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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 71

Multiple Choice

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

A) Coupon bonds.
B) Callable bonds.
C) Serial bonds.
D) Convertible bonds.
E) Registered bonds.

F) B) and C)
G) B) and E)

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Question 72

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When the contract rate on a bond issue is less than the market rate,the bonds sell at a premium.

A) True
B) False

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Question 73

Multiple Choice

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The debt-to-equity ratio:

If an issuer sells bonds 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)

Periodic interest payments on bonds are determined by multiplying the par value of the bond by the contract rate.

The Discount on Bonds Payable account is:

Seedly Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000.Management is considering issuing $5,000,000 of par value bonds (at par) with a maturity date of ten years and a contract rate of 7%.What effect,if any,would issuing the bonds have on the company's debt-to-equity ratio?

A company issues 6%,5 year bonds with a par value of $800,000 and semiannual interest payments.On the issue date,the annual market rate of interest is 8%.Compute the issue (selling)price of the bonds.The following information is taken from present value tables: Present value of an annuity for 10 periods at 3% 8.5302 Present value of an annuity for 10 periods at 4% 8.1109 Present value of 1 due in 10 periods at 3%.0.7441 Present value of 1 due in 10 periods at 4% 0.6756

On January 1,a company issues bonds dated January 1 with a par value of $600,000.The bonds mature in 3 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The bonds are sold for $564,000.The journal entry to record the first interest payment using straight-line amortization is:

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000.The difference between par value and issue price for this bond is recorded as a:

Marwick Corporation issues 8%,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 following Present Value factors:

________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.

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?

A company issued 10-year,9% bonds,with a par value of $500,000 when the market rate was 9.5%.The issuer received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the bond issuance.

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.After accruing interest at year end,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 a $500,000,10%,8-year bond payable,and received proceeds of $473,845.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The amount of interest expense to be recorded on June 30 is $25,000.

A discount on bonds payable:

On August 1,a $30,000,6%,3-year installment note payable is issued by a company.The note requires equal payments of principal plus accrued interest be paid each year on July 31.The present value of an annuity factor for 3 years at 6% is 2.6730.The present value of a single sum factor for 3 years at 6% is 0.8396.The payment each July 31 will be:

The carrying (book)value of a bond payable is the par value of the bonds plus any premium or minus any discount.