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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 71

True/False

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A company with liabilities of $2,816,000 and equity of $826,000 has a debt to equity ratio equal to 29.33%

A) True
B) False

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Question 72

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On January 1,2013,Jo Corporation leased some machinery for two years,paying $7,500 per year each December 31.The lease is considered to be an operating lease.How would the company record this transaction?

A) Debit Rental Expense for $7,500 and credit Cash for $7,500.
B) Debit Rental Expense for $15,000 and credit Cash for $15,000.
C) Debit Leased Assets for $7,500 and credit Lease Liability for $7,500.
D) Debit Leased Assets for $15,000 and credit Lease Liability for $15,000.
E) Debit Interest Expense $7,500 and credit Cash for $7,500.

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

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Question 73

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Explain the present value concept and how it applies to long-term liabilities.

A company issued 10%,five-year bonds with a par value of $400,000.The market rate when the bonds were issued was 8%.The company received $432,458 cash for the bonds.Using the effective interest method,the amount of interest expense for the first semiannual interest period is:

Describe the journal entries required to record the issuance of bonds and the payment of bond interest.

The market value of a bond is equal to:

On January 1,2013,Lane issues $700,000 of 7%,15-year bonds at a price of 106¾.The interest payments are made on June 30 and December 31.Lane elects a fiscal year ending September 30.What is the amount that would be recorded as cash paid in the December 31,2013,journal entry?

Most mortgage contracts grant the lender the right to _______________ on the property if the borrower fails to pay in accordance with the terms of the debt agreement.

A company issued 10%,10-year bonds with a par value of $1,000,000 on January 1,2013,at a selling price of $885,295,to yield the buyers a 12% return.The company uses the effective interest amortization method.Interest is paid semiannually each June 30 and December 31. (1) Prepare an amortization table for the first two payment periods using the format shown below: (2) Prepare the journal entry to record the first semiannual interest payment.

On January 1,a company issues bonds with a par value of $300,000.The bonds mature in five years and pay 8% annual interest,payable each June 30 and December 31.On the issue date,the market rate of interest for the bonds is 10%.Compute the price of the bonds on their issue date.The following information is taken from present value tables:

_______________ bonds have specific assets of the issuing company pledged as collateral.

On January 1,2013,Leyden Corporation leased a truck,agreeing to pay $15,252 every December 31 for the entire six years 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 based on a capital lease. (b) Prepare the general journal entry to record the first lease payment on December 31,2010. (c) Record straight-line depreciation on the truck on 12/31/13,assuming a 6-year life and no salvage value.

A company has bonds outstanding with a par value of $400,000.The unamortized premium on these bonds is $2,000.The company retired these bonds by buying them on the open market at 97.What is the gain or loss on this retirement?

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

The carrying value of a long-term note is computed as the present value of all remaining future payments,discounted using the market rate at the time of issuance.

A company issued five-year,7% bonds with a par value of $100,000.The company received $97,947 for the bonds.Using the straight-line method,the amount of interest expense for the first semiannual interest period is:

A company issued 7%,five-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,947 cash for the bonds.Using the effective interest method,the amount of interest expense for the first semiannual interest period is:

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ____________________________________.

A bond's par value is not necessarily the same as its market 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 effective interest method,prepare the issuer's general journal entry to record the first annual interest payment and the amortization of any bond discount or premium.