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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 31

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An advantage of bond financing is that issuing bonds does not affect owner control.

A) True
B) False

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Question 32

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A company has assets of $350,000 and total liabilities of $200,000.Its debt-to-equity ratio is 0.6.

A) True
B) False

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Question 33

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Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

Adonis Corporation issued 10-year,8% bonds with a par value of $200,000.Interest is paid semiannually.The market rate on the issue date was 7.5%.Adonis received $206,948 in cash proceeds.Which of the following statements is true?

On January 1,the Rodrigues Corporation leased some equipment on a 3-year lease,paying $15,000 at the inception of the lease,and $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.

Secured bonds:

Amortizing a bond discount:

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,946.80 cash for the bonds.Using the effective interest method,the amount of interest expense for the second semiannual interest period is:

Sinking fund bonds reduce the bondholder's risk by requiring the issuer to create a fund of assets to repay the bonds at maturity.

The ________ concept is the idea that cash paid (or received)in the future has less value now than the same amount of cash paid (or received)today.

The market value (issue price)of a bond is equal to the present value of all future cash payments provided by the bond.

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the first interest payment using straight-line amortization is:

Premium on Bonds Payable is an adjunct liability account,as it increases the carrying value of the bond.

Debentures always have specific assets of the issuing company pledged as collateral.

A company has bonds outstanding with a par value of $100,000.The unamortized discount on these bonds is $4,500.The company retired these bonds by buying them on the open market at 97.What is the gain or loss on this retirement?

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.

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?

Compounded means that interest during a second period is based on the total amount borrowed plus the interest accrued in the first period.

On January 1,a company issues bonds dated January 1 with a par value of $200,000.The bonds mature in 3 years.The contract rate is 4%,and interest is paid semiannually on June 30 and December 31.The market rate is 5%.Using the present value factors below,the issue (selling) price of the bonds is:

When a bond sells at a premium: