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Exam 14: Long-Term Liabilities

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Question 31

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

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Question 32

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The Discount on Bonds Payable account is:

A) A contra expense.
B) A contra liability.
C) A contra equity.
D) A liability.
E) An expense.

F) A) and B)
G) None of the above

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Question 33

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The Premium on Bonds Payable account is a(n) :

A bond traded at 102½ means that:

A company issues 8% bonds with a par value of $40,000 at par on January 1. The market rate on the date of issuance was 7%. The bonds pay interest semiannually on January 1 and July 1. The cash paid on July 1 to the bond holder(s) is:

A company's total liabilities divided by its total stockholders' equity is called the:

On January 1, a company issues 6%, 10 year $300,000 par value bonds that pay semiannual interest each June 30 and December 31. The bonds sell at par value. Prepare the general journal entry to record the issuance of the bonds on January 1.

A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:

The carrying value of a long-term note payable is computed as:

A premium reduces the interest expense of a bond over its life.

On January 1, a company issues 8%, 5-year, $300,000 bonds that pay interest semiannually each June 30 and December 31. On the issue date, the annual market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables: $\begin{array}{l|l}\text { Present value of an annuity for } 10 \text { periods at } & 8.5302 \\3 \% \ldots \ldots . & \\\hline \begin{array}{l} \text { Present value of an annuity for } 10 \text { periods at } \\4 \% \ldots \ldots . . .\end{array} & 8.1109\\\hline \begin{array}{l}\text { Present value of } 1 \text { due in } 10 \text { periods at } \\3\%\\\end{array} & 0.7441\\\hline \begin{array}{l}\text { Present value of } 1 \text { due in } 10 \text { periods at } \\4 \% \ldots \ldots \ldots . . . . . . . .\end{array} & 0.6756 \\\hline\end{array}$

An advantage of bond financing is that issuing bonds does not affect owner control.

Which of the following accurately describes a debenture?

On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. - The carrying value of the bonds immediately after the first interest payment is:

Mandarin Company has 9%, 20-year bonds outstanding with a par value of $500,000 and a carrying value of $475,000. The company calls the bonds at $482,000. Calculate the gain or loss on the retirement of these bonds.

On January 1, Year 1, Stratton Company borrowed $100,000 on a 10-year, 7% installment note payable. The terms of the note require Stratton to pay 10 equal payments of $14,238 each December 31 for 10 years. -The required general journal entry to record the first payment on the note on December 31, Year 1 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.

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

Bonds that have interest coupons attached to their certificates, which the bondholders present to a bank or broker for collection, are called:

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