Question 1

Describe installment notes and the nature of the typical payment pattern.

Accepted Answer

Installment notes are agreements to repa

Question 2

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 interest expense will be included in the first annual payment?

Accepted Answer

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

Question 3

Marwick Corporation issues 8%, 5-year bonds with a par value of $1,000,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling)price, assuming the following Present Value factors: $\begin{array}{rlll}
&&\text { Present Value of an }\
n=&i=&\text { Annuity }&\text { Present value of } \mathbb{\$1}\
5 & 8 \% & 3.9927 & 0.6806 \
10 & 4 \% & 8.1109 & 0.6756 \
5 & 6 \% & 4.2124 & 0.7473 \
10 & 3 \% & 8.5307 & 0.7441
\end{array}$

Accepted Answer

A) $1,085,308 
B) $658,792 
C) $1,341,208 
D) $1,000,000 
E) $789,244 
A) $1,085,308 
B) $658,792 
C) $1,341,208 
D) $1,000,000 
E) $789,244

Question 4

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the issuance of the bond is:

Accepted Answer

A) Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177. 
B) Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000. 
C) Debit Cash $312,177; credit Bonds Payable $312,177. 
D) Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177. 
E) Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000. 
A) Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177. 
B) Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000. 
C) Debit Cash $312,177; credit Bonds Payable $312,177. 
D) Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177. 
E) Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000.

Question 5

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

Question 6

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,946.80 cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is:

Accepted Answer

A) $3,679.49. 
B) $7,000.00. 
C) $3,673.01. 
D) $7,346.03. 
E) $3,500.00. 
A) $3,679.49. 
B) $7,000.00. 
C) $3,673.01. 
D) $7,346.03. 
E) $3,500.00.

Question 7

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

Question 8

A company borrows $10,000 and issues a 5-year, 6% installment note with interest payable annually. The factor for the present value of an annuity at 6% for 5 years is 4.2124. The factor for the present value of a single sum at 6% for 5 years is 0.7473. The amount of the annual payment is
$2,373.94.

Accepted Answer

A) True 
 B)False

Question 9

The carrying (book)value of a bond at the time it is issued is always equal to its par value.

Accepted Answer

A) True 
 B)False

Question 10

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

Accepted Answer

A) True 
 B)False

Question 11

On January 1, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:

Accepted Answer

A) Debit Cash $2,000,000; credit Bonds Payable $2,000,000. 
B) Debit Cash $1,864,097; credit Bonds Payable $1,864,097. 
C) Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000. 
D) Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000. 
E) Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903. 
A) Debit Cash $2,000,000; credit Bonds Payable $2,000,000. 
B) Debit Cash $1,864,097; credit Bonds Payable $1,864,097. 
C) Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000. 
D) Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000. 
E) Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903.

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

Payments on an installment note include

Question 13

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

Question 14

A company issues 9%, 5-year bonds with a par value of $100,000 on January 1 at a price of $106,160, when the market rate of interest was 8%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:

Accepted Answer

A) $4,000. 
B) $4,500. 
C) $9,000. 
D) $8,000. 
E) $0. 
A) $4,000. 
B) $4,500. 
C) $9,000. 
D) $8,000. 
E) $0.

Question 15

A bond is an issuer's written promise to pay an amount identified as the par value of the bond along with periodic interest payments. Normal 0 false false false EN-IN X-NONE X-NONE

Accepted Answer

A) True 
 B)False

Question 16

On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7%, bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized using the straight-line method at a rate of $10,087 every six months. The life of these bonds is:

Accepted Answer

A) 30 years. 
B) 26.5 years. 
C) 35 years. 
D) 32 years 
E) 15 years. 
A) 30 years. 
B) 26.5 years. 
C) 35 years. 
D) 32 years 
E) 15 years.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

Accepted Answer

A) Credit to Discount on Bonds Payable. 
B) Credit to Premium on Bonds Payable. 
C) Credit to Interest Income. 
D) Debit to Discount on Bonds Payable. 
E) Debit to Premium on Bonds Payable. 
A) Credit to Discount on Bonds Payable. 
B) Credit to Premium on Bonds Payable. 
C) Credit to Interest Income. 
D) Debit to Discount on Bonds Payable. 
E) Debit to Premium on Bonds Payable.

Question 19

What is a lease? Explain the difference between an operating lease and a capital lease.

Accepted Answer

A lease is a contractual agreement betwe

Question 20

An advantage of bond financing is that issuing bonds does not affect owner control.

Accepted Answer

A) True 
 B)False

Describe installment notes and the nature of the typical payment pattern.

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 interest expense will be included in the first annual payment?

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?

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,946.80 cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is:

A company borrows $10,000 and issues a 5-year, 6% installment note with interest payable annually. The factor for the present value of an annuity at 6% for 5 years is 4.2124. The factor for the present value of a single sum at 6% for 5 years is 0.7473. The amount of the annual payment is $2,373.94.

The carrying (book)value of a bond at the time it is issued is always equal to its par value.

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

On January 1, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:

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:

A company issues 9%, 5-year bonds with a par value of $100,000 on January 1 at a price of $106,160, when the market rate of interest was 8%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:

A bond is an issuer's written promise to pay an amount identified as the par value of the bond along with periodic interest payments. Normal 0 false false false EN-IN X-NONE X-NONE

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

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

What is a lease? Explain the difference between an operating lease and a capital lease.

An advantage of bond financing is that issuing bonds does not affect owner control.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters

Exam 14: Long-Term Liabilities

Describe installment notes and the nature of the typical payment pattern.

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 interest expense will be included in the first annual payment?

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?

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,946.80 cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is:

A company borrows $10,000 and issues a 5-year, 6% installment note with interest payable annually. The factor for the present value of an annuity at 6% for 5 years is 4.2124. The factor for the present value of a single sum at 6% for 5 years is 0.7473. The amount of the annual payment is $2,373.94.

The carrying (book)value of a bond at the time it is issued is always equal to its par value.

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

On January 1, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:

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:

A company issues 9%, 5-year bonds with a par value of $100,000 on January 1 at a price of $106,160, when the market rate of interest was 8%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:

A bond is an issuer's written promise to pay an amount identified as the par value of the bond along with periodic interest payments. Normal 0 false false false EN-IN X-NONE X-NONE

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

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

What is a lease? Explain the difference between an operating lease and a capital lease.

An advantage of bond financing is that issuing bonds does not affect owner control.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters