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

When the effective interest method is used to account for notes, the dollar amount of interest will increase or decrease throughout the maturity period. Explain why.

A non-interest-bearing obligation

Describe the two cash flows associated with bonds.

What is the purpose of interest rate swaps?

Use the table below to answer the problems 30 through 33. -Determine the coupon rate of interest on the bonds. What does this amount represent?

Felton Incorporated is considering leasing equipment. It can either lease that equipment for five or ten years with the same annual lease payments under either agreement. The five-year lease allows Felton to classify the lease as an operating lease. However, the ten-year lease requires Felton to classify the lease as a capital lease. If Felton desires to measure net income higher in the initial year of the lease agreement, which lease contract would you advise Felton to sign? Why?

If the maximum debt/equity ratio as specified by a debt covenant is close to being violated, which one of the following actions would increase the likelihood of violating the debt covenant?

On January 1, a 3-year, $10,000 non-interest-bearing note payable was issued for $7,938 when the market rate of interest was 8%. Interest expense is recognized using the effective interest method. Calculate the balance sheet value of the note a year after its issuance. Round your final answer to the nearest dollar.

Use the table below to answer the problems 30 through 33. -Were the bonds issued at a discount or premium? How do you know?

A five-year, non-interest-bearing, $5,000 note, dated January 1, 2010, has a present value of $3,917. The market rate of interest is 5%. Interest expense for the period ending December 31, 2010, is

Crosson Company uses the straight-line method of amortization and had a ten-year, 12 percent, $1,000,000 bond issue outstanding that had been sold at a $12,000 discount in 2008. The bonds pay interest on June 30 and December 31, and the company's fiscal year end is December 31. The journal entry on June 30, 2011, will include:

A non-interest-bearing note was recorded in the accounting records. The book value of the note

On January 1, 2009, Sheena Corporation issued a 3-year, 7%, $4,000 bond payable. Beginning in 2010, interest is payable every January 1 over the life of the bond. The bonds were issued at 104¼. Calculate the issue price.

Use the table below to answer the problems 30 through 33. -What is the nature of the table presented? What is being amortized?

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

Which one of the following will result from receiving cash upon issuing long-term debt?

If a company issues a non-interest-bearing note payable, then

Interest expense calculated under GAAP is equal to the stated rate of interest times the maturity value if the interest-bearing obligation is issued at

Companies generate assets in three different ways. They are

On January 1, a 7-year, $8,000, non-interest-bearing note payable was issued when the market rate of interest was 7%. What amount should be recorded for the note on the balance sheet at the issue date? a. $3,570 b. $4,982 c. $11,241 d. $37,725