Exam 9: Reporting and Analyzing Liabilities

Determine how each of the following transactions affect liabilities. A. Payment to employees for wages previously accrued B. Accrue interest of $200 on a note payable C. Payment of $200 to bank for interest accrued on a note payable

The price of a bond is equivalent to: I. Face value II. Projected interest payments discounted to the present III. The amortization amount of a bond IV. The present value of the principal payment

Debt ratings specify the amount at which investors can buy bonds from companies.

Select the following items with each of the following: -Utilities payable

Select the following items with each of the following: -Insurance premiums payable

Power 2020 Company issued $1,400,000 of 7%, 20-year bonds at 104 on January 1, 2002. Interest is payable semi-annually on July 1 and January 1. Through January 1, 2016, Power 2020 amortized $39,200 of the bond premium. On January 1, 2016, Power 2020 retires the bond at 101 (after making the interest payment on that date). Using the following table, indicate the effects on the company's financial statements of the bond retirement for January 1, 2016.

A bond selling for an amount above face value is said to be selling at a discount.

The following data relates to Beluga Company and three of its competitors in the mining industry: Comment on the above industry ratios and address specific concerns about Beluga Company that you might have as a commercial lender.

What effects would the accrual of $200 of interest on a note payable have on financial statements? I. Balance sheet: Liabilities are decreased by $200 II. Income statement: Expenses are increased by $200 III. Balance sheet: Retained earnings are decreased by $200 IV. Balance sheet: Cash assets are decreased by $200 V. Balance sheet: Liabilities are increased by $200

The following table lists some bond rankings: What impact does increased risk have on the credit rating of bonds issued by a company? Why do companies in the same industry have different bond rates?

How many payment periods are in a 10-year, 8% bond with an effective interest rate of 6%, and paid semiannually?

Following is an excerpt from a footnote from the Soft-Drink Company 2016 annual report: NOTE10: DEBT AND BORROWING ARRANGEMENTS Short-Term Borrowings Loans and notes payable consist primarily of commercial paper issued in the United States. As of December 31, 2016 and 2015, we had $32,408 million and $24,270 million, respectively, in outstanding commercial paper borrowings. Our weighted-average interest rates for commercial paper outstanding were approximately 0.3 percent and 0.2 percent per year as of December 31, 2016 and 2015, respectively. In addition, we had $15,536 million in lines of credit and other short-term credit facilities as of December 31, 2016, of which $1,708 million was related to the Company's consolidated Philippine bottling operations that were classified as held for sale. The Company's total lines of credit included $186 million that was outstanding and primarily related to our international operations. Included in the credit facilities discussed above, the Company had $12,628 million in lines of credit for general corporate purposes. These backup lines of credit expire at various times from 2017 through 2021. There were no borrowings under these backup lines of credit during 2016. These credit facilities are subject to normal banking terms and conditions. Some of the financial arrangements require compensating balances, none of which is presently significant to our Company. Long-Term Debt During 2016, the Company retired $2,500 million of long-term notes upon maturity and issued $5,500 million of long-term debt. The general terms of the notes issued are as follows: ●$2,000 million total principal amount of notes due March 14, 2018, at a variable interest rate equal to the three-month London Interbank Offered Rate ("LIBOR") minus 0.05 percent; ●$2,000 million total principal amount of notes due March 13, 2019, at a fixed interest rate of 0.75 percent; and ●$1,500 million total principal amount of notes due March 14, 2022, at a fixed interest rate of 1.65 percent. The Company's long-term debt consisted of the following (in millions, except average rate data): Maturities of long-term debt for the five years succeeding December 31, 2016, are as follows (in millions): The cash flows from financing activities section of Soft-Drink Company's 2016 annual report contains the following cash flows provided by (used by) activities (in millions): A. What amount was issued in the form of debt in 2016? 2015? B. Does Soft-Drink Company finance its activities primarily through short-term or long-term debt? C. Based on the info above, what are the details of the long-term debt issuance for 2016? D. How would the issuance of debt in 2016 be reflected on the financial statements for The Soft-Drink Company? E. How would the payments of debt affect the financial statements in 2016?

Both cash received and interest accrued on short-term bank loans used to finance seasonal swings in working capital are reported on the balance sheet.

Which one of the following would be considered a contingent liability?

Flower Company issues $2,000,000 of 8% bonds that pay interest semiannually and mature in 10 years. Compute the bonds' issue price assuming that the bonds' market interest rate is: A. 6% per year compounded semiannually B. 10% per year compounded semiannually

Atlanta Mountain took out a one-year, 6%, $60,000 to be repaid on April 1, 2017. Interest is due when the loan is repaid. How much interest should be accrued at December 31, 2016, and how should it be recorded in the financial statements?

Roaring Rapids Adventures is short on cash, and facing a serious problem. The company does not have enough cash to pay the wages of its park employees, and paychecks are due. Several of the employees have indicated that they will quit if they do not receive their paychecks on time. The company has decided to make a public offering on October 31, 2016, of a $200,000, 5-year 10% bond with semiannual payments to cover the immediate problems as well as some long-term investments that the company hopes to make. Similar bonds demand an 8% return. A. Is this bond being sold at a premium or a discount? Does this have an effect on the risk of the bond? B. Assuming negligible charges by the company's discount investment banking firm, show effects of these initial offerings using the financial statement equation format. C. Create a bond amortization table for the first 3 payments showing the effects of amortization on the liability and interest payments. D. How and by what amount would the amortization differ if Roaring Rapids Adventures issued zero-coupon debt?

For each of the following, indicate the liability, if any, which would be shown on a balance sheet of Sunshine, Inc. as of December 31, 2016. 1. Sunshine, Inc. received an invoice for advertising during December totaling $2,000, but this has yet to be paid. 2. Sunshine, Inc. has accounts payable of $40,000 for products that are included in the 2016 year-end inventory. 3. Sunshine, Inc. has an unused line of credit of $30,000 from E-Z Loan Bank.

Brahtz Fabricators, a manufacturing company, paid $6,500,000 to retire $8,000,000 in 7% bonds due in 5 years. The book value of the bonds was $6,400,000 at the date of retirement. A. How much is the net gain or loss on the redemption of these bonds? B. Prepare the journal entry to record the transaction.

On April 30, 2016, one year before maturity, Periwinkle Products, Inc. retired $600,000 of 8% bonds payable at 103. The book value of the bonds on April 30 was $578,400. Bond interest was last paid on April 30, 2016. What is the gain or loss on the retirement of the bonds?