Exam 10: Accounting for Long-Term Debt

Indicate whether each of the following statements about bonds payable is true or false. ___ a) A convertible bond may be converted into stock of the issuing company at the option of the bondholder. _ b) Businesses issue bonds to banks to borrow large amounts of cash. _ c) A debenture is an unsecured bond. _ d) Callable bonds may be turned in for early retirement at the option of the bondholder. ___ e) The issuer of a bond receives cash when the bond is issued.

(Short Answer)

4.7/5

(77)

Question 101

The effective interest rate method of amortizing bond premium or discount gives a constant amount of interest expense every period.

(True/False)

4.8/5

(78)

Question 102

Indicate whether each of the following statements is true or false. ___ a) EBIT stands for earnings before income taxes. _ b) EBIT is used in the computation of the return-on-assets ratio. _ c) A low times-interest-earned ratio is a sign of a high-risk company. _ d) Dividends are deductible in the determination of taxable income. ___ e) Interest is deducted on the income statement but is ignored on the tax return.

(Short Answer)

4.9/5

(81)

Question 103

The reason bonds are sometimes issued at a discount is:

(Multiple Choice)

5.0/5

(77)

Question 104

Grove begins his loan transactions with Commerce Bank by borrowing $1,000 on January 1, 2013. Which of the following answers shows the effect of this event on the financial statements?

(Multiple Choice)

4.9/5

(80)

Question 105

On January 1, 2013, Epstein Co. issued $100,000 of bonds payable at the face value. When the bonds matured on December 31, 2018, Epstein used cash to repay the bond principal and the interest for one year, which had not been previously accrued. Indicate the effects of the 12/31/18 payment.

(Short Answer)

4.8/5

(83)

Question 106

On January 1, 2013, Fairmont Corporation signed a contract with the Community Bank for a line of credit that permitted Fairmont to borrow up to $50,000. Indicate the effects of signing this contract.

(Short Answer)

4.8/5

(68)

Question 107

Which of the following correctly shows the effects of the December 31, 2014 payment?

(Multiple Choice)

4.9/5

(75)

Question 108

Ditech Corporation borrowed $50,000 on January 1, 2013. The loan is for a ten-year period and has an annual interest rate of 9%. At the end of each year, Ditech will make a payment of $7,791, which includes both principal and interest. The amount of the payment for 2013 that is reduction of principal is $3,587.

(True/False)

5.0/5

(75)

Question 109

Which financial statements are affected by the entry to record the payment of bond interest and the related amortization of a discount? Indicate how each statement is affected.

(Essay)

4.9/5

(79)

Question 110

If bonds are issued at a premium, the bond issuer will pay the bondholders an amount lower than the issue price at maturity.

(True/False)

4.9/5

(73)

Question 111

Parsons Company issued at 97 bonds with a face value of $500,000. As a result of the issue:

(Multiple Choice)

4.7/5

(76)

Question 112

If the stated interest rate for bonds is the same as the effective interest rate, the bonds will be issued at their face value.

(True/False)

4.7/5

(86)

Question 113

Discuss the purpose of long-term debt financing.

(Essay)

5.0/5

(85)

Question 114

Which choice reflects the financial statement effects of the cash payment on December 31, 2013?

(Multiple Choice)

4.8/5

(74)

Question 115

On December 31, 2013, Crown Co. paid cash for interest on bonds it had issued on January 1, 2013 at 98, and amortized part of the discount on bonds. Indicate the effects of the payment of interest and amortization of the discount.

(Short Answer)

4.9/5

(81)

Question 116

Blue Manufacturing Company issued $300,000 of 7%, 5-year bonds for $288,000, on January 1, 2013. Interest is payable on January 1 of each year. Blue uses the straight-line method of amortization. The first interest payment is to be made on January 1, 2014. Required: a) Show the effects of the following events on the accounting equation. Event 1. The issuance of the bonds. Event 2. Accrual of interest at December 31, 2013. Event 3. Amortization of discount at December 31, 2013. Event 4. Payment of interest on January 1, 2014. b) What is the carrying value of the bond on January 1, 2014? c) What is the amount of interest paid in (1) 2013? (2) 2014? d) What is the amount of interest expense shown on the income statement in 2013?

(Essay)

4.8/5

(75)

Question 117

Explain the special feature that makes callable bonds attractive to an issuing corporation.

(Essay)

4.9/5

(98)

Question 118

Wayne Company issued $20,000 of callable bonds at face value on January 1, 2013. The bonds carried a 2% call premium. If Wayne calls the bonds, this event would

(Multiple Choice)

4.9/5

(72)

Question 119

The journal entry used to record the issuance of the bond and the receipt of cash would be: (round to whole dollars)

(Multiple Choice)

4.8/5

(67)

Question 120

Showing 101 - 120 of 158

The effective interest rate method of amortizing bond premium or discount gives a constant amount of interest expense every period.

The reason bonds are sometimes issued at a discount is:

Grove begins his loan transactions with Commerce Bank by borrowing $1,000 on January 1, 2013. Which of the following answers shows the effect of this event on the financial statements?

On January 1, 2013, Epstein Co. issued $100,000 of bonds payable at the face value. When the bonds matured on December 31, 2018, Epstein used cash to repay the bond principal and the interest for one year, which had not been previously accrued. Indicate the effects of the 12/31/18 payment.

On January 1, 2013, Fairmont Corporation signed a contract with the Community Bank for a line of credit that permitted Fairmont to borrow up to $50,000. Indicate the effects of signing this contract.

Which of the following correctly shows the effects of the December 31, 2014 payment?

Which financial statements are affected by the entry to record the payment of bond interest and the related amortization of a discount? Indicate how each statement is affected.

If bonds are issued at a premium, the bond issuer will pay the bondholders an amount lower than the issue price at maturity.

Parsons Company issued at 97 bonds with a face value of $500,000. As a result of the issue:

If the stated interest rate for bonds is the same as the effective interest rate, the bonds will be issued at their face value.

Discuss the purpose of long-term debt financing.

Which choice reflects the financial statement effects of the cash payment on December 31, 2013?

On December 31, 2013, Crown Co. paid cash for interest on bonds it had issued on January 1, 2013 at 98, and amortized part of the discount on bonds. Indicate the effects of the payment of interest and amortization of the discount.

Explain the special feature that makes callable bonds attractive to an issuing corporation.

Wayne Company issued $20,000 of callable bonds at face value on January 1, 2013. The bonds carried a 2% call premium. If Wayne calls the bonds, this event would

The journal entry used to record the issuance of the bond and the receipt of cash would be: (round to whole dollars)

An Introduction to Accounting

Accounting for Accruals and Deferrals

The Double-Entry Accounting System

Accounting for Merchandising Businesses

Accounting for Inventories

Internal Control and Accounting for Cash

Accounting for Receivables

Accounting for Long-Term Operational Assets

Accounting for Current Liabilities and Payroll

Proprietorships, Partnerships, and Corporations

Statement of Cash Flows

Financial Statement Analysis Available Online in the Connect Library

Filters