Question 1

On January 1,a company issued a $500,000,10%,8-year bond payable,and received proceeds of $473,845.Interest is payable each June 30 and December 31.The total interest expense on the bond over its eight-year life is $400,000.

Accepted Answer

A) True 
 B)False

Question 2

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 3

________ 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 4

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 5

Premium on Bonds Payable is an adjunct liability account,as it increases the carrying value of the bond.

Accepted Answer

A) True 
 B)False

Question 6

Adonis Corporation issued 10-year,8% bonds with a par value of $200,000.Interest is paid semiannually.The market rate on the issue date was 7.5%.Adonis received $206,948 in cash proceeds.Which of the following statements is true?

Accepted Answer

A)  Adonis must pay $200,000 at maturity and no interest payments. 
B)  Adonis must pay $206,948 at maturity and no interest payments. 
C)  Adonis must pay $200,000 at maturity plus 20 interest payments of $8,000 each. 
D)  Adonis must pay $206,948 at maturity plus 20 interest payments of $8,000 each. 
E)  Adonis must pay $200,000 at maturity plus 20 interest payments of $7,500 each.

Question 7

A disadvantage of an operating lease is the inability to deduct rental payments in computing taxable income.

Accepted Answer

A) True 
 B)False

Question 8

The contract rate on previously issued bonds changes as the market rate of interest changes.

Accepted Answer

A) True 
 B)False

Question 9

When the contract rate on a bond issue is less than the market rate,the bonds sell at a discount.

Accepted Answer

A) True 
 B)False

Question 10

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 11

A company has bonds outstanding with a par value of $100,000.The unamortized premium on these bonds is $2,700.If the company retired these bonds at a call price of 99,the gain or loss on this retirement is:

Accepted Answer

A)  $1,000 gain. 
B)  $1,000 loss. 
C)  $2,700 loss. 
D)  $2,700 gain. 
E)  $3,700 gain.

Question 12

On January 1,a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 equal year-end payments of $21,607.The amount borrowed is $70,000 and 4 years of interest at 9% equals $25,200,for a total of $95,200,yet the total payments on the note amount to only $86,428.Explain.

Accepted Answer

The answer of On January 1,a company borrowed $70,000 cash...

Question 13

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 is the appropriate journal entry to record the issuance of the note?

Accepted Answer

A)  Debit Cash $250,000; debit Interest Expense $37,258; credit Notes Payable $287,258. 
B)  Debit Notes Payable $250,000; credit Cash $250,000. 
C)  Debit Cash $37,258; credit Notes Payable $37,258. 
D)  Debit Cash $250,000; credit Notes Payable $250,000. 
E)  Debit Cash $287,258; credit Interest Payable $37,258; credit Notes Payable $250,000.

Question 14

On January 1,a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195.The first payment is due on December 31.Prepare the journal entries to record the first and second installment payments.

Accepted Answer

The answer of On January 1,a company borrowed $50,000 cash...

Question 15

On January 1,a company issues bonds dated January 1 with a par value of $600,000.The bonds mature in 3 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The bonds are sold for $564,000.The journal entry to record the first interest payment using straight-line amortization is:

Accepted Answer

A)  Debit Interest Payable $21,000; credit Cash $21,000. 
B)  Debit Interest Expense $21,000; credit Cash $21,000. 
C)  Debit Interest Expense $27,000; credit Discount on Bonds Payable $6,000; credit Cash $21,000. 
D)  Debit Interest Expense $15,000; debit Discount on Bonds Payable $6,000; credit Cash $21,000. 
E)  Debit Interest Expense $21,000; credit Premium on Bonds Payable $6,000; credit Cash $15,000.

Question 16

________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

Accepted Answer

The answer of ________ leases are short-term or cancelable leases...

Question 17

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 18

A company borrows $40,000 and issues a 3-year,10% installment note with interest payable annually.The factor for the present value of an annuity at 10% for 3 years is 2.4869.The factor for the present value of a single sum at 10% for 3 years is 0.7513.The amount of the annual payment is $12,000.

Accepted Answer

A) True 
 B)False

Question 19

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 effective interest method,the amount of recorded interest expense for the first semiannual interest period is:

Accepted Answer

A)  $3,500.00. 
B)  $7,000.00. 
C)  $3,318.41. 
D)  $6,573.90. 
E)  $1,750.00.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 10: Accounting for Long-Term Liabilities

On January 1,a company issued a $500,000,10%,8-year bond payable,and received proceeds of $473,845.Interest is payable each June 30 and December 31.The total interest expense on the bond over its eight-year life is $400,000.

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:

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

Premium on Bonds Payable is an adjunct liability account,as it increases the carrying value of the bond.

Adonis Corporation issued 10-year,8% bonds with a par value of $200,000.Interest is paid semiannually.The market rate on the issue date was 7.5%.Adonis received $206,948 in cash proceeds.Which of the following statements is true?

A disadvantage of an operating lease is the inability to deduct rental payments in computing taxable income.

The contract rate on previously issued bonds changes as the market rate of interest changes.

When the contract rate on a bond issue is less than the market rate,the bonds sell at a discount.

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

A company has bonds outstanding with a par value of $100,000.The unamortized premium on these bonds is $2,700.If the company retired these bonds at a call price of 99,the gain or loss on this retirement is:

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 is the appropriate journal entry to record the issuance of the note?

On January 1,a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195.The first payment is due on December 31.Prepare the journal entries to record the first and second installment payments.

________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

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 borrows $40,000 and issues a 3-year,10% installment note with interest payable annually.The factor for the present value of an annuity at 10% for 3 years is 2.4869.The factor for the present value of a single sum at 10% for 3 years is 0.7513.The amount of the annual payment is $12,000.

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 effective interest method,the amount of recorded interest expense for the first semiannual interest period is:

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