financing possibilities in order to expand operations. If Handyman Inc.'s owner invests an additional $2 million to finance the expansion,the debt to equity ratio will

The bond issue price equals the _________________________ of the cash flows that the bond will produce.

On January 2,2012,Dock Master Construction,Inc.issued $500,000,10-year bonds for $574,540.The bonds pay interest on June 30 and December 31.The face rate is 8% and the market rate is 6%.What is the carrying value of the bonds after the first interest payment is made on June 30,2012?

Convertible bonds normally sell at a higher price than non-convertible bonds.

[APPENDIX] Wave Corporation is determining its income tax liability.It has one machine that cost $30,000 with a 4-year life and no salvage value.Wave is using an accelerated depreciation method for tax purposes.For accounting purposes,Wave has decided to use the straight-line method.Which of the following statements is true?

The sum of the carrying value and the redemption price at the time bonds are redeemed results in the gain or loss on redemption.

A friend of yours has asked you whether off-balance-sheet financing means that the amounts are immaterial and therefore are not reported.In a short paragraph,tell him what off-balance-sheet financing is and why firms engage in off-balance-sheet transactions?

Bonds were issued at a(n)_____________________ when the issue price exceeds the face value.

Which of the following statements regarding amortization is true?

Long-term liabilities are a component of the "capital structure" of a company.

When bonds are issued by a company,the accounting entry shows an