Question 1

On January 1,a company issues 8%,5-year,$300,000 bonds that pay interest semiannually.On the issue date,the annual market rate of interest is 6%.The following information is taken from present value tables:  What is the issue (selling)price of the bond?

Accepted Answer

A) $420,000 
B) $402,362 
C) $300,010 
D) $308,107 
E) $325,592

Question 2

A corporation issued 8% bonds with a par value of $1,000,000,receiving a $20,000 premium.On the interest date 5 years later,after the bond interest was paid and after 40% of the premium had been amortized,the corporation purchased the entire issue on the open market at 99 and retired it.The gain or loss on this retirement is:

Accepted Answer

A) $0. 
B) $10,000 gain. 
C) $10,000 loss. 
D) $22,000 gain. 
E) $22,000 loss.

Question 3

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Accepted Answer

A) True 
 B)False

Question 4

________ 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 5

A company's ability to issue unsecured debt depends on its credit standing.

Accepted Answer

A) True 
 B)False

Question 6

Indenture refers to a bond's legal contract; debenture refers to an unsecured bond.

Accepted Answer

A) True 
 B)False

Question 7

A company issued 8%,15-year bonds with a par value of $550,000 that pay interest semiannually.The market rate on the date of issuance was 8%.The journal entry to record each semiannual interest payment is:

Accepted Answer

A) Debit Bond Interest Expense $22,000; credit Cash $22,000. 
B) Debit Bond Interest Expense $44,000; credit Cash $44,000. 
C) Debit Bond Interest Payable $22,000; credit Cash $22,000. 
D) Debit Bond Interest Expense $550,000; credit Cash $550,000. 
E) No entry is needed,since no interest is paid until the bond is due.

Question 8

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

Accepted Answer

The answer of What is a bond? Identify and discuss...

Question 9

On January 1,a company issues 6%,10 year $300,000 par value bonds that pay semiannual interest each June 30 and December 31.The bonds sell at par value.Prepare the general journal entry to record the issuance of the bonds on January 1.

Accepted Answer

The answer of On January 1,a company issues 6%,10 year...

Question 10

A company's total liabilities divided by its total stockholders' equity is called the:

Accepted Answer

A) Equity ratio. 
B) Return on total assets ratio. 
C) Pledged assets to secured liabilities ratio. 
D) Debt-to-equity ratio. 
E) Times secured liabilities earned ratio.

Question 11

The carrying value of bonds at maturity always equals:

Accepted Answer

A) the amount of cash originally received in exchange for the bonds. 
B) the par value of the bond. 
C) the amount of discount or premium. 
D) the amount of cash originally received in exchange for the bonds plus any unamortized discount or less any premium. 
E) $0.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Accepted Answer

A) True 
 B)False

Question 14

A company issued 9.2%,10-year bonds with a par value of $100,000.Interest is paid semiannually.The annual market interest rate on the issue date was 10%,and the issuer received $95,016 cash for the bonds.The issuer uses the effective interest method for amortization.On the first semiannual interest date,what amount of discount should the issuer amortize?

Accepted Answer

The answer of A company issued 9.2%,10-year bonds with a...

Question 15

On July 1,Shady Creek Resort borrowed $250,000 cash by signing a 10-year,8% installment note requiring equal payments each June 30 of $37,258.What amount of principal will be included in the first annual payment?

Accepted Answer

A) $20,000 
B) $37,258 
C) $25,000 
D) $232,742 
E) $17,258

Question 16

Johanna Corporation issued $3,000,000 of 8%,20-year bonds payable at par value on January 1.Interest is payable each June 30 and December 31.
(a)Prepare the general journal entry to record the issuance of the bonds on January 1.
(b)Prepare the general journal entry to record the first interest payment on June 30.

Accepted Answer

The answer of Johanna Corporation issued $3,000,000 of 8%,20-year bonds...

Question 17

Explain the present value concept as it applies to long-term liabilities.

Accepted Answer

The answer of Explain the present value concept as it...

Question 18

A company issued 5-year,7% bonds with a par value of $100,000.The market rate when the bonds were issued was 6.5%.The company received $102,105 cash for the bonds.Using the straight-line method,the amount of recorded interest expense for the first semiannual interest period is:

Accepted Answer

A) $3,289.50. 
B) $3,500.00. 
C) $3,613,70. 
D) $6,633.70. 
E) $7,000.00.

Question 19

The ________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.

Accepted Answer

The answer of The ________ method of amortizing a bond...

Question 20

The market value (price)of a bond is equal to:

Accepted Answer

A) The present value of all future cash payments provided by a bond. 
B) The present value of all future interest payments provided by a bond. 
C) The present value of the principal for an interest-bearing bond. 
D) The future value of all future cash payments provided by a bond. 
E) The future value of all future interest payments provided by a bond.

Exam 10: Reporting and Analyzing Long-Term Liabilities

On January 1,a company issues 8%,5-year,$300,000 bonds that pay interest semiannually.On the issue date,the annual market rate of interest is 6%.The following information is taken from present value tables: What is the issue (selling) price of the bond?

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

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

A company's ability to issue unsecured debt depends on its credit standing.

Indenture refers to a bond's legal contract; debenture refers to an unsecured bond.

A company issued 8%,15-year bonds with a par value of $550,000 that pay interest semiannually.The market rate on the date of issuance was 8%.The journal entry to record each semiannual interest payment is:

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

On January 1,a company issues 6%,10 year $300,000 par value bonds that pay semiannual interest each June 30 and December 31.The bonds sell at par value.Prepare the general journal entry to record the issuance of the bonds on January 1.

A company's total liabilities divided by its total stockholders' equity is called the:

The carrying value of bonds at maturity always equals:

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

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

On July 1,Shady Creek Resort borrowed $250,000 cash by signing a 10-year,8% installment note requiring equal payments each June 30 of $37,258.What amount of principal will be included in the first annual payment?

Explain the present value concept as it applies to long-term liabilities.

A company issued 5-year,7% bonds with a par value of $100,000.The market rate when the bonds were issued was 6.5%.The company received $102,105 cash for the bonds.Using the straight-line method,the amount of recorded interest expense for the first semiannual interest period is:

The ________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.

The market value (price) of a bond is equal to: