FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 14: Long-Term Liabilities

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 61

Multiple Choice

Review LaterAdd Note

Review Later

Saffron Industries most recent balance sheet reports total assets of $42,000,000, total liabilities of $16,000,000 and stockholders' equity of $26,000,000. Management is considering using $3,000,000 of excess cash to prepay $3,000,000 of outstanding bonds. What effect, if any, would prepaying the bonds have on the company's debt-to-equity ratio?

A) Prepaying the debt would cause the firm's debt-to-equity ratio to remain unchanged.
B) Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .50.
C) Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .57.
D) Prepaying the debt would cause the firm's debt-to-equity ratio to worsen from .62 to .50.
E) Prepaying the debt would cause the firm's debt-to-equity ratio to improve from .62 to .57.

F) B) and E)
G) All of the above

Correct Answer

verified

Show Answer

Question 62

True/False

Review LaterAdd Note

Review Later

An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.

A) True
B) False

Correct Answer

verified

Show Answer

Question 63

Multiple Choice

Review LaterAdd Note

Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and total equity of $12,000,000. The debt to equity ratio for the period is (rounded to two decimals) :

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. - The journal entry to record the first interest payment using straight-line amortization is:

________ bonds are bonds that are scheduled for maturity on one specified date.

Which of the following statements is true?

A company may retire bonds by all but which of the following means?

A bondholder that owns a $1,000, 10%, 10-year bond has:

A company issued 10%, 10-year bonds with a par value of $1,000,000 on January 1, at a selling price of $885,295 when the annual market interest rate was 12%. The company uses the effective interest amortization method. Interest is paid semiannually each June 30 and December 31. (1) Prepare an amortization table for the first two payment periods using the format shown below: $\begin{array}{|l|l|l|l|l|l|}\hline\text { Semiannual } & \text { Cash } & \text { Bond } & & & \\\hline \text { Interest } & \text { Interest } & \text { Interest } & \text { Discount } & \text { Unam ortized } & \text { Carrying } \\\hline \text { Period } & \text { Paid } & \text { Expense } & \text { Amortization } & \text { Discount } & \text { Value } \\\hline\\\hline\\\hline\\\hline\\\hline\end{array}$ (2) Prepare the journal entry to record the first semiannual interest payment.

An advantage of lease financing is the lack of an immediate large cash payment for the leased asset.

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?

The contract between the bond issuer and the bondholders identifying the rights and obligations of the parties, is called a(n) :

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:

Identify the advantages and disadvantages of bond financing.

The legal document identifying the rights and obligations of both the bondholders and the issuer is called the ________.

Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.

Describe the journal entries required to record the issuance of bonds at a discount and the payment of bond interest, including any applicable amortization.

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

The carrying value of a long-term note is computed as the present value of all remaining future payments, discounted using the market rate at the time of issuance.

Sharmer Company issues 5%, 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 factors: $\begin{array}{l}\begin{array} { r l c c } &&\text { Present Value of an }\\n = & \mathrm { i } = & \text { Annuity } & \text { Present value of \$1 } \\5 & 5 \% & 4.3295 & 0.7835 \\10 & 3 \% & 8.7521 & 0.7812 \\5 & 6 \% & 4.2124 & 0.7473 \\10 & 3 \% & 85302 & 0.7441\end{array}\end{array}$