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Exam 14: Long-Term Liabilities

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Question 41

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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:

A) $224,826.
B) $245,000.
C) $132,500.
D) $225,000.
E) $265,174.

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

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Question 42

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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 43

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The ________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.

A ________ is a contractual agreement between an employer and its employees for the employer to provide benefits (payments) to employees after they retire.

On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the first semiannual interest payment, assuming it uses the straight-line method of amortization.

Zhang Company has a loan agreement that provides it with cash today, and the company must pay $25,000 4 years from today. Zhang agrees to a 6% interest rate. The present value factor for 4 periods at 6% is 0.7921. What is the amount of cash that Zhang Company receives today?

A company has assets of $350,000 and total liabilities of $200,000. Its debt-to-equity ratio is 0.6.

A company issued 7%, 5-year bonds with a par value of $100,000. The market rate when the bonds were issued was 7.5%. The company received $97,946.80 cash for the bonds. Using the effective interest method, the amount of interest expense for the second semiannual interest period is:

_________leases are long-term or noncancelable leases by which the lessor transfers substantially all risks and rewards of ownership to the lessee.

A basic present value concept is that cash paid or received in the future has less value now than the same amount of cash today.

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.

A company issued 10-year, 7% bonds with a par value of $100,000. The company received $96,526 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

The legal contract between the issuing corporation and the bondholders is called the bond indenture.

Match each of the following terms with the appropriate definitions. (a) Term bonds (b) Coupon bonds (c) Market rate (d) Bond indenture (e) Convertible bonds (f) Bearer bonds (g) Installment note (h) Unsecured bonds (i) Serial bonds (j) Effective interest rate method

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

A company holds $150,000 par value of bonds with a carrying value of $147,950. The company calls the bonds at $151,000. Prepare the journal entry to record the retirement of the bonds.

Bonds issued in the names and addresses of their holders are__________ bonds.

The relationship between the market rate of a bond and the rate of return on the borrowed funds affects the company's return on equity.

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:

On January 1, a company issued a $500,000, 10%, 8-year bond payable, and received proceeds of $473,845. Interest is payable each June 30 and December 31. The total interest expense on the bond over its eight-year life is $400,000.