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Exam 10: Accounting for Long-Term Liabilities

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Question 101

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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 102

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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.

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Question 103

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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 total interest expense on the bond over its eight-year life is $400,000.

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 $97,947 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

On January 1, Haymark Corporation leased a truck, agreeing to pay $15,252 every December 31 for the six-year life of the lease. The present value of the lease payments, at 6% interest, is $75,000. The lease is considered a capital lease. (a) Prepare the general journal entry to record the acquisition of the truck with the capital lease. (b) Prepare the general journal entry to record the first lease payment on December 31. (c) Record straight-line depreciation on the truck on December 31, assuming a 6-year life and no salvage value.

Explain the accounting procedures when a bond's interest period does not coincide with the issuer's accounting period.