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Exam 14: Long-Term Liabilities

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Question 31

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Explain the present value concept as it applies to long-term liabilities.

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The basic present value concept is that ...

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Question 32

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Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called:

A) Coupon bonds.
B) Callable bonds.
C) Serial bonds.
D) Convertible bonds.
E) Registered bonds.

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

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Question 33

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______________ bonds are bonds that are scheduled for maturity on one specified date.

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

A company issued 10%, 10-year bonds with a par value of $1,000,000 on January 1, at a selling price of $885,295, to yield the buyers a 12% return. The company uses the effective interest amortization method. Interest is paid semiannually each June 30 and December 31. (1) Prepare an amortization table for the first two payment periods using the format shown below: (2) Prepare the journal entry to record the first semiannual interest payment.

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

A company purchased two new delivery vans for a total of $250,000 on January 1, Year 1. The company paid $40,000 cash and signed a $210,000, 3-year, 8% note for the remaining balance. The note is to be paid in three annual end-of-year payments of $81,487 each, with the first payment on December 31, Year 1. Each payment includes interest on the unpaid balance plus principal. (1) Prepare a note amortization table using the format below: (2) Prepare the journal entries to record the purchase of the vans on January 1, Year 1 and the second annual installment payment on December 31, Year 2.

The issue price of bonds is found by computing the future value of the bond's cash payments, discounted at the market rate of interest.

The debt-to-equity ratio is calculated by dividing total shareholders' equity by total liabilities.

The market value of a bond is equal to:

An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

The carrying amount of bonds at maturity is always equal to:

Which of the following statements is ?

Owners of coupon bonds are not required to pay tax on the interest earned.

The Discount on Bonds Payable account is:

The use of debt financing insures an increase in return on equity.

The market value or issue price of a bond is equal to the present value of all future cash payments provided by the bond.

Collateral agreements for a note or bond can:

The present value of an annuity factor at 8% for 10 years is 6.7101. This implies that an annuity of ten $15,000 payments at 8% yields a present value of $2,235.

A company enters into an agreement to make 5 annual year-end payments of $3,000 each, starting one year from now. The annual interest rate is 6%. The present value of an annuity factor for 5 periods, 6% is 4.2124. What is the present value of these five payments?