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Exam 10: Accounting for Long-Term Liabilities

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Question 1

Multiple Choice

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The Discount on Bonds Payable account is:

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

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

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Question 2

Multiple Choice

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A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000.The difference between par value and issue price for this bond is recorded as a:

A) Credit to Interest Income.
B) Credit to Premium on Bonds Payable.
C) Credit to Discount on Bonds Payable.
D) Debit to Premium on Bonds Payable.
E) Debit to Discount on Bonds Payable.

F) A) and E)
G) C) and E)

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Question 3

Multiple Choice

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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) :

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

On April 1,a company issues 6%,10-year,$600,000 par value bonds that pay interest semiannually each March 31 and September 30.The bonds sold at $592,000.The company uses the straight-line method of amortizing bond discounts.Prepare the general journal entry to record the first interest payment on September 30.

Match each of the following terms with the appropriate definitions. -The net amount at which bonds are reported on the balance sheet.

A bond is an issuer's written promise to pay an amount identified as the par value of the bond along with periodic interest payments.Normal 0 false false false EN-IN X-NONE X-NONE

On August 1,a $30,000,6%,3-year installment note payable is issued by a company.The note requires equal payments of principal plus accrued interest be paid each year on July 31.The present value of an annuity factor for 3 years at 6% is 2.6730.The present value of a single sum factor for 3 years at 6% is 0.8396.The payment each July 31 will be:

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 -After accruing interest at year end,the company's December 31,Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Compounded means that interest during a second period is based on the total amount borrowed plus the interest accrued in the first period.

A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest.The present value of an annuity factor for 6 years at 7% is 4.7665.The present value of a single sum factor for 6 years at 7% is 0.6663.The annual annuity payments equal:

Mortgage bonds are backed only by the good faith and credit of the issuing company.

Bonds issued in the names and addresses of their holders are ________ bonds.

Sharma Company's balance sheet reflects total assets of $250,000 and total liabilities of $150,000.Calculate the company's debt-to-equity ratio.

Match each of the following terms with the appropriate definitions. -Bonds that can be exchanged by the bondholders for a fixed number shares of the issuing corporation's common stock.

A company previously issued $2,000,000,10% bonds,receiving a $120,000 premium.On the current year's interest date,after the bond interest was paid and after 40% of the total premium had been amortized,the company purchased the entire bond issue on the open market at 98 and retired it.Prepare the journal entry to record the retirement of these bonds on January 1 of the current year.

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: $\begin{array}{|l|l|}\hline\text { Present value of an annuity for } 10 \text { periods at } & 8.5302 \\3 \%& \\\hline \text { Present value of an annuity for } 10 \text { periods at } & 8.1109 \\4 \%&\\\hline \text {Present value of 1 due in 10 periods at}\\ 3 \% &0.7441\\\hline \text {Present value of 1 due in 10 periods at }\\4 \% &0.6756\\\hline\end{array}$

On January 1,the Rodrigues Corporation leased some equipment on a 2-year lease,paying $15,000 per year each December 31.The lease is considered to be an operating lease.Prepare the general journal entry to record the first lease payment on December 31.

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 discount amortized each period is $1,634.69.

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