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Exam 14: Long-Term Liabilities

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Question 41

True/False

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Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's ordinary shares.

A) True
B) False

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Question 42

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Premium on Bonds Payable is an adjunct or accretion liability account.

A) True
B) False

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Question 43

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On October 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The note requires equal payments of principal plus accrued interest be paid at the end of each year on September 30. The present value of an annuity factor for 3 years at 6% is 2.6730. The payment will be:

Bonds that mature at different dates with the result that the entire principal amount is repaid gradually over a number of periods are known as:

On January 1, a company issues bonds with a par value of $300,000. The bonds mature in 5 years and pay 8% annual interest each June 30 and December 31. On the issue date, the market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables:

On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest each July 1 and January 1. The bonds were sold for $817,860 cash, which provides the holders an annual yield of 8%. Prepare the issuer's journal entry to record the first semiannual interest payment assuming the effective interest method is used.

A company borrowed $50,000 cash from the bank and signed a 6-year note at 7%. The present value of an annuity for 6 years at 7% is 4.7665. The annual annuity payments equal:

A discount on bonds payable:

An annuity is a series of equal payments at equal time intervals.

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 purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is:

A company with a low level of liabilities in relation to shareholders' equity is likely to have a very high debt-to-equity ratio.

A company may retire bonds by:

Mortgage contracts grant the lender the right to be paid from the cash proceeds of the sale of a borrower's assets identified in the mortgage.

A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

What are the methods that a company may use to retire its bonds?

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 issuance of the bond is:

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity for 7 years at 9% is 5.0330. The present value of the loan is:

Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as:

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

The carrying amount 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.