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Exam 10: Accounting for Long-Term Liabilities

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Question 51

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All of the following statements regarding leases are true except:

A) For a finance lease,the lessee records the leased item as its own asset.
B) For a finance lease,the lessee amortizes the right-of-use asset acquired under the lease.
C) Finance leases create a liability on the balance sheet.
D) Finance leases do not transfer ownership of the asset under the lease,but operating leases often do.
E) For a short-term lease of a few days or weeks,the lessee records payments as rental expense.

F) D) and E)
G) A) and E)

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Question 52

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Morgan Company issues 9%,20-year bonds with a par value of $750,000 that pay interest semiannually.The amount paid to the bondholders for each semiannual interest payment is.

A) $60,000.
B) $33,750.
C) $67,500.
D) $30,000.
E) $375,000.

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

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Question 53

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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 principal will be included in the first annual payment?

Bonds that give the issuer an option of retiring them before they mature are:

On January 1,a company issued 10%,10-year bonds payable with a par value of $720,000.The bonds pay interest on July 1 and January 1.The bonds were issued for $817,860 cash,which provided the holders an annual yield of 8%.Prepare the journal entry to record the first semiannual interest payment,assuming it uses the straight-line method of amortization.

A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into.The loan is at 8% interest compounded annually.The present value of 1 (single sum) at 8% for 3 years is 0.7938.The present value of an annuity (series of payments) at 8% for 3 years is 2.5771.The present value of the loan (rounded) is:

On July 1 of the current year a corporation issued (sold)$1,000,000 of its 12% bonds at par.The bonds pay interest June 30 and December 31.What amount of bond interest expense should the company report on its current year income statement?

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

The relationship between the market rate of a bond and the rate of return on the borrowed funds affects the company's return on equity.

Callable bonds give the issuer the option to retire them at a stated dollar amount before maturity.

On January 1,a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 equal year-end payments of $21,607.The amount borrowed is $70,000 and 4 years of interest at 9% equals $25,200,for a total of $95,200,yet the total payments on the note amount to only $86,428.Explain.

A corporation issued 8% bonds with a par value of $1,000,000,receiving a $20,000 premium.On the interest date 5 years later,after the bond interest was paid and after 40% of the premium had been amortized,the corporation called the bonds at $990,000.The gain or loss on this retirement is:

When convertible bonds are converted to a company's stock,the carrying value of the bonds is transferred to equity accounts and no gain or loss is recorded.

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

Bonds owned by investors whose names and addresses are recorded by the issuing company,and for which interest payments are made with checks or cash transfers to the bondholders,are called:

A contract pledging title to assets as security for a note or bond is known as a(an) :

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:

Bonds issued in the names and addresses of their holders are ________ bonds.

Identify the advantages and disadvantages of bond financing.

The issue price of bonds is found by computing the future value of the bond's cash payments,discounted at the contract rate of interest.