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Exam 14: Long Term Liabilities

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Question 31

Multiple Choice

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On January 2,20x5,Clair Inc.signed a 9% mortgage payable for $200,000 with equal monthly payments of $2,400.When Clair makes the first payment,how much interest expense will be recorded?

A) $0
B) $1,500.
C) $18,000.
D) $750.

E) A) and D)
F) A) and C)

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Question 32

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The convertibility feature of a bond can be exercised by the issuing corporation.

A) True
B) False

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Question 33

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Russell Corporation issued $224,000 of 12 percent bonds (at face value) one month after the last semi-annual interest date.Which of the following is the entry to record the issuance?

Unsecured bonds are also known as debentures.

Technically,what is meant by the amortization of a bond discount,and why is it necessary?

Under a defined benefit pension plan,

A $200,000 bond issue with a carrying value of $194,000 is called at 101 and retired.The entry to record the retirement of bonds is:

When bonds are sold at face value between interest dates,the result is a debit to the Cash account that

The debt to equity ratio is expressed in terms of dollars.

Under a capital lease,the lessee records both an asset and a liability.

Under the effective interest method of amortizing a bond discount,the bond interest expense recorded for each period decreases over the life of the bond.

The entry to record the issuance of bonds at a premium includes a credit to the Unamortized Bond Premium account.

The matching rule dictates that both the accrued interest and the amortization of a premium or discount be recorded at the year end.

Term bonds are of shorter duration than serial bonds.

A ten-year bond has a face value of $10,000,a face interest rate of 11 percent,an unamortized bond premium of $400,and an effective interest rate of 10 percent.The bonds were issued on one of its semi-annual interest payment dates.The entry to record the bond interest expense on the first semi-annual interest payment date is : (assuming the effective interest method of amortization) ,

Bond issue costs have the effect of increasing a premium,or reducing a discount,on bonds issued.

Contributed capital by owners is one source of long-term funds and is considered a type of long-term liability.

Parson Company issues $500,000 of 30-year,8 percent bonds at 106.Interest is paid semiannually,and the effective interest method is used for amortization.Assume that the market interest rate for similar investments is 7 percent and that the bonds are issued on an interest date. a.What amount was received for the bonds? b.How much interest is paid each interest period? c.How much bond interest expense is recorded on the first interest date (after the issue date)? d.What is the carrying value of the bonds after the first interest date (after the issue date)?

Unamortized Bond Premium is subtracted from Bonds Payable on the balance sheet.

If a 20-year bond pays interest of 8 percent semiannually,the present value of the bond is calculated based upon (1)4 percent and 40 periods for the interest,and (2)8 percent and 20 periods for the face amount of the bond.