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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 41

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

A) True
B) False

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Question 42

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A corporation borrowed $125,000 cash by signing a 5-year,9% installment note requiring equal annual payments each December 31 of $32,136.What journal entry would the issuer record for the first payment?

A) Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.
B) Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.
C) Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.
D) Debit Notes Payable $32,136; credit Cash $32,136.
E) Debit Notes Payable $11,250; credit Cash $11,250.

F) B) and D)
G) All of the above

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Question 43

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Payments on installment notes normally include accrued interest plus a portion of the principal amount borrowed.

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 journal entry to record the first interest payment using straight-line amortization is:

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

Morgan Company issues 9%,20-year bonds with a par value of $750,000 that pay interest semiannually.The current market rate is 8%.The amount paid to the bondholders for each semiannual interest payment is:

A company purchased equipment and signed a 7-year installment loan at 9% annual interest.The annual payments equal $9,000.The present value of an annuity factor for 7 years at 9% is 5.0330.The present value of a single sum factor for 7 years at 9% is 0.5470.The present value of the loan is:

________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

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:

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

Interest on bonds is tax deductible.

Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.

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) :

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

A bond with a par value of $1,000 trading at 101½ sells for a premium.

A company issued 5-year,7% bonds with a par value of $100,000.The market rate when the bonds were issued was 6.5%.The company received $102,105 cash for the bonds.Using the effective interest method,the amount of recorded interest expense for the first semiannual interest period is:

Bonds owned by investors whose names and addresses are recorded by the issuing company,and for which interest payments are made with checks or cash transfers to the bondholders,are called:

On January 1,a company issued 10%,10-year bonds payable with a par value of $720,000.The bonds pay interest on July 1 and January 1.The bonds were issued for $817,860 cash,which provided the holders an annual yield of 8%.Prepare the journal entry to record the first semiannual interest payment,assuming it uses the straight-line method of amortization.

Callable bonds give the issuer the option to retire them at a stated dollar amount prior to maturity.