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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 121

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A company's debt-to-equity ratio was 1.0 at the end of Year 1.By the end of Year 2,it had increased to 1.7.Since the ratio increased from Year 1 to Year 2,the degree of risk in the firm's financing structure decreased during Year 2.

A) True
B) False

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Question 122

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A 10-year bond issue with a $100,000 par value,8% annual contract rate,with interest payable semiannually means that the issuer must repay $100,000 at the end of 10 years and make 20 semiannual interest payments of $4,000 each.

A) True
B) False

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Question 123

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On January 1,a company issued a $500,000,10%,8-year bond payable,and received proceeds of $473,845.Interest is payable each June 30 and December 31.The total interest expense on the bond over its eight-year life is $400,000.

Interest on bonds is tax deductible,while dividend payments are not tax deductible.

On January 1,a company issued a $500,000,10%,8-year bond payable,and received proceeds of $473,845.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The amount of discount amortized each period is $1,634.69.

A basic present value concept is that cash paid or received in the future has more value now than the same amount of cash received today.

Describe the journal entries required to record the issuance of bonds at a premium and the payment of bond interest,including any applicable amortization.

A company issues 9%,5-year bonds with a par value of $100,000 on January 1 at a price of $104,055,when the market rate of interest was 8%.The bonds pay interest semiannually.The amount of each semiannual interest payment is:

Bonds issued in the names and addresses of their holders are ________ bonds.

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The carrying value of the bonds immediately after the first interest payment is:

An advantage of bonds is: