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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 1

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The effective interest method yields increasing amounts of bond interest expense and decreasing amount of premium amortization over the life of the bond .

A) True
B) False

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Question 2

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A company purchased two new delivery vans for a total of $250,000 on January 1,2013.The company paid $40,000 cash and signed a $210,000,three-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 31,2013.Each payment includes interest on the unpaid balance plus principal. (1) Prepare a note amortization table using the format below: (2) Prepare the general journal entries to record the purchase of the vans on January 1,2013 and the second annual installment payment on December 31,2014.

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(1) _TB6947_00_TB694...

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Question 3

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A premium on bonds payable occurs when bonds have a contract rate greater than the market rate at issuance.

An _______________ is a series of equal payments at equal time intervals.

What methods can a company use to retire its bonds?

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

Walker Corporation issued 14%,five-year bonds with a par value of $5,000,000 on January 1,2013.Interest is to be paid semiannually on each June 30 and December 31.The bonds were issued at $5,368,035 cash when the market rate for this bond was 12%. (a) Prepare the general journal entry to record the issuance of the bonds on January 1,2013. (b) Show how the bonds would be reported on Walker's balance sheet at January 1,2013. (c) Assume that Walker uses the effective interest method for amortizing any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,2013. (d) Assume instead that Walker uses the straight-line method for amortizing any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,2013.

On January 1,2013,Daisy Corporation leased equipment,agreeing to pay $5,000 every December 31 for the entire four years of the lease.The present value of the lease payments,at 6% interest is $17,326.The lease is considered a capital lease.How would the company record this transaction?

A basic present value concept is that cash in the future is worth less than the same amount of cash today.

Two common ways of retiring bonds before maturity are to (1) exercise a call option or (2) purchase them on the open market.

A company issued 10-year,8% bonds with a par value of $200,000.The company received $190,000 for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

On January 1,2013,a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in five annual end-of-year payments of $7,189.The first payment is due on December 31,2013.Prepare the general journal entries to record the first and second installment payments.

A company issued 9.2%,10-year bonds with a par value of $100,000.Interest is paid semiannually.The market interest rate on the issue date was 10% and the issuer received $95,016 cash for the bonds.On the first semiannual interest date,what amount of cash should be paid to the holders of these bonds for interest?

A bond sells at a discount when the:

If the borrower fails to pay a mortgage,most mortgage contracts grant the lender the right to foreclose on the property that is identified as security in the contract.

A company calls $150,000 par value of bonds with a carrying value of $147,950.The company calls the bonds at $151,000.Prepare the journal entry to record the retirement of the bonds.

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s) to the lessor.

The Reed Company issued $200,000 par value,10% bonds outstanding that were issued at a discount of $9,800.How would the company' record the journal entry to retire the bonds at the date of maturity?

A company retires its bonds at 105.The carrying value of the bonds at the date of its retirement is $103,745.The issuer's journal entry to record the retirement will include a:

A company issues bonds with a par value of $800,000 on their issue date.The bonds mature in five years and pay 6% annual interest in two semiannual payments.On the issue date,the market rate of interest is 8%.Compute the price of the bonds on their issue date.The following information is taken from present value tables: