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Exam 10: Long-Term Liabilities

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Question 41

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A ten-year lease obligation appears on the balance sheet of Generic Products Company.How would it most likely be classified on the balance sheet?

A) Long-term liability
B) Current asset
C) Long-term asset
D) Contra-liability

E) A) and D)
F) A) and B)

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Question 42

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Long-term liabilities are a component of the "capital structure" of a company.

A) True
B) False

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Question 43

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The issue price of a bond is always calculated at present value using the market rate of interest.

Padagonian Company Use the Deferred Income Taxes account that appears in the financial statements of Padagonian Company to answer the related questions. $\begin{array} { l r r } & { \text { December 31, } } \\\text { (In millions) } & \underline{ \mathbf { 2 0 1 8 } } & \underline{\mathbf { 2 0 1 7 } }\\\text { Deferred income taxes } & { \$442 }& \$ 358 \\\text { Total assets } & 22,417 & 20,834 \\\text { Total current liabilities } & 8,429 & 9,321 \\\text { Total stockholders' equity } & 11,366 & 9,316\end{array}$ - Review the information for Padagonian Company. Required (1)In your opinion,are deferred income taxes an appreciable portion of both long-term liabilities and total liabilities? Why? (2)What difference between accounting income and taxable income produces the Deferred Income Taxes account? (3)Will Padagonian eventually pay the deferred tax liability? When?

On January 1,2017,Sharpsburg,Inc.issued $400,000,ten-year,10% bonds for $354,200.The bonds pay interest on June 30 and December 31.The market rate is 12%.What is the carrying value of the bonds after the first interest payment is made on June 30,2017?

A decrease in deferred taxes (liability) would appear on the statement of cash flows,prepared using the indirect method as a(n)

Which of the following statements regarding leases is false?

Bonds were issued at a(n)__________ when the issue price exceeds the face value.

When bonds are issued by a company,the accounting entry shows an

In general,the international accounting standards provide lease criteria that are similar to the U.S.standards.

Antietam Corporation Use the note on disclosure of leases for Antietam Corporation to answer the questions that follow. The Corporation leases office, warehouse and showroom space, retail stores and office equipment under operating leases, which expire no later than 2031. The Corporation normalizes fixed escalations in rental expense under its operating leases. Minimum annual rentals under noncancelable operating leases, excluding operating cost escalations and contingent rental amounts based upon retail sales, are payable as follows: $\begin{array}{l}\text { Fiscal year ending March 31, }\\\begin{array} { l r } 2017 & \$ 10,051,000 \\2018 & 11,121,000 \\2019 & 10,161,000 \\2020 & 9,063,000 \\2021 & 8,814,000 \\\text { Thereafter } & 46,681,000\end{array}\end{array}$ Rent expense was $12,551,000, $8,911,000, and $5,768,000 for the years ended March 31, 2016, 2015, and 2014, respectively. -Review the information for Antietam Corporation. Required The note disclosure mentions contingent rent payments.What do you think this means with regard to Antietam Corporation?

If the lease term is 75% or more of the property's economic life,the lease agreement should be accounted for as an operating lease.

If bonds were initially issued at a discount,the interest expense on the bonds calculated using the effective interest method will

Sewickley Company Use the Liabilities section of Sewickley Company's balance sheet to answer the questions that follow. $\begin{array}{c}\text {Sewickley Company}\\\text {Consolidated Balance Sheets}\\ \text {(in millions)}\\\begin{array}{lrr}&\quad\quad\text { December 31,} \\&2018 & 2017 \\\text { Current liabilities }\\\text { Short-term borrowings } & \$ 354 & \$ 202 \\\text { Accounts payable and other current liabilities } & 4,461 & 4,529 \\\text { Income taxes payable } & \underline{183} & \underline{64} \\\text { Total current liabilities } & \$ 4,998 & \$ 4,795\\\\\text { Long-term debt } & \$ 2,651 & \$ 3,009 \\\text { Other long-term li abilities } & 3,876 & 3,960 \\\text { Deferred income taxes (assume all are long-term) } & 1,496 & 1,367\end{array}\end{array}$ -Review the consolidated balance sheets of Sewickley Company. Required (1)What are the total long-term liabilities for the two years presented? (2)What is the percent increase/decrease of long-term liabilities from 2017 to 2018? Which liability appears to have caused the greatest change?

On January 2,2017,Wynn Corporation sold $750,000 of bonds for $745,000.The bonds will mature in ten years and pay interest annually on December 31.Wynn properly recorded the payment of interest and amortization of the discount using the effective interest method.Which of the following statements is true about the carrying value of the bonds and/or the unamortized discount at the end of 2017?

Deferred income taxes arise because

All of the following are considered to be long-term liabilities for Parsons Company except

Discount on Bonds Payable is classified as a current liability.

__________ is the process of transferring an amount from the bond discount or premium to interest expense each time period to adjust interest expense.

A bond issue price is the present value of the cash flows that the bond will produce.