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Exam 14: Long-Term Liabilities

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Question 91

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

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Question 92

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If an issuer sells bonds at a date other than an interest payment date:

A) This means the bonds sell at a premium.
B) This means the bonds sell at a discount.
C) The issuing company will report a loss on the sale of the bonds.
D) The issuing company will report a gain on the sale of the bonds.
E) The buyers normally pay the issuer the purchase price plus any interest accrued since the prior interest payment date.

F) C) and D)
G) A) and D)

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Question 93

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Bonds that give the issuer an option of retiring them before they mature are:

The carrying (book)value of a bond payable is the par value of the bonds plus any discount or minus any premium.

Secured bonds:

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

Saffron Industries most recent balance sheet reports total assets of $42,000,000,total liabilities of $16,000,000 and stockholders' equity of $26,000,000.Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds.What effect,if any,would prepaying the bonds have on the company's debt-to-equity ratio?

On January 1,Haymark Corporation leased a truck,agreeing to pay $15,252 every December 31 for the six-year life of the lease.The present value of the lease payments,at 6% interest,is $75,000.The lease is considered a capital lease. (a)Prepare the general journal entry to record the acquisition of the truck with the capital lease. (b)Prepare the general journal entry to record the first lease payment on December 31. (c)Record straight-line depreciation on the truck on December 31,assuming a 6-year life and no salvage value.

A company may retire bonds by all but which of the following means?

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

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

On August 1,a company issues 6%,10 year,$600,000 par value bonds that pay interest semiannually each February 1 and August 1.The bonds sold at $632,000.The company uses the straight-line method of amortizing bond premiums.The company's year-end is December 31.Prepare the general journal entry to record the interest accrued at December 31.

A company issues 9% bonds with a par value of $100,000 at par on April 1.The bonds pay interest semi-annually on January 1 and July 1.The cash paid on July 1 to the bond holder(s) is:

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

On January 1,$300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock.The entry to record the conversion of the bonds includes all of the following entries except:

A disadvantage of bond financing is:

On January 1,a company issues bonds dated January 1 with a par value of $400,000.The bonds mature in 5 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $383,793.The journal entry to record the issuance of the bond is:

A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into.The loan is at 8% interest compounded annually.The present value factor for 3 years at 8% is 0.7938.The present value of the loan (rounded) is:

The party that has the right to exercise a call option on callable bonds is:

A company's ability to issue unsecured debt depends on its credit standing.