Exam 10: Long-Term Liabilities

Shuttle Master Airlines has leased an aircraft from Streamline Aircraft Company.The annual payments are $1,000,000 and the life of the lease is 18 years.It is estimated that the useful life of the aircraft is 20 years.How would Shuttle Master Airlines record the acquisition of the aircraft? The effective rate of interest is 9%.

Which of the following statements regarding bonds payable is true?

In an operating lease,the lessee is not required to record the right to use the property as an asset or to record the obligation for payments as a liability.

Fenwich Company planned to raise $100,000 by issuing bonds.The bond certificates were printed bearing an interest rate of 8%,which was equal to the market rate of interest.However,before the bonds could be issued,economic conditions forced the market rate up to 9%.If the life of the bonds is 6 years and interest is paid annually on December 31,how much will Fenwich receive from the sale of the bonds?

Rent owed to the landlord is a balance sheet item for Generic Products Company.How would it most likely be classified on the balance sheet?

Grenada Corporation Use the note on Disclosure of Leases for the Grenada Corporation to answer the questions that follow. The Corporation leases office,warehouse and showroom space,retail stores and office equipment under operating leases,which expire no later than 2025.The Corporation normalizes fixed escalations in rental expense under its operating leases.Minimum annual rentals under non-cancelable operating leases,excluding operating cost escalations and contingent rental amounts based upon retail sales,are payable as follows: Fiscal year ending March 31, Rent expense was $12,551,000;$8,911,000;and $5,768,000 for the years ended March 31,2010,2009,and 2008 respectively. Review the information for Grenada Corporation. REQUIRED: (1)What are the two types of leases that a company can have? Describe each briefly. (2)Does the note disclosure show evidence of the two types of leases?

Bonds are a popular source of financing because

One way analysts measure the ability of a company to meet its obligations is to calculate the times interest earned ratio for any outstanding debt the company may have.For Tempo Solutions Corporation,$10,000 of bonds paying 6.5% annually are outstanding.Income before interest and taxes is $7,000.How would Tempo Solutions Corporation calculate the times interest earned ratio?

[APPENDIX] The attitude of the Financial Accounting Standards Board toward deferred tax liabilities is that they are

[APPENDIX] Deferred tax is an amount that reconciles the differences between the income for financial purposes with the income reported for tax purposes.In most cases,it is a long-term liability.

The Discount on Bonds Payable account is shown on the balance sheet as

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. What is the additional amount that Handyman Inc.can borrow and not exceed a debt to equity ratio of 0.3?

Discount on Bonds Payable is shown on the balance sheet as a(n)____________________________.

When bonds are sold for less than the face amount,this means that the

If bonds were initially issued at a premium,the carrying value of the bonds on the issuer's books will

The effective interest method amortizes premium or discount in a manner that produces a(n)______________________ rate of interest from period to period.

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 carrying value of the bonds after the first interest payment is made on June 30,2012?

A convertible bond is one where

The issue price of a bond is always present valued using the market rate of interest.