Exam 10: Liabilities

Bonds which may be exchanged for a specified number of shares of capital stock are called:

The pension expense of the current period is equal to:

Bonds payable-issued between interest dates Barney Corporation received authorization on December 31,Year 1,to issue $2,500,000 of 6%,10-year bonds.The interest payment dates are June 30 and December 31.All the bonds were issued at a price of 100,plus accrued interest,on February 28,Year 2,two months after the authorization of the bond issue. (d)Prepare the journal entry at February 28,Year 2,to record the issuance of the bonds. (e)Prepare the journal entry at June 30,Year 2 to record the first semiannual interest payment on the bonds.

When an installment note is structured as a "fully amortizing" loan with equal monthly payments (such as a traditional mortgage):

In estimating annual pension expense,which of the following factors would not be taken into consideration?

A measure of a company's liquidity is:

The underwriter guarantees the issuing corporation a specific price for the entire bond issue and sells the bonds to the investing public at a higher price.

The amounts that a business withholds as taxes from an employee's earnings:

A high interest coverage ratio is a sign of creditworthiness.

Fully amortizing installment note payable On October 31,2015 Ronald signed a 2-year installment note in the amount of $50,000 in conjunction with the purchase of equipment.This note is payable in equal monthly installments of $2,354,which include interest computed at an annual rate of 12%.The first monthly payment is made on November 30,2015.This note is fully amortizing over 24 months. Complete the amortization table for the first two payments by entering the correct dollar amounts in the blank spaces provided.In addition,answer the questions that follow. (a)With respect to this note,Ronald's 2015 income statement includes interest expense of $_______________,and Ronald's balance sheet at December 31,2015,includes a total liability for this note payable of ______________.(Do not separate into current and long-term portions.) (b)The aggregate monthly cash payments Ronald will make over the 2-year life of the note payable amount to $_______________. (c)Over the 2-year life of the note,the amount Ronald will pay for interest amounts to $_______________.

A bond that is not secured is also known as:

When money is borrowed by issuing a note payable,the borrower records a liability equal to the maturity value of the note.

One advantage of issuing bonds instead of stock is that:

Which of the following does not affect the market price of an outstanding bond issue?

There is a tax advantage for a company to issue bonds in lieu of stocks.

Bond prices after issuance Several years ago,Clear-Air Systems issued $100 million of 30-year,8% bonds payable at a small premium.Since the bonds were issued,Clear-Air's financial strength and credit rating have actually improved,but today the bonds are trading among investors at a price of 98. (a)Explain the most probable reason why the market price of these bonds has declined,even though Clear-Air's credit rating has improved. (b)How will the drop in the market value of these bonds be reported (if at all)in Clear-Air's income statements and balance sheets? Explain.

An amortization table for a note payable shows decreasing amounts of interest and an increasing amount of unpaid balance each period.

Sand,Inc.has outstanding $5,000,000,10%,20-year bonds.The bonds are callable at 104 on any interest date.The bonds were issued at par and mature in 10 years.Recently,interest rates have declined to 5% and the market price of the bonds has increased to 107.If the company exercises the call provision,the company will record

Bonds issued at discount or premium On March 31,2015 Louis Company issued $20,000,000 face amount of 7%,5-year bonds payable,with interest payable each June 30 and December 31.The company received cash of $20,200,000,including the accrued interest from December 31,2014.Louis uses the straight-line method of amortizing any discount or premium over the remaining life of the bonds - 57 months. (a)What was the amount of accrued interest received by Louis on March 31,2015 when the bonds were issued? (Do not assume the bonds were issued at par.) $________________ (b)What was the amount of discount or premium on the bonds at issuance date? (Indicate discount or premium.) $________________ (c)What amount of cash is paid to bondholders for interest during year 2015? $________________ (d)What is Louis' total interest expense for year 2015 related to this bond issue? $________________ (e)What is the carrying value of this bond issue as of December 31,year 2015? $________________

The amortization of bond discount by the issuing company decreases the carrying value of its bonds payable.