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Exam 10: Accounting for Long-Term Liabilities

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Question 71

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A company issues 9%,5-year bonds with a par value of $100,000 on January 1 at a price of $106,160,when the market rate of interest was 8%.The bonds pay interest semiannually.The amount of each semiannual interest payment is:

A) $9,000.
B) $8,000.
C) $4,000.
D) $4,500.
E) $0.

F) A) and E)
G) A) and C)

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Question 72

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A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

A) True
B) False

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Question 73

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A company has bonds outstanding with a par value of $100,000.The unamortized discount on these bonds is $4,500.The company calls these bonds at a price of $97,000,the gain or loss on retirement is:

A company issued 5-year,7% bonds with a par value of $100,000.The market rate when the bonds were issued was 6.5%.The company received $102,105 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 total assets of $350,000 and total liabilities of $200,000.Its debt-to-equity ratio is 0.6.

A company issued 10-year,7% bonds with a par value of $100,000.The company received $96,526 for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

How are bond issue prices determined?

Mandarin Company has 9%,20-year bonds outstanding with a par value of $500,000 and a carrying value of $475,000.The company calls the bonds at $482,000.Calculate the gain or loss on the retirement of these bonds.

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

What is a lease? Explain the difference between an operating lease and a finance lease.

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 second interest payment is:

________ leases are long-term leases that do not meet any of the five criteria for finance leases.

A company borrows $10,000 and issues a 5-year,6% installment note with interest payable annually.The factor for the present value of an annuity at 6% for 5 years is 4.2124.The factor for the present value of a single sum at 6% for 5 years is 0.7473.The present value of the interest payments is $2,527.44.

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 following factors:

Sinking fund bonds:

A disadvantage of bond financing over equity financing is the burden on the cash flows of the company.

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

A discount on bonds payable:

Premium on Bonds Payable is an adjunct liability account,as it increases the carrying value of the bond.

Collateral agreements for a note or bond can: