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Exam 10: Accounting for Long-Term Liabilities

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Question 101

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Explain the amortization of a bond discount.Identify and describe the amortization methods available.

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A bond discount occurs when bonds are so...

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Question 102

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A pension plan:

A) Is a contractual agreement between an employer and its employees in which the employer provides benefits to employees after they retire.
B) Can be underfunded if the plan assets are more than the accumulated benefit obligation.
C) Is always funded fully by employers.
D) Can be a defined benefit plan or an undefined benefit plan.
E) Is a contract between the company and the government.

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

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Question 103

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On January 1 of Year 1,Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semiannually on January 1 and July 1.The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%.The bond premium or discount is being amortized at a rate of $10,087 every six months. The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:

On January 1,a company issues 8%,5-year,$300,000 bonds that pay interest semiannually.On the issue date,the annual market rate of interest is 6%.The following information is taken from present value tables: What is the issue (selling) price of the bond?

A bond is an issuer's written promise to pay an amount identified as the par value of the bond along with periodic interest payments.

The factor for the present value of an annuity at 8% for 10 years is 6.7101.This means that an annuity of ten $15,000 payments at 8% has a present value of $2,235.

A disadvantage of lease financing is the potential to deduct rental payments from taxable income.

When applying equal total payments to a note,with each payment the amount applied to the note principal ________ while the interest expense for the note ________.

Explain the amortization of a bond premium.Identify and describe the amortization methods available.

An advantage of bonds is:

A company issues bonds with a $100,000 par value,an 8% annual contract rate,semiannual interest payments,and a five year life.The bonds sold for $107,850.The entry to record the issuance of the bonds will include:

Bonds that have an option giving the issuer the right to retire them at a stated dollar amount before maturity are known as:

Seedly Corporation's most recent balance sheet reports total assets of $35,000,000 and total liabilities of $17,500,000.Management is considering issuing $5,000,000 of par value bonds (at par) with a maturity date of ten years and a contract rate of 7%.What effect,if any,would issuing the bonds have on the company's debt-to-equity ratio?

A company borrows $40,000 and issues a 3-year,10% installment note with interest payable annually.The factor for the present value of an annuity at 10% for 3 years is 2.4869.The factor for the present value of a single sum at 10% for 3 years is 0.7513.The amount of the annual interest payment is $16,084.28.

On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The journal entry to record the first interest payment is:

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

Chang Industries has bonds outstanding with a par value of $200,000 and a carrying value of $203,000.If the company calls these bonds at a price of $201,000,the gain or loss on retirement is:

Indenture refers to a bond's legal contract; debenture refers to an unsecured bond.

A disadvantage of bond financing is:

The rate of interest that borrowers are willing to pay and lenders are willing to accept for a particular bond and its risk level is the ________ of interest.