Exam 10: Reporting and Analyzing Long-Term Liabilities

On October 1 of the current year a corporation sold,at par plus accrued interest,$1,000,000 of its 12% bonds,which were dated July 1 of this year.What amount of bond interest expense should the company report on its current year income statement?

(Short Answer)

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Question 161

Adidas issued 10-year,8% bonds with a par value of $200,000,where interest is paid semiannually.The market rate on the issue date was 7.5%.Adidas received $206,948 in cash proceeds.Which of the following statements is true?

(Multiple Choice)

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Question 162

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

(True/False)

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Question 163

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

(True/False)

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Question 164

Bonds that give the issuer an option of retiring them prior to the date of maturity are:

(Multiple Choice)

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Question 165

A company issued 10-year,8% bonds with a par value of $200,000.The company received $190,000 for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

(Multiple Choice)

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Question 166

A company issues bonds with a par value of $800,000 on their issue date.The bonds mature in 5 years and pay 6% annual interest in two semiannual payments.On the issue date,the market rate of interest is 8%.Compute the price of the bonds on their issue date.The following information is taken from present value tables: Present value of an annuity for 10 periods at 3\% 8.5302 Present value of an annuity for 10 periods at 4\% 8.1109 Present value of 1 due in 10 periods at 3\% 0.7441 Present value of 1 due in 10 periods at 4\% 0.6756

(Essay)

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Question 167

On August 1,2010,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 $592,000.The company uses the straight-line method of amortizing bond discounts.The company's year-end is December 31.Prepare the general journal entry to record the interest accrued at December 31,2010.

(Essay)

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Question 168

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring annual payments each December 31 of accrued interest plus equal amounts of principal.What journal entry would the issuer record for the first payment?

(Multiple Choice)

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Question 169

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

(True/False)

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Question 170

Unsecured bonds are also called ____________________ and are backed by the issuer's general credit standing.

(Short Answer)

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Question 171

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:

(Multiple Choice)

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Question 172

The type of bond that provides the greatest security from theft of loss is the debenture.

(True/False)

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Question 173

Amortizing a bond discount:

(Multiple Choice)

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Question 174

Match each definition with its term

1 The contract between the bond issuer and the bondholder(s); it identifies the rights and obligations of the parties

Secured bonds

A series of equal payments at equal intervals

Annuity

Bonds that give the issuer an option of retiring them at a stated amount before the date of maturity

Premium on bonds

Correct Answer:

Verified

1 The contract between the bond issuer and the bondholder(s); it identifies the rights and obligations of the parties

A series of equal payments at equal intervals

Bonds that give the issuer an option of retiring them at a stated amount before the date of maturity

Bonds that require the issuer to create a fund of assets at specified amounts and dates to repay the bonds at maturity

Bonds that have specific assets of the issuer pledged as collateral

The ratio of total liabilities to total equity

The difference between the par value of a bond and its higher issue price or carrying value

The interest rate specified in the bond indenture

A written promise to pay an amount identified as the par value along with interest at a stated rate

The net amount at which bonds are reported on the balance sheet

(Matching)

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Question 175

Match each of the following terms with the appropriate definitions 1 through 10.

Debt to equity ratio

The net amount at which bonds are reported on the balance sheet

Secured bonds

A series of equal payments at equal intervals

Carrying value

Bonds that have specific assets of the issuer pledged as collateral

Correct Answer:

Verified

Debt to equity ratio

Secured bonds

Carrying value

Contract rate

Bond indenture

Sinking fund bonds

Callable bonds

Premium on bonds

Bond

Annuity

(Matching)

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Question 176

On January 1,2010,the Plimpton Corporation leased some equipment on a 2-year lease,paying $15,000 per year each December 31.The lease is considered to be an operating lease.Prepare the general journal entry to record the first lease payment on December 31,2010.

(Essay)

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Question 177

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.

(Short Answer)

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Question 178

Explain the amortization of a bond discount.Identify and describe the amortization methods available.

(Essay)

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Question 179

A bond's par value is not necessarily the same as its market value.

(True/False)

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Question 180

On October 1 of the current year a corporation sold,at par plus accrued interest,$1,000,000 of its 12% bonds,which were dated July 1 of this year.What amount of bond interest expense should the company report on its current year income statement?

Adidas issued 10-year,8% bonds with a par value of $200,000,where interest is paid semiannually.The market rate on the issue date was 7.5%.Adidas received $206,948 in cash proceeds.Which of the following statements is true?

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

Bonds that give the issuer an option of retiring them prior to the date of maturity are:

A company issued 10-year,8% bonds with a par value of $200,000.The company received $190,000 for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring annual payments each December 31 of accrued interest plus equal amounts of principal.What journal entry would the issuer record for the first payment?

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

Unsecured bonds are also called ____________________ and are backed by the issuer's general credit standing.

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:

The type of bond that provides the greatest security from theft of loss is the debenture.

Amortizing a bond discount:

On January 1,2010,the Plimpton Corporation leased some equipment on a 2-year lease,paying $15,000 per year each December 31.The lease is considered to be an operating lease.Prepare the general journal entry to record the first lease payment on December 31,2010.

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.

Explain the amortization of a bond discount.Identify and describe the amortization methods available.

A bond's par value is not necessarily the same as its market value.

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Reporting and Analyzing Merchandising Operations

Reporting and Analyzing Inventories

Reporting and Analyzing Cash and Internal Controls

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Term Assets

Reporting and Analyzing Current Liabilities

Reporting and Analyzing Equity

Reporting and Analyzing Cash Flows

Analyzing and Interpreting Financial Statements

Investments and International Operations

Reporting and Analyzing Partnerships

Reporting and Preparing Special Journals

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