Exam 14: Long-Term Liabilities

On January 1, $300,000 of par value bonds with a carrying amount of $310,000 is converted to 50,000 $5 par value ordinary shares. The entry to record the conversion of the bonds includes all of the following entries except:

Which of the following accurately describes a debenture?

The contract rate on previously issued bonds changes as the market rate of interest changes.

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

Bonds that give the issuer an option of retiring them before they mature are:

A bond traded at 102½ means that:

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

An _______________ is a series of equal payments at equal time intervals.

A company retires its bonds at 105. The face value is $100,000 and the carrying amount of the bonds at the retirement date is $103,745. The issuer's journal entry to record the retirement will include a:

Compound interest means that interest in a second period is based on the total amount borrowed plus the interest accrued in the first period.

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

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

On January 1, a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195. The first payment is due on December 31. Prepare the journal entries to record the first and second installment payments.

Tart Company's most recent balance sheet reports total assets of $42,000,000, total liabilities of $16,000,000 and shareholders' 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?

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance and the premium reduces the interest expense of the bond over its life.

A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

Describe the recording procedures for the issuance, retirement, and paying of interest for notes.

The carrying amount of a long-term note payable: