Exam 7: Accounting for and Presentation of Liabilities

Ariana Co. issued $2,000,000 face amount of 15%, 20-year bonds on April 1, 2014. The bonds pay interest on a semi-annual basis on June 30 and December 31 each year. (a.) Assume that market interest rates were slightly lower than 15% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount? (b.) Independent of part (a), assume that the proceeds were $1,980,000. Write the journal entry or use the horizontal model to show the effects of issuing the bonds. (c.) Assume that the bonds were issued for $1,980,000 as in part (b). Calculate the interest expense that Ariana Co. will show with respect to these bonds in its income statement for the year ended December 31, 2014, assuming that the discount of $20,000 is amortized on a straight-line basis.

If the market price of a bond exceeds its face amount:

The market value of a bond is the sum of the present value of future interest payments and the present value of the amount to be repaid at maturity, discounted at:

The adjusting entry to accrue Interest Expense results in:

A magazine publisher has an account called "Unearned Subscription Revenue." The transaction that causes the balance of this account to decrease is:

On March 15, 2014, Birkshire Energy obtained a nine-month working capital loan from the First National Bank of Oglesby. The face amount of the note signed by the treasurer was $300,000. The interest rate charged by the bank was 10 percent. The bank made the loan on a discount basis. (Round your final answers to the nearest dollar). (a.) Calculate the loan proceeds made available to Birkshire. (b.) Calculate the amount of interest expense related to this loan during the six months ended June 30, 2014. (c.) What is the amount of the current liability related to this loan to be shown in the June 30, 2014, balance sheet?

Computing a borrower's effective interest rate is another application of which of the following concepts?

Which of the following is true regarding bond discounts and/or premiums?

Southern Company's accountant failed to accrue as of 12/31/13 some employee fringe benefit program expenses that were incurred in 2013 and that will be paid in 2014. The result of this omission is to:

When a company issues a bond at a premium:

The financial leverage characteristic of long-term debt results in:

In consolidated financial statements:

Financial leverage refers to which of the following?

On April 15, 2014, Melissa purchased $30,000 of Verbecke Co.'s 12%, 20-year bonds at face amount. Verbecke Co. has paid interest due on the bonds regularly. On April 15, 2018, market interest rates had risen to 14% and Melissa is considering selling the bonds. Using the present value tables in Chapter 6 of the textbook, calculate the market value of Melissa's bonds on April 15, 2018.

When a company issues a bond at a discount:

At December 31, 2013, the end of the first year of operations at Xavion Inc., the firm's accountant neglected to accrue payroll taxes of $27,700 that were applicable to payrolls for the year then ended. (a.) Write the journal entry or use the horizontal model to show the effect of the accrual that should have been made as of December 31, 2013. (b.) Determine the income statement and balance sheet effects of not accruing 2013 payroll taxes at December 31, 2013 (assuming that the payroll taxes were not accrued, as originally stated). (c.) Assume that when the payroll taxes were paid in January 2014, the payroll tax expense account was charged. Assume that at December 31, 2014, the accountant again neglected to accrue the payroll tax liability, which was $20,400 at that date. Determine the income statement and balance sheet effects of not accruing 2014 payroll taxes at December 31, 2014.

Bonner's, Inc. borrowed $12,000 for 4 months on a discount basis. The lender used an interest rate of 8% to calculate the discount. The amount of cash Bonner's, Inc. actually had available to use from this loan was:

Current maturities of long-term debt:

When borrowing money, the most important objective of the borrower should be to:

Which of the following is not usually associated with bonds?