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Exam 9: Long-Term Liabilities

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Question 41

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Selected financial data for Lowes is provided below: $\begin{array} { l r } \text { (\$ in millions) } & { \text { Lowes } } \\\text { Sales } & \$ 47,220 \\\text { Interest expense } & 287 \\\text { Tax expense } & 1,042 \\\text { Net income } & \$ 1,783\end{array}$ What is the times interest earned ratio for Lowes?

A) 6.2 times.
B) 10.8 times.
C) 0.2 times.
D) 164.5 times.

E) C) and D)
F) All of the above

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Question 42

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Bonds issued below face amount are said to be issued at a discount.

A) True
B) False

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Question 43

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An amortization schedule provides a summary of the cash interest payments,interest expense,and changes in carrying value for each period.

Bonds are the most common form of corporate debt.

Presented below is a partial amortization schedule for Discount Foods: 1.Record the bond issue. 2.Record the first interest payment.

A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?

What is capital structure? Why would a company choose to borrow money rather than issue additional stock?

Given the information below,which bond(s) will be issued at a discount? $\begin{array} { | l | c | c | c | c | } \hline & \text { Bond 1 } & \text { Bond 2 } & \text { Bond 3 } & \text { Bond 4 } \\\hline \text { Stated Rate of Return } & 10 \% & 8 \% & 12 \% & 12 \% \\\hline \text { Market Rate of Return } & 12 \% & 8 \% & 15 \% & 10 \% \\\hline\end{array}$

Bonds usually sell at their:

Bonds can be secured or unsecured.Likewise,bonds can be term or serial bonds.Which is more common?

A bond issue with a face amount of $500,000 bears interest at the rate of 7%.The current market rate of interest is 6%.These bonds will sell at a price that is:

Western World has the following selected data ($ in millions): $\begin{array}{lrr}\text { Balance Sheet Data }&2012&2011\\\text { Total Assets } & \mathbf{\$ 2 , 5 1 1} & \mathbf{\$ 2 , 3 1 5} \\\text { Total Liabilities } & 1,685 & 1,525 \\\text { Total Stockholders' Equity } & 826 & 790\end{array}$ $\begin{array}{lr}\text { Income Statement Data }\\\text { Sales } & \$ 786 \\\text { Interest Expense } & 77 \\\text { Tax Expense } & 32 \\\text { Net Income } & 80\end{array}$ Based on these amounts,calculate the following ratios for Western World in 2012: 1.Debt to equity ratio. 2.Return on assets ratio. 3.Return on equity ratio. 4.Times interest earned ratio.

Which of the following is true regarding a company assuming more debt?

The rate of interest expense incurred on a bond payable for bonds of similar risk is called the:

Secured bonds are backed by the federal government.

Interest expense on bonds payable is calculated as the:

Which of the following statements is correct?

For the issuer of 20-year bonds,the carrying value using the effective interest method would decrease each year if the bonds were sold at a: $\begin{array}{l}\begin{array} { c c } &\text { Discount } & \text { Premium } \\a.&\text { No } & \text { No } \\b.&\text { No } & \text { Yes } \\c.&\text { Yes } & \text { Yes } \\d.&\text { Yes } & \text { No }\end{array}\end{array}$

X2 issued callable bonds on January 1, 2012. The bonds pay interest annually on December 31 each year. X2's accountant has projected the following amortization schedule from issuance until maturity: $\begin{array}{lllll} & \text { Cash } & \text { Interest } & \text { Decrease in } & \text { Carrying } \\\text { Date } & \text { Paid } & \text { Expense } & \text { Carrying Value } & \text { Value }\\1 / 1 / 10 & & & & \$ 104,212 \\12 / 31 / 11 & \$ 7,000 & \$ 6,253 & \$ 747 & 103,465 \\12 / 31 / 12 & 7,000 & 6,208 & 792 & 102,673\\12 / 31 / 13 & 7,000 & 6,160 & 840 & 101,833 \\12 / 31 / 14 & 7,000 & 6,110 & 890 & 100,943 \\12 / 31 / 15 & 7,000 & 6,057 & 943 & 100,000\end{array}$ -X2 issued the bonds for:

Raiders Company issues a bond with a stated interest rate of 10%,face value of $50,000,and due in 5 years.Interest payments are made semi-annually.The market rate for this type of bond is 12%.What is the issue price of the bond?