Exam 10: Reporting and Analyzing Long-Term Liabilities

On January 1,2013,Timley issues $2,200,000 of 6%,12-year bonds at a price of 105½ that pay interest semiannually.The straight-line method is used to amortize any bond premium or discount.What is the journal entry to record the first interest payment?

What is an annuity?

Operating leases are long-term or noncancelable leases in which the lessor transfers all the risks and rewards of ownership to the lessee.

What is the debt to equity ratio for a company that has $700,000 in total liabilities and $3,500,000 in total equity?

A company issued five-year,7% bonds with a par value of $100,000.The market rate when the bonds were issued was 6.5%.The company received $101,137 cash for the bonds.Using the straight-line method,the amount of recorded interest expense for the first semiannual interest period is:

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:

A company issued 10%,five-year bonds with a par value of $2,000,000,on January 1,2013.Interest is to be paid semiannually each June 30 and December 31.The bonds were sold at $2,162,290 to yield the buyers an 8% annual return.The company uses the effective interest method of amortization. (1) Prepare an amortization table for the first two semiannual payment periods using the format shown below. (2) Prepare the general journal entry to record the first semiannual interest payment.

Secured bonds:

The present value of an annuity factor for six years at 10% is 4.3553.This means that the present value of an annuity of six annual $2,000 payments at 10% would equal $8,711.

The present value of an annuity can be computed as the sum of the individual future values for each payment.

The ____________ concept is the idea that cash paid (or received) in the future has less value now than the same amount of cash paid (or received) today.

On January 1,2013,a company issued and sold an $850,000,6%,five-year bond payable and received proceeds of $825,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

Which of the following is true regarding the effective interest amortization method?

A company enters into an agreement to make five annual year-end payments of $3,000 each,which will begin one year from now.The annual interest rate is 6%.The present value of an annuity factor for five periods,6%,is 4.2124.What is the present value of these five payments?

A corporation issued 8% bonds with a par value of $1,000,000,receiving a $20,000 premium.On the interest date five years later,after the bond interest was paid and after 40% of the premium had been written off,the corporation purchased the entire issue on the open market at 99 and retired it.The gain or loss on this retirement is:

On January 1,2013,a company issued 10-year,10% bonds payable with a par value of $500,000 and received $442,647 in cash proceeds.The market rate of interest at the date of issuance was 12%.The bonds pay interest semiannually on July 1 and January 1.The issuer uses the straight-line method for amortization.Prepare the issuer's general journal entry to record the first semiannual interest payment on July 1,2013.

A corporation plans to invest $1 million in oil exploration.The corporation is considering two plans to raise the money.Under Plan 1,bonds with a contract rate of interest of 6% would be issued.Under Plan 2,additional shares of common stock would be issued at $20 per share.The corporation currently has 300,000 shares of stock outstanding and it expects to earn $700,000 per year before bond interest and income taxes.The net income and return on investment for both plans is shown below: Comment on the relative effects of each alternative,including when one form of financing is preferred to another.

A company issued 18-year,6% bonds with a par value of $750,000.The company received $761,736 cash for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

Bonds with a par value of less than $1,000 are known as: