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Exam 14: Long-Term Liabilities

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Question 51

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Return on equity increases when the expected rate of return from the acquired assets is __________________ than the rate of interest on the bonds used to finance the asset acquisition.

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Question 52

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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.

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Question 53

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A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring equal annual payments each December 31 of $32,136.What journal entry would the issuer record for the first payment?

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.

A company issues 6%,5 year bonds with a par value of $800,000 and semiannual interest payments.On the issue date,the annual market rate of interest is 8%.Compute the issue (selling)price of the bonds..The following information is taken from present value tables:

The carrying value of bonds at maturity always equals:

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the first interest payment using straight-line amortization is:

Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

On August 1,a $30,000,6%,3-year installment note payable is issued by a company.The note requires equal payments of principal plus accrued interest be paid each year on July 31.The present value of an annuity factor for 3 years at 6% is 2.6730.The payment each July 31 will be:

Which of the following accurately describes a debenture?

_________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

All of the following statements regarding leases are true except:

A discount reduces the interest expense of a bond over its life.

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

If a bond's interest period does not coincide with the issuing company's accounting period,an adjusting entry is necessary to recognize bond interest expense accruing since the most recent interest payment.

Bond interest paid by a corporation is an expense,whereas dividends paid are not an expense of the corporation.

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

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