FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 10: Reporting and Analyzing Long-Term Liabilities

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 101

Multiple Choice

Review LaterAdd Note

Review Later

Mercy Hospital issued $1,000,000 of 5% 20-year bonds on January 1 that pay interest semiannually each June 30 and December 31. The market interest rate at the time of issue was 5%. The journal entry Mercy Hospital records for the issuance of the bonds is:

A) Debit Bonds Payable $1,000,000; credit Cash $1,000,000.
B) Debit Cash $1,050,000; credit Bond Interest Payable $50,000; credit Bonds Payable $1,000,000.
C) Debit Cash $1,000,000; credit Bonds Payable $1,000,000.
D) Debit Bond Interest Expense $50,000; credit Cash $50,000.
E) Debit Bond Investment $1,000,000; credit Cash $1,000,000.

F) B) and D)
G) A) and D)

Correct Answer

verified

Show Answer

Question 102

True/False

Review LaterAdd Note

Review Later

An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

A) True
B) False

Correct Answer

verified

Show Answer

Question 103

True/False

Review LaterAdd Note

On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $473,845. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The amount of interest expense to be recorded on June 30 is $25,000. Interest Expense = Cash Paid + Discount Amortization Interest Expense = ($500,000 * 10% * 6/12) + ($26,155/16) = $26,634.69

Johanna Corporation issued $3,000,000 of 8%, 20-year bonds payable at par value on January 1. Interest is payable each June 30 and December 31. (a) Prepare the general journal entry to record the issuance of the bonds on January 1. (b) Prepare the general journal entry to record the first interest payment on June 30.

On March 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 plus interest accrued since January 1. Prepare the general journal entry to record the issuance of the bonds on March 1.

A corporation plans to invest $1 million in oil exploration. The corporation is considering two plans to raise the money. Under Plan #1, bonds with a contract rate of interest of 6% would be issued. Under Plan #2, 50,000 additional shares of common stock would be issued at $20 per share. The corporation currently has 300,000 shares of stock outstanding, and it expects to earn $700,000 per year before bond interest and income taxes. The net income and return on investment for both plans is shown below: Comment on the relative effects of each alternative, including when one form of financing is preferred to another.

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) :

Issuers of coupon bonds are not allowed to deduct the interest expense on their tax returns.

On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,087 every six months. The company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

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

Explain the accounting procedures when a bond's interest period does not coincide with the issuer's accounting period.

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

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, 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 amount of interest expense each semi-annual period using straight-line amortization is:

When applying equal total payments to a note, with each payment the amount applied to the note principal ____________ while the interest expense for the note _____________.

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

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

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