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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 41

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

A) True
B) False

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Question 42

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

A) True
B) False

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Question 43

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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.

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

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 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:

Interest on bonds is tax deductible.

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:

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

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) :

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

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

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

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?

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

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:

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

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

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:

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: