Exam 10: Reporting and Analyzing Long-Term Liabilities

Sharma Company's balance sheet reflects total assets of $250,000 and total liabilities of $150,000. Calculate the company's debt-to-equity ratio.

The debt-to-equity ratio is calculated by dividing total stockholders' equity by total liabilities.

______________ bonds are bonds that are scheduled for maturity on one specified date.

Saffron Industries most recent balance sheet reports total assets of $42,000,000, total liabilities of $16,000,000 and stockholders' equity of $26,000,000. Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds. What effect, if any, would prepaying the bonds have on the company's debt-to-equity ratio?

A bond is an issuer's written promise to pay an amount identified as the par value of the bond with interest.

The carrying value of a long-term note is computed as the present value of all remaining payments, discounted using the market rate at issuance.

A company holds $150,000 par value of bonds with a carrying value of $147,950. The company calls the bonds at $151,000. Prepare the journal entry to record the retirement of the bonds.

Describe the journal entries required to record the issuance of bonds at par and the payment of bond interest.

Sharmer Company issues 5%, 5 year bonds with a par value of $1,000,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 6%. What is the bond's issue (selling) price, assuming the Present Value of $1 factor for 3% and 10 semi-annual periods is .7441 and the Present Value of an Annuity factor for the same rate and period is 8.5302?

A company issued 10-year, 9% bonds with a par value of $500,000 when the market rate was 9.5%. The company received $484,087 in cash proceeds. Prepare the issuer's journal entry to record the issuance of the bond.

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

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:

The carrying value of bonds at maturity always equals:

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

A company issues 9% bonds with a par value of $100,000 at par on April 1. The bonds pay interest semi-annually on January 1 and July 1. The cash paid on July 1 to the bond holder(s) is:

Strider Corporation issued 14%, 5-year bonds with a par value of $5,000,000 on January 1, Year 1. Interest is to be paid semiannually on each June 30 and December 31. The bonds are issued at $5,368,035 cash when the market rate for this bond is 12%. (a) Prepare the general journal entry to record the issuance of the bonds on January 1, year 1. (b) Show how the bonds would be reported on Strider's balance sheet at January 1, Year 1. (c) Assume that Strider uses the effective interest method of amortization of any discount or premium on bonds. Prepare the general journal entry to record the first semiannual interest payment on June 30, Year 1. (d) Assume instead that Strider uses the straight-line method of amortization of any discount or premium on bonds. Prepare the general journal entry to record the first semiannual interest payment on June 30, Year 1.

On January 1, a company issues 8%, 5 year, $300,000 bonds that pay interest semiannually each June 30 and December 31. On the issue date, the annual market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:

Which of the following accurately describes a debenture?

A _______________________ is a contractual agreement between an employer and its employees for the employer to provide benefits (payments) to employees after they retire.

Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.