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Exam 10: Accounting for Long-Term Liabilities

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Question 101

True/False

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

A) True
B) False

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Question 102

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

A) Coupon bonds.
B) Callable bonds.
C) Serial bonds.
D) Convertible bonds.
E) Registered bonds.

F) D) and E)
G) A) and E)

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Question 103

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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:

On January 1,Haymark Corporation leased a truck,agreeing to pay $15,252 every December 31 for the six-year life of the lease.The present value of the lease payments,at 6% interest,is $75,000.The lease is considered a capital lease. (a)Prepare the general journal entry to record the acquisition of the truck with the capital lease. (b)Prepare the general journal entry to record the first lease payment on December 31. (c)Record straight-line depreciation on the truck on December 31,assuming a 6-year life and no salvage value.

Debentures always have specific assets of the issuing company pledged as collateral.

A lessee has substantially all of the benefits and risks of ownership in an operating lease.

A company issued 10-year,9% bonds,with a par value of $500,000 when the market rate was 9.5%.The issuer received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the bond issuance.

Match each of the following terms with the appropriate definitions. -The amount by which the bond issue (selling) price exceeds the bond par value.

The ________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.

A 10-year bond issue with a $100,000 par value,8% annual contract rate,with interest payable semiannually means that the issuer must repay $100,000 at the end of 10 years and make 20 semiannual interest payments of $4,000 each.

Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.

A basic present value concept is that cash paid or received in the future has less value now than the same amount of cash today.

Which of the following statements is true?

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

________ bonds are bonds that are scheduled for maturity on one specified date.

A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.

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)

Match each of the following terms with the appropriate definitions. -The contract between the bond issuer and the bondholder(s) that identifies the rights and obligations of the parties.

________ bonds are bonds that mature at more than one date,often in a series,and thus are usually repaid over a number of periods.

On January 1,Year 1 a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 annual year-end payments of $21,607,the first of which is due on December 31,Year 1. (a)Prepare the company's journal entry to record the note's issuance. (b)Prepare the journal entries to record the first and second installment payments.