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Exam 10: Accounting for Long-Term Liabilities

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Question 41

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A company issued 10-year, 9% bonds with a par value of $500,000 when the market rate was 9.5%. The company received $484,087 in cash proceeds. Using the straight-line method, prepare the issuer's journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium. (Round amounts to the nearest whole dollar)

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Cash payment: $500,000 * 9% *...

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Question 42

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

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B) False

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Question 43

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When the contract rate is above the market rate, a bond sells at a discount.

A particular feature of callable bonds is that they reduce the bondholder's risk by requiring the issuer to create a sinking fund of assets set aside at specified amounts and dates to repay the bonds at maturity.

A disadvantage of bond financing is:

The contract between the bond issuer and the bondholders identifying the rights and obligations of the parties, is called a(n) :

Describe the journal entries required to record the issuance of bonds at a premium and the payment of bond interest, including any applicable amortization.

All of the following statements regarding accounting treatments for liabilities under U.S. GAAP and IFRS are true except:

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity factor at 8% for 5 years is 3.9927. Each annual payment equals $75,000. The present value of the note is:

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

A company holds $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.

Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals) :

The factor for the present value of an annuity 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.

Chang Industries has bonds outstanding with a par value of $200,000 and a carrying value of $203,000. If the company calls these bonds at a price of $201,000, the gain or loss on retirement is:

Operating leases are long-term or noncancelable leases in which the lessor transfers substantially all the risks and rewards of ownership to the lessee.

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

The ______________ ratio is used to assess the risk of a company's financing structure.

A company's debt-to-equity ratio was 1.0 at the end of Year 1. By the end of Year 2, it had increased to 1.7. Since the ratio increased from Year 1 to Year 2, the degree of risk in the firm's financing structure decreased during Year 2.

On January 1 of 2015, Parson Freight Company issues 7%, 10-year bonds with a par value of $2,000,000. The bonds pay interest semi-annually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as:

Describe the journal entries required to record the issuance of bonds at par and the payment of bond interest.