Exam 12: Debt Financing

Ominous Studios,in an effort to promote the release of their new movie "Dragons from Space," began a national sales promotion campaign.Two coupons from specially marked boxes (one coupon in each box)of "Sweet Pops" cereal are redeemable for one ticket to the show.Tickets cost Ominous $1.50 each.Ominous estimates that 40 percent of the coupons will be redeemed.At the end of 2014,the following information is available: What is the estimated liability for premium claims outstanding at December 31,2014?

An entity would be considered the primary beneficiary of a variable interest entity (VIE)if the entity

On October 1,2014,Southpark Inc.issued,at 101 plus accrued interest,800 of its 10 percent,$1,000 bonds.The bonds are dated July 1,2014,and mature on July 1,2021.Interest is payable semiannually on January 1 and July 1.At the time of issuance,Southpark would receive cash of

How would the carrying value of a bond payable be affected by amortization of each of the following? Discount Premium

Debentures are

Torlin Inc.neglected to amortize the discount on outstanding ten-year bonds payable.What is the effect of the failure to record discount amortization on interest expense and bond carrying value,respectively?

A short-term note payable with no stated rate of interest should be

On January 2,2009,Portier Enterprises issued $2,400,000 of 8 percent,15-year semiannual coupon bonds to yield 7.5 percent.Each bond is convertible into 40 shares of $15 par common stock,which was trading at $20 per share on the date of the bond issue.The bonds were issued at 106.Without the conversion feature,the bonds would have been issued for 104.5. On January 3,2014,all of the bonds were converted into common stock.The market price of the stock was $28 per share on the date of conversion.The issue premium is amortized using the straight-line method.

On January 1,2014,$50,000 of 20-year,6 percent debentures were issued for $56,275.20.Interest payment dates on the bonds are January 1 and July 1.The amount of premium to be amortized on July 1,2014,when using the straight-line method is

Marantz Co.neglected to amortize the premium on outstanding ten-year bonds payable.What is the effect of the failure to record premium amortization on interest expense and bond carrying value,respectively?

The price of a bond issue is determined by the market or effective rate of interest.A bond issue with a 8% stated interest rate will sell for less than face value if the market or effective rate of interest is 10%.The creditworthiness of the issuing entity is one of the factors that influence the market rate for a specific bond issue.Investors rely heavily on bond ratings provided by Standard & Poor's Corporation and by Moody's Investors Service,Inc. Required: Complete the table below by entering the appropriate rating for each level of risk under the S&P and Moody's rating systems.

For a bond issue that sells for more than its face value,the market rate of interest is

Which of the following does NOT meet the FASB's definition of a liability?

Romer Corporation,a calendar-year firm,is authorized to issue $200,000 of 10 percent,20-year bonds dated January 1,2014,with interest payable on January 1 and July 1 of each year. -If a $6,000,10 percent,10-year bond was issued at 104 plus accrued interest two months after the authorization date,how much cash was received by the issuer?

Danville Corporation bought a new machine and agreed to pay for it in equal annual installments of $6,000 at the end of each of the next five years.Assume the prevailing interest rate for this type of transaction is 12%.Assume the present value of an ordinary annuity of $1 at 12% for five periods is 3.60.The future amount of an ordinary annuity of $1 at 12% for five periods is 6.35.The present value of $1 at 12% is 0.567.How much should Danville record as the note payable on the balance sheet if financial statements were prepared today?

On January 1,2014,Yearly Corporation issued $500,000 of 10 percent,10-year bonds at 88.5.Interest is payable on December 31.If the market rate of interest was 12 percent at the time the bonds were issued,how much cash was paid for interest in 2014?

On December 31,2014,Zulu Company's current liabilities total $55,000 and long-term liabilities total $155,000.Working capital at December 31,2014,is equal to $85,000.If Zulu Company's debt-to-equity ratio is .30 to 1,total long-term assets must equal

For the issuer of ten-year bonds,the amount of amortization using the effective-interest method would increase each year if the bonds were sold at a Discount Premium

When bonds are redeemed by the issuer prior to their maturity date,any gain or loss on the redemption,if material,is

Rowan Corporation,a calendar-year firm,is authorized to issue $200,000 of 10 percent,20-year bonds dated January 1,2014,with interest payable on January 1 and July 1 of each year.If the bonds were issued to yield 12 percent,the entry to account for the discount amortization and accrual of interest on December 31,2014,would include a