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Exam 9: Long-Term Liabilities

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Question 51

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When bonds are retired before their maturity date:

A) GAAP has been violated.
B) The issuing company will always report a non-operating gain.
C) The issuing company will always report a non-operating loss.
D) The issuing company will report a non-operating gain or loss.

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

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Question 52

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The Titan retires a $20 million bond issue when the carrying value of the bonds is $18 million,but the market value of the bonds is $23 million.The entry to record the retirement will include:

A) A debit of $5 million to a loss account.
B) A credit of $5 million to a gain account.
C) No gain or loss on retirement.
D) A debit to cash for $18 million.

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

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Question 53

Multiple Choice

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Which of the following definitions describes a secured bond?

The mixture of liabilities and stockholders' equity a business uses is called its capital structure.

Raiders Company issues a bond with a stated interest rate of 10%,face value of $50,000,and due in 5 years.Interest payments are made semi-annually.The market rate for this type of bond is 8%.What is the issue price of the bond?

THA buys back the bonds for $196,000 immediately after the interest payment on 12/31/12 and retires them.What gain or loss,if any,would THA record on this date?

As a company's default risk increases,investors demand a higher market interest rate on their bond investments.

The entry to record a monthly payment on an installment note such as a car loan:

The rate quoted in the bond contract used to calculate the cash payments for interest is called the:

The cash interest payment each period is calculated as the:

An amortization schedule for a bond issued at a discount:

A bond issue with a face amount of $500,000 bears interest at the rate of 10%.The current market rate of interest is also 10%.These bonds will sell at a price that is:

Which of the following leases is just like a rental?

Tony Hawk's Adventure (THA) issued callable bonds on January 1, 2012. THA's accountant has projected the following amortization schedule from issuance until maturity: $\begin{array}{llccc} & \text { Cash } & \text { Interest } & \text { Increase in } & \text { Carrying } \\\text { Date } & \text { Paid } & \text { Expense } & \text { Carrying Value } & \text { Value }\\1 / 1 / 12 & & & & \$ 194,758 \\6 / 30 / 12 & \$ 7,000 & \$ 7,790 & \$ 790 & 195,548 \\12 / 31 / 12 & 7,000 & 7,822 & 822 & 196,370\\6 / 30 / 13 & 7,000 & 7,855 & 855 & 197,225 \\12 / 31 / 13 & 7,000 & 7,889 & 889 & 198,114 \\6 / 30 / 14 & 7,000 & 7,925 & 925 & 199,039 \\12 / 31 / 14 & 7,000 & 7,961 & 961 & 200,000\end{array}$ -The THA bonds have a life of:

Stealth Fitness Center issues 7%,10-year bonds with a face amount of $200,000.The market interest rate for bonds of similar risk and maturity is 8%.Interest is paid semiannually.At what price will the bonds be issued?

When bonds are issued at a discount and the effective interest method is used for amortization,at each interest payment date,the interest expense:

A $500,000 bond issue sold for $490,000.Therefore,the bonds:

At the maturity date,the carrying value will equal the face amount of the bond.

Selected financial data for Home Depot is provided below: $\begin{array} { l r } \text { ( } \$ \text { in millions) } & \text { Home Depot } \\\text { Sales } & \$ 66,176 \\\text { Interest expense } & 676 \\\text { Tax expense } & 1,362 \\\text { Net income } & \$ 2,620\end{array}$ What is the times interest earned ratio for Home Depot?

When bonds are issued at a discount (below face amount),the carrying value and the corresponding interest expense increase over time.