Exam 14: Long-Term Liabilities

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:

(Multiple Choice)

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Question 161

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?

(Multiple Choice)

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Question 162

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

(Multiple Choice)

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Question 163

A discount reduces the interest expense of a bond over its life.

(True/False)

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Question 164

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

(True/False)

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Question 165

When convertible bonds are converted to a company's stock, the carrying value of the bonds is transferred to equity accounts and no gain or loss is recorded.

(True/False)

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Question 166

Match each of the appropriate definitions with terms

Bonds that can be exchanged by the bondholders for a fixed number shares of the issuing corporation's common stock.

Bond indenture

An obligation requiring a series of periodic payments to the lender.

Term bonds

An accounting method that allocates interest expense over the bonds' life in a way that yields a constant rate of interest.

Bearer bonds

Correct Answer:

Verified

Bonds that can be exchanged by the bondholders for a fixed number shares of the issuing corporation's common stock.

An obligation requiring a series of periodic payments to the lender.

An accounting method that allocates interest expense over the bonds' life in a way that yields a constant rate of interest.

Bonds that are scheduled for maturity on one specified date.

Bonds with interest coupons attached to their certificates; the bondholders detach the coupons when they mature and present them to a bank or broker for collection.

Bonds that are payable to whoever holds them; also called unregistered bonds.

Bonds that are backed by the issuer's general credit standing.

The contract between the bond issuer and the bondholders; it identifies the rights and obligations of the parties.

Bonds that mature at more than one date and are usually paid over a number of periods.

The interest rate that borrowers are willing to pay and lenders are willing to accept for a particular bond at its risk level.

(Matching)

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Question 167

A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

(True/False)

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Question 168

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.

(True/False)

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Question 169

Showing 161 - 169 of 169

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:

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?

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

A discount reduces the interest expense of a bond over its life.

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

When convertible bonds are converted to a company's stock, the carrying value of the bonds is transferred to equity accounts and no gain or loss is recorded.

A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

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.

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

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