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Exam 14: Long-Term Liabilities

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Question 21

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A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest.The present value of an annuity factor for 6 years at 7% is 4.7665.The annual annuity payments equal:

A) $10,489.88.
B) $8,391.91.
C) $40,000.00.
D) $52,450.00.
E) $190,660.00.

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

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Question 22

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Sharmer Company issues 5%,5 year bonds with a par value of $1,000,000 and semiannual interest payments.On the issue date,the annual market rate for these bonds is 6%.What is the bond's issue (selling) price,assuming the Present Value of $1 factor for 3% and 10 semi-annual periods is .7441 and the Present Value of an Annuity factor for the same rate and period is 8.5302?

A) $957,355
B) $1,000,000
C) $1,250,000
D) $786,745
E) $1,213,255

F) A) and B)
G) A) and C)

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Question 23

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On January 1 of 2015,Parson Freight Company issues 7%,10-year bonds with a par value of $2,000,000.The bonds pay interest semi-annually.The market rate of interest is 8% and the bond selling price was $1,864,097.The bond issuance should be recorded as:

Interest payments on bonds are determined by multiplying the par value of the bond by the stated contract rate.

Clabber Company has bonds outstanding with a par value of $100,000 and a carrying value of $97,300.If the company calls these bonds at a price of $95,000,the gain or loss on retirement is:

When a bond sells at a premium:

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 straight-line method,prepare the issuer's journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.(Round amounts to the nearest whole dollar)

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

A basic present value concept is that cash paid or received in the future has more value now than the same amount of cash received today.

The contract between the bond issuer and the bondholders identifying the rights and obligations of the parties,is called a(n) :

A company issued 9.2%,10-year bonds with a par value of $100,000.Interest is paid semiannually.The annual market interest rate on the issue date was 10%,and the issuer received $95,016 cash for the bonds.The issuer uses the effective interest method for amortization.On the first semiannual interest date,what amount of discount should the issuer amortize?

On January 1,a company issues 8%,5 year,$300,000 bonds that pay interest semiannually each June 30 and December 31.On the issue date,the annual 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 payable to whoever holds them are called _________________ bonds.

Premium on Bonds Payable is an adjunct or accretion liability account.

A company issued 8%,15-year bonds with a par value of $550,000 that pay interest semi-annually.The current market rate is 8%.The journal entry to record each semiannual interest payment is:

Bonds that have interest coupons attached to their certificates,which the bondholders present to a bank or broker for collection,are called:

A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.

The use of debt financing ensures an increase in return on equity.

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 journal entry to record the first semiannual interest payment and the amortization of any bond discount or premium.

Term bonds are scheduled for maturity on one specified date,whereas serial bonds mature at more than one date.