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Exam 10: Accounting for Long-Term Liabilities

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Question 71

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A company has 10%, 20-year bonds outstanding with a par value of $500,000. The company calls the bonds at 96 when the unamortized discount is $24,500. Calculate the gain or loss on the retirement of these bonds.

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Question 72

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_________________________ leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.

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Question 73

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

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 _____________. Answers must appear in this order

On January 1, a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid in 5 annual end-of-year payments of $12,195. The first payment is due on December 31. Prepare the journal entries to record the first and second installment payments.

An advantage of bond financing is that issuing bonds does not affect owner control.

A company issues 9% bonds with a par value of $100,000 at par on April 1. The bonds pay interest semi-annually on January 1 and July 1. The cash paid on July 1 to the bond holder(s) is:

The party that has the right to exercise a call option on callable bonds is:

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 if the borrower fails to make the required payments.

Return on equity increases when the expected rate of return from the acquired assets is higher than the interest rate on the debt issued to finance the acquired assets.

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the first interest payment using the effective interest method of amortization is:

Bonds that mature at more than one date with the result that the principal amount is repaid over a number of periods are known as:

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 Discount on Bonds Payable account is:

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?

Collateral from unsecured loans may be sold to offset the loan obligation if the loan is in default.

On August 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 each year on July 31. The present value of an annuity factor for 3 years at 6% is 2.6730. The payment each July 31 will be:

_______________ bonds have specific assets of the issuing company pledged as collateral.

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the first interest payment using straight-line amortization is:

A pension plan is a contractual agreement between an employer and its employees to provide benefits to employees after they retire.