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Exam 10: Accounting for Long-Term Debt

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Question 41

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Kier Company issued $200,000 in bonds on January 1,Year 1.The bonds were issued at face value and carried a 4-year term to maturity.The bonds have a 6.5% stated rate of interest and interest is payable in cash on December 31 each year.Based on this information alone,what are the amounts of interest expense and cash flows from operating activities,respectively,that will be reported in the financial statements for the year ending December 31,Year 1?

A) $13,000 and Zero
B) Zero and $13,000
C) $13,000 and $13,000
D) Zero and Zero

E) A) and B)
F) A) and C)

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Question 42

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On January 1,Year 1,Daniels Company issued bonds with a face value of $500,000,receiving $496,000 cash.These bonds were issued at a discount.

A) True
B) False

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Question 43

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Currie Company borrowed $20,000 from Sierra Bank by issuing a 10% three-year note.Currie agreed to repay the principal and interest by making annual payments in the amount of $8,042.Based on this information,what is the amount of the interest expense associated with the second payment? (Round your answer to the nearest dollar. )

[The following information applies to the questions displayed below.] On January 1, Year 1, Niagara Corporation arranges a $6,000 line of credit with Centennial Bank. It accepted the bank's offer of 1% above the prime rate with interest payments on December 31 of each year. All borrowings and repayments are to take place on January 1 of each year. -Niagara begins its loan transactions with Centennial Bank by borrowing $2,000 on January 1,Year 1.Which of the following shows the effect of this event on the elements of the financial statements?

[The following information applies to the questions displayed below.] On January 1, Year 1, Echols Company borrowed $100,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $25,045.65. -What is the amount of principal repayment included in the payment made on December 31,Year 1?

On January 1,Year 1,Daniels Company issued bonds with a face value of $500,000,receiving $496,000 cash.When the bonds mature,Daniels will have to pay the face value of the bonds to the bondholders.

Which of the following statements is true when bonds are issued at a premium?

[The following information applies to the questions displayed below.] On January 1, Year 1, Victor Company issued bonds with a $250,000 face value, a stated rate of interest of 6%, and a 5-year term to maturity. The bonds sold at 95. Interest is payable in cash on December 31 of each year. Victor uses the straight-line method to amortize bond discounts and premiums. -What is the carrying value of the bond liability at December 31,Year 3?

Serial bonds are issued based on the overall strength of the borrower's credit.

[The following information applies to the questions displayed below.] On January 1, Year 1, Jones Company issued bonds with a $200,000 face value, a stated rate of interest of 7.5%, and a 5-year term to maturity. The bonds were issued at 97. Interest is payable in cash on December 31st of each year. The company amortizes bond discounts and premiums using the straight-line method. -What is the total amount of liabilities shown on Jones' balance sheet at December 31,Year 2?

A company uses the effective interest method to amortize a bond discount.Which of the following statements is true regarding the interest expense that is recognized each year?

Marvin Company issues $125,000 of bonds at face value on January 1.The bonds carry a 6% annual stated rate of interest.Interest is payable in cash on December 31 of each year.Which of the following shows the effect of the first interest payment on the elements of the financial statements?

[The following information applies to the questions displayed below.] On January 1 Year 1, Gordon Corporation issued bonds with a face value of $70,000, a stated rate of interest of 6%, and a 5-year term to maturity. The bonds were issued at 98. Interest is payable in cash on December 31 each year. Gordon uses the straight-line method to amortize bond discounts and premiums. -Which of the following shows the effect of the first interest payment and amortization of the premium or discount on the elements of the financial statements?

Gates,Inc.and Markham,Inc.each had the same financial position on January 1,Year 2.The following is a summary of each of their balance sheets on that date: Gates is about to raise $200,000 in cash by issuing bonds.Markham is going to raise $200,000 on the same day by issuing common stock.Immediately after these transactions,which of the following statements will be correct?

Which of the following is the term used to describe bonds that mature at specified intervals throughout the life of the issuance?

[The following information applies to the questions displayed below.] On January 1, Year 1, The Palms borrowed $200,000 to purchase a warehouse by agreeing to a 8%, 5-year note with the bank. Payments of $50,091.29 are due at the end of each year. The first payment will be made on December 31, Year 1. -What is the interest expense for Year 1 and Year 2,respectively? (Round your final answers to the nearest dollar. )

How does the amortization of the principal balance on an installment note payable affect the amount of interest expense recorded each succeeding year?

Park Enterprises issued bonds with a face value of $500,000,a stated rate of interest of 7%,and a 5-year term to maturity.The proceeds from the issuance were $508,000.Interest is payable in cash on December 31 of each year.Assuming straight-line amortization,the amount of interest expense for the first year would be $31,600.

Chico Company borrowed $40,000 on a four-year,8% installment note.How will Chico record the issuance of this note?

Davis Corporation borrowed $50,000 on January 1,Year 1.The loan is for a 10-year period and has an annual interest rate of 9%.At the end of each year,Davis will make a payment of $7,791,which includes both principal and interest.With this loan,the amount of interest expense that Davis reports on its income statement will be the same for each year of the loan.