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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 121

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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 straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

A) $3,289.50.
B) $3,500.00.
C) $3,613.70.
D) $6,633.70.
E) $7,000.00.

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

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Question 122

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On January 1, a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195. The first payment is due on December 31. Prepare the journal entries to record the first and second installment payments.

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Question 123

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On January 1, a company issues 8%, 5 year, $300,000 bonds that pay interest semiannually. On the issue date, the annual market rate of interest is 6%. The following information is taken from present value tables: What is the issue (selling) price of the bond?

What is a bond? Identify and discuss the different characteristics and features bonds may possess.

On October 1 of the current year a corporation issued (sold) $1,000,000 of its 12% bonds at par plus accrued interest. The bonds were dated July 1 of this year. What amount of bond interest expense should the company report on its current year income statement?

The contract rate of interest is the rate that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level.

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

The factor for the present value of an annuity for 6 years at 10% is 4.3553. This implies that an annuity of six $2,000 payments at 10% would equal $8,710.60. $2,000 * 4.3553 = $8,710.60

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference of $6,948 between par value and issue price for this bond is recorded as a:

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

The market rate for bonds is generally higher when the time period to maturity is longer due to the risk of adverse events occurring over a longer time period.