Exam 11: Long-Term Liabilities: Notes, Bonds, and Leases

Barkley Brothers Inc. shows the following information on its balance sheet for December 31, 2010. The bonds have a stated annual interest rate of 5 percent and will mature on December 31, 2012. The market value of the bonds as of December 31, 2010, is $98,167. Assume that Barkley retired the bonds by purchasing them on the open market. The journal entry to record this purchase would include: a. a credit to Bonds Payable for $100,000. b. a debit to Discount on Bonds Payable for $5,350. c. a credit to Discount on Bonds Payable for $5,350. d. a debit to Cash for $98,167.

On January 1, 2009 Frank Corporation issued a 3-year, 9%, $5,000 bond payable. Beginning in 2010, interest is payable every January 1 over the life of the bond. The market rate of interest on January 1, 2009 is 6% when the bonds were issued at 108. Calculate the total interest expense over the 3-year life of the bond independent of the particular accounting method used to recognize interest expense each year.

Why might a company redeem bonds before they mature?

Torrey Corporation issued $1,000,000 of ten-year, 10 percent bonds payable dated January 1, 2009. The market rate of interest at that time was 11 percent. The journal entry to record this transaction will include a:

Brown Company is about to issue $300,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The effective interest rate for such securities is 10%. Below are available time value of money factors that Brown chooses from to calculate compounded interest. To the closest dollar, how much can Brown expect to receive for the sale of these bonds?

If an interest-bearing note payable is issued at a premium, then the contractual cash payment for interest is

On January 1, 2009, Pacific Corporation issued a 3-year, 8%, $5,000 bond payable. Beginning in 2010, interest is payable every January 1 over the life of the bond. The market rate of interest on January 1, 2009 is 10%. The bond was issued at $4,750. Calculate the total interest expense over the 3-year life of the bond independent of the particular accounting method used to recognize interest expense each year.

-On January 1, 2009, Denver Company leased equipment under a 5-year lease with payments of $5,000 on each December 31 of the lease term. The present value of the lease payments at a discount rate of 12% is $18,024. If the lease is considered a capital lease, what is the balance sheet value of the lease obligation on January 1, 2010?

Bowlin Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2008, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Bowlin's fiscal year ends on December 31and the company uses the effective interest method of amortization. The book value of the bonds on December 31, 2008 is:

Which one of the following is not a financial instrument?

Gibson Corporation amortizes its bonds using the effective interest method. Which statement is correct?

If an interest-bearing note payable is issued at a discount, then the contractual cash payment for interest is

A debt covenant

Bowlin Company issued $1,000,000 of 9 percent, ten-year bonds for $937,790 on July 1, 2008, when the market rate of interest was 10 percent. The bonds mature in ten years and pay interest on June 30 and December 31. Bowlin's fiscal year ends on December 31and the company uses the effective interest method of amortization. The interest expense for the six months ending December 31, 2008 is:

Financial instruments that are not listed on the balance sheet of a company

On January 1, 2010, Jackson Corporation issued a 4-year, 12%, $20,000 installment note payable. The payment on this note is $6,585 and is paid annually at year-end beginning December 31, 2010. Complete the following amortization schedule.

On January 1, 2010, Hooper Corporation issued 3-year bonds with a $40,000 face amount and a 6% annual coupon rate paid annually on December 31. The bonds were issued at $36,021 when the market rate of interest was 10%. Complete the amortization table for the bonds using the effective interest method. Round all amounts to the nearest dollar.

McCourt Investment Advisors purchased newly issued bonds on October 1, 2005, paying $108,983. The bonds had a face value of $100,000, maturing on September 30, 2010, and pay interest semiannually on March 31 and September 30. The stated interest rate is 6%. What is the effective interest rate?

On September 10, 2009, Humbert Company issued bonds with a face value of $600,000 for a price of 96. During 2012, Humbert exercised a call provision and redeemed the bonds for 101. At the time of the redemption, the bonds had a balance sheet value of $590,000. The journal entry to record the redemption includes:

Stevens Company is about to issue $400,000 of 10-year bonds paying an 8% interest rate with interest payable semiannually. The effective interest rate for such securities is 10%. Below are available time value of money factors that Stevens chooses from to calculate compounded interest. To the closest dollar, how much can Stevens expect to receive for the sale of these bonds? a. $350,151 b. $292,637 c. $800,000 d. $1,405,503