Question 1

A company issues 9% bonds with a par value of $100,000 at par on April 1,which is 4 months after the most recent interest date.The cash received for accrued interest on April 1 by the bond issuer is:

Accepted Answer

A) $750. 
B) $5,250. 
C) $1,500. 
D) $3,000. 
E) $6,000.

Question 2

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

Accepted Answer

A) True 
 B)False

Question 3

An _______________ is a series of equal payments at equal time intervals.

Accepted Answer

The answer of An _______________ is a series of equal...

Question 4

A bond is an issuer's written promise to pay an amount identified as the par value of the bond along with interest.

Accepted Answer

A) True 
 B)False

Question 5

An annuity is a series of equal payments at equal time intervals.

Accepted Answer

A) True 
 B)False

Question 6

On January 1,Year 1 a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 annual year-end payments of $21,607,the first of which is due on December 31,Year 1.
(a)Prepare the company's journal entry to record the note's issuance.
(b)Prepare the journal entries to record the first and second installment payments.

Accepted Answer

The answer of On January 1,Year 1 a company borrowed...

Question 7

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

Accepted Answer

A) True 
 B)False

Question 8

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

Accepted Answer

A) True 
 B)False

Question 9

All of the following statements regarding accounting treatments for liabilities under U.S.GAAP and IFRS are true except:

Accepted Answer

A) Accounting for bonds and notes under U.S.GAAP and IFRS is similar. 
B) Both U.S.GAAP and IFRS require companies to distinguish between operating leases and capital leases. 
C) The criteria for identifying a lease as a capital lease are more general under IFRS. 
D) Both U.S.GAAP and IFRS require companies to record costs of retirement benefits as employees work and earn them. 
E) Use of the fair value option to account for bonds and notes is not acceptable under U.S.GAAP or IFRS.

Question 10

On June 1,a company issued $200,000 of 12% bonds at their par value plus accrued interest.The interest on these bonds is payable semiannually on January 1 and July 1.Prepare the issuer's journal entry to record the bond issuance of June 1.

Accepted Answer

The answer of On June 1,a company issued $200,000 of...

Question 11

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,947 cash for the bonds.Using the effective interest method,the amount of interest expense for the first semiannual interest period is:

Accepted Answer

A) $3,500.00. 
B) $3,673.01. 
C) $3,705.30. 
D) $7,000.00. 
E) $7,346.03.

Question 12

The debt-to-equity ratio is calculated by dividing total stockholders' equity by total liabilities.

Accepted Answer

A) True 
 B)False

Question 13

The contract rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

Accepted Answer

A) True 
 B)False

Question 14

A _______________________ is a contractual agreement between an employer and its employees for the employer to provide benefits (payments)to employees after they retire.

Accepted Answer

The answer of A _______________________ is a contractual agreement between...

Question 15

On January 1,a company issues bonds dated January 1 with a par value of $400,000.The bonds mature in 5 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $383,793.The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A) Debit Interest Payable $14,000.00;credit Cash $14,000.00. 
B) Debit Interest Expense $14,000.00;credit Cash $14,000.00. 
C) Debit Interest Expense $15,620.70;credit Discount on Bonds Payable $1,620.70;credit Cash $14,000.00. 
D) Debit Interest Expense $12,379.30;debit Discount on Bonds Payable $1,620.70;credit Cash $14,000.00. 
E) Debit Interest Expense $15,620.70;credit Premium on Bonds Payable $1,620.70;credit Cash $14,000.00.

Question 16

____________________ leases are long-term or noncancelable leases by which the lessor transfers substantially all risks and rewards of ownership to the lessee.

Accepted Answer

The answer of ____________________ leases are long-term or noncancelable leases...

Question 17

A lessee has substantially all of the benefits and risks of ownership in an operating lease.

Accepted Answer

A) True 
 B)False

Question 18

A company has bonds outstanding with a par value of $100,000.The unamortized discount on these bonds is $4,500.The company retired these bonds by buying them on the open market at 97.What is the gain or loss on this retirement?

Accepted Answer

A) $0 gain or loss. 
B) $1,500 gain. 
C) $1,500 loss. 
D) $3,000 gain. 
E) $3,000 loss.

Question 19

A company has 10%,20-year bonds outstanding with a par value of $500,000.The company calls the bonds at 96 when the unamortized discount is $24,500.Calculate the gain or loss on the retirement of these bonds.

Accepted Answer

The answer of A company has 10%,20-year bonds outstanding with...

Question 20

The carrying value of a long-term note payable is computed as:

Accepted Answer

A) The future value of all remaining payments,using the market rate of interest. 
B) The face value of the long-term note less the total of all future interest payments. 
C) The present value of all remaining payments,discounted using the market rate of interest at the time of issuance. 
D) The present value of all remaining interest payments,discounted using the note's rate of interest. 
E) The face value of the long-term note plus the total of all future interest payments.

Exam 14: Long-Term Liabilities

A company issues 9% bonds with a par value of $100,000 at par on April 1,which is 4 months after the most recent interest date.The cash received for accrued interest on April 1 by the bond issuer is:

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

An _______________ is a series of equal payments at equal time intervals.

A bond is an issuer's written promise to pay an amount identified as the par value of the bond along with interest.

An annuity is a series of equal payments at equal time intervals.

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

All of the following statements regarding accounting treatments for liabilities under U.S.GAAP and IFRS are true except:

On June 1,a company issued $200,000 of 12% bonds at their par value plus accrued interest.The interest on these bonds is payable semiannually on January 1 and July 1.Prepare the issuer's journal entry to record the bond issuance of June 1.

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,947 cash for the bonds.Using the effective interest method,the amount of interest expense for the first semiannual interest period is:

The debt-to-equity ratio is calculated by dividing total stockholders' equity by total liabilities.

The contract rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

A _______________________ is a contractual agreement between an employer and its employees for the employer to provide benefits (payments)to employees after they retire.

____________________ leases are long-term or noncancelable leases by which the lessor transfers substantially all risks and rewards of ownership to the lessee.

A lessee has substantially all of the benefits and risks of ownership in an operating lease.

A company has bonds outstanding with a par value of $100,000.The unamortized discount on these bonds is $4,500.The company retired these bonds by buying them on the open market at 97.What is the gain or loss on this retirement?

A company has 10%,20-year bonds outstanding with a par value of $500,000.The company calls the bonds at 96 when the unamortized discount is $24,500.Calculate the gain or loss on the retirement of these bonds.

The carrying value of a long-term note payable is computed as: