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Exam 10: Accounting for Long-Term Debt

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Question 91

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On January 1, Year 1, Platte Corporation issues a 5-year note payable for $5,000. The interest rate is 5% and the annual payment of $1,156, due each December 31, includes both interest and principal.Which of the following shows the effect of the December 31, Year 1 payment?

A) Option A
B) Option B
C) Option C
D) Option D

E) All of the above
F) None of the above

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Question 92

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Indicate how each event affects the financial statements. Use the following letters to record your answer in the box shown below. If an event increases one account and decreases another account equally within the same element, record I/D. If an event has no impact on the element, record NA. You do not need to enter dollar amounts.Increase = I Decrease = D Not Affected = NAOn January 1, Year 1, Briand Company issued $200,000 of bonds payable at 98.

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Issuing bonds at a discount increases a...

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Question 93

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Which of the following statements regarding the stated rate of interest is true if a bond is sold at 101?

On July 1, Year 1, Morrison Company issued bonds with a face value of $200,000, a stated rate of interest of 8%, and a 10-year term to maturity. The bonds were issued at 92. Interest is payable semiannually on January 1, and July 1.

Why does interest expense decrease during the life of an installment note payable? How is the amount of interest expense computed?

On January 1, Year 1, Hanover Corporation issued bonds with a $70,500 face value, a stated rate of interest of 8%, and a 5-year term to maturity. The bonds were issued at 97. Hanover uses the straight-line method to amortize bond discounts and premiums. Interest is payable in cash on December 31 each year. How much interest expense will Hanover report on its income statement on December 31, Year 1?

On January 1, Year 1, Sheffield Company issued bonds with a face value of $440,000, a term of ten years, and a stated interest rate of 5%. The bonds were issued at 104, and interest is payable each December 31. Sheffield uses the straight-line method to amortize bond discounts and premiums. What is the carrying value of the bonds at December 31, Year 4?

On January 1, Year 1, Echols Company borrowed $100,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $25,045.65. What is the amount of principal repayment included in the payment made on December 31, Year 1?

Which of the following statements is true regarding the straight-line method of amortizing discounts and premiums on bonds?

Serial bonds are issued based on the overall strength of the borrower's credit.

On January 1, Year 1, Denver Company issued bonds with a face value of $81,000, a statedrate of interest of 8%,and a 5-year term to maturity. The bonds were sold at 102.5. Denver uses the straight-line method to amortize bond discounts and premiums. What is the amount of interest expense during Year 1?