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Exam 14: Long-Term Liabilities

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Question 31

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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 effective interest method,the amount of recorded interest expense for the first semiannual interest period is:

A) $3,500.00.
B) $7,000.00.
C) $3,318.41.
D) $6,573.90.
E) $1,750.00.

F) None of the above
G) C) and D)

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Question 32

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Which of the following statements is true?

A) Interest on bonds is tax deductible.
B) Interest on bonds is not tax deductible.
C) Dividends to stockholders are tax deductible.
D) Bonds do not have to be repaid.
E) Bonds always increase return on equity.

F) B) and E)
G) B) and D)

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Question 33

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On August 1,a company issues 6%,10 year,$600,000 par value bonds that pay interest semiannually each February 1 and August 1.The bonds sold at $592,000.The company uses the straight-line method of amortizing bond discounts.The company's year-end is December 31.Prepare the general journal entry to record the interest accrued at December 31.

A pension plan is a contractual agreement between an employer and its employees to provide benefits to employees after they retire.

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.Prepare the issuer's journal entry to record the issuance of the bond.

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

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 company's December 31,Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

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.

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

The issue price of bonds is found by computing the future value of the bond's cash payments,discounted at the market rate of interest.

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

On July 1,Shady Creek Resort borrowed $250,000 cash by signing a 10-year,8% installment note requiring equal payments each June 30 of $37,258.What is the appropriate journal entry to record the issuance of the note?

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?

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:

The present value of an annuity can be best or quickly computed as the sum of the individual future values for each payment.

On July 1,Shady Creek Resort borrowed $250,000 cash by signing a 10-year,8% installment note requiring equal payments each June 30 of $37,258.What amount of interest expense will be included in the first annual payment?

On January 1,the Rodrigues Corporation leased some equipment on a 2-year lease,paying $15,000 per year each December 31.The lease is considered to be an operating lease.Prepare the general journal entry to record the first lease payment on December 31.

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

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

An advantage of bonds is: