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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 31

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A company's ability to issue unsecured debt depends on its credit standing.

A) True
B) False

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Question 32

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The ______________ ratio is used to assess the risk of a company's financing structure.

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Question 33

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

Bonds payable to whoever holds them are called _________________ bonds.

A company issued 8%, 15-year bonds with a par value of $550,000 that pay interest semi-annually. The current market rate is 8%. The journal entry to record each semiannual interest payment is:

A company invests $10,000 at 7% compounded annually. At the end of the second year, the company should have $11,400 in the fund. $10,000 + ($10,000 * 7%) + [($10,000 + ($10,000 * 7%)) * 7%] = $11,449 or $10,000 * 1.07 * 1.07 = $11,449

A bond's par value is not necessarily the same as its market value.

On January 1, Year 1 Cleaver Company borrowed $85,000 cash by signing a 7% installment note that is to be repaid with 4 annual year-end payments of $25,094, 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 installment payment.

A company issued 9.2%, 10-year bonds with a par value of $100,000. Interest is paid semiannually. The annual market interest rate on the issue date was 10%, and the issuer received $95,016 cash for the bonds. The issuer uses the effective interest method for amortization. On the first semiannual interest date, what amount of discount should the issuer amortize?

On January 1, a company issued 10-year, 10% bonds payable with a par value of $500,000, and received $442,647 in cash proceeds. The market rate of interest at the date of issuance was 12%. The bonds pay interest semiannually on July 1 and January 1. The issuer uses the straight-line method for amortization. Prepare the issuer's journal entry to record the first semiannual interest payment on July 1.

Chang Industries has bonds outstanding with a par value of $200,000 and a carrying value of $203,000. If the company calls these bonds at a price of $201,000, the gain or loss on retirement is:

How are bond issue prices determined?

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:

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 amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:

A disadvantage of bond financing 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.

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage if the borrower fails to make the required payments.

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 total interest expense on the bond over its eight-year life is $400,000. Total interest expense recognized is ($500,000 * 10% * 8 years) + discount ($26,155) = $426,155.

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.

A bond traded at 102½ means that: