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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 51

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The rate of interest that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level is the ____________________ of interest.

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Question 52

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Operating leases are long-term or noncancelable leases in which the lessor transfers substantially all the risks and rewards of ownership to the lessee.

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B) False

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Question 53

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A company issued 10-year, 7% bonds with a par value of $100,000. The company received $96,526 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

A company enters into an agreement to make 5 annual year-end payments of $3,000 each, starting one year from now. The annual interest rate is 6%. The present value of an annuity factor for 5 periods at 6% is 4.2124. What is the present value of these five future payments?

What are methods that a company may use to retire its bonds?

What is a lease? Explain the difference between an operating lease and a capital lease.

If an issuer sells bonds at a date other than an interest payment date:

A company issues 9% bonds with a par value of $100,000 at par on April 1, which is 4 months after the most recent interest date. The cash received for accrued interest on April 1 by the bond issuer is:

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 the equipment and loan is:

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.

On January 1, Duncan Corporation leased a delivery van, agreeing to pay $10,575 every December 31 for the six-year life of the lease. The present value of the lease payments, at 6% interest, is $52,000. The lease is considered a capital lease. The general journal entry to record the acquisition of the delivery van 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:

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.

Bond interest paid by a corporation is an expense, whereas dividends paid are not an expense of the corporation.

Collateral agreements for a note or bond can:

When a bond sells at a premium:

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?

The effective interest amortization method:

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 principle will be included in the first annual payment?

On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is: