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Exam 10: Reporting and Analyzing Long-Term Liabilities

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Question 31

True/False

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The market value (issue price)of a bond is equal to the present value of all future cash payments provided by the bond.

A) True
B) False

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Question 32

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When a bond sells at a premium:

A) The contract rate is above the market rate.
B) The contract rate is equal to the market rate.
C) The contract rate is below the market rate.
D) It means that the bond is a zero coupon bond.
E) The bond pays no interest.

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

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Question 33

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Sinking fund bonds reduce the bondholder's risk by requiring the issuer to create a fund of assets to repay the bonds at maturity.

Premium on Bonds Payable is an adjunct liability account,as it increases the carrying value of the bond.

On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the first interest payment using straight-line amortization is:

Compounded means that interest during a second period is based on the total amount borrowed plus the interest accrued in the first period.

On January 1,the Rodrigues Corporation leased some equipment on a 3-year lease,paying $15,000 at the inception of the lease,and $15,000 per year each December 31.The lease is considered to be an operating lease.Prepare the general journal entry to record the first lease payment on December 31.

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.

A company issued 7%,5-year bonds with a par value of $100,000.The market rate when the bonds were issued was 7.5%.The company received $97,946.80 cash for the bonds.Using the effective interest method,the amount of interest expense for the second semiannual interest period is:

Secured bonds:

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

On January 1,a company issues bonds dated January 1 with a par value of $200,000.The bonds mature in 3 years.The contract rate is 4%,and interest is paid semiannually on June 30 and December 31.The market rate is 5%.Using the present value factors below,the issue (selling) price of the bonds is:

An advantage of bond financing is that issuing bonds does not affect owner control.

Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:

A company has assets of $350,000 and total liabilities of $200,000.Its debt-to-equity ratio is 0.6.

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 interest expense will be included in the first annual payment?

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?

A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.

Adonis Corporation issued 10-year,8% bonds with a par value of $200,000.Interest is paid semiannually.The market rate on the issue date was 7.5%.Adonis received $206,948 in cash proceeds.Which of the following statements is true?

Amortizing a bond discount: