Exam 10: Reporting and Analyzing Long-Term Liabilities

A company borrowed $50,000 cash from the bank and signed a six-year note at 7%.The present value factor for an annuity for six years at 7% is 4.7665.The annual annuity payments equal $10,490.The present value of the loan is:

On January 1,2013,a company issued 10%,10-year bonds payable with a par value of $720,000.The bonds pay interest each July 1 and January 1.The bonds were sold for $817,860 cash,which provides the holders an annual yield of 8%.Prepare the issuer's general journal entry to record the first semiannual interest payment assuming the effective interest method is used.

When the bond contract rate of interest is above the market rate of interest for that bond,the bond sells at a _____________.

The debt to equity ratio is calculated by dividing total liabilities by total assets.

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

The debt to equity ratio helps assess the risks of a company's financing structure.

The contract between the bond issuer and the bondholders,which identifies the rights and obligations of the parties,is called a(n):

Premium on Bonds Payable increases a company's liabilities..

A company has bonds outstanding with a par value of $600,000.The unamortized discount on these bonds is $3,000.The company retired these bonds by buying them on the open market at 98.What is the gain or loss on this retirement?

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

On August 1,2013,a company issues bonds with a par value of $600,000.The bonds mature in 10 years and pay 6% annual interest,payable each February 1 and August 1.The bonds sold at $632,000.The company uses the straight-line method of amortizing bond premiums and discounts.The company's year-end is December 31.Prepare the general journal entry to record the interest accrued at December 31,2013.

Explain how a bond premium is amortized.Identify and describe the amortization methods available.

An advantage of bonds is that interest does not have to be paid.