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Exam 10: Long-Term Liabilities

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Question 31

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Return on equity _______________ when the expected rate of return from the acquired assets is greater than the rate of interest on the bonds used to finance the asset acquisition.

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Question 32

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Sinking fund bonds:

A) Require the issuer to set aside assets in order retire the bonds at maturity
B) Require equal payments of both principal and interest over the life of the bond issue
C) Decline in value over time
D) Are registered bonds
E) Are bearer bonds

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

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Question 33

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On January 1, 2010, Timley issues 2,200,000 of 6%, 12-year bonds at a price of 105½ that pay interest semi-annually. The straight-line method is used to amortize any bond discount. What is the journal entry to record the issuance of the bonds on January 1, 2010?

The present value of an annuity can be computed as the sum of the individual future values for each payment.

Describe the recording procedures for the issuance, retirement and paying of interest for notes.

A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

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.

Amortizing a bond discount:

A company has bonds outstanding with a par value of $600,000. The unamortized discount on these bonds is $3,000. The company retired these bonds by buying them on the open market at 98. What is the gain or loss on this retirement?

Explain how a bond premium is amortized. Identify and describe the amortization methods available.

Adidas issued 10-year, 8% bonds with a par value of $200,000, where interest is paid semiannually. The market rate on the issue date was 7.5%. Adidas received $206,948 in cash proceeds. Which of the following statements is true?

Bonds payable to whoever holds them are called _________________ bonds.

What is the debt to equity ratio for a company who has $700,000 in total liabilities and $3,500,000 in total equity?

A discount on bonds payable:

On January 1, 2010, Silver issues $300,000 of 12%, 20-year bonds at a price of 96½. What is the total bond interest expense that will be recognized over the life of the bond?

Bonds owned by investors whose names and addresses are recorded by the issuing company and for which interest payments are made with checks to the bondholders, are called:

The par value of a bond is also known as its ________________________.

The effective interest method yields increasing amounts of bond interest expense and decreasing amount of premium amortization over the life of the bond.

On January 1, 2010, a company borrowed $50,000 cash by signing a 7% installment note that is to be repaid with 5 annual end-of-year payments, the first of which is due on December 31, 2010. (a) Prepare the company's general journal entry to record the note's issuance. (b) Assume that the annual payments are to consist of accrued interest plus equal amounts of principal. Prepare the general journal entries to record the first and second installment payments.

A company can reserve the right to retire bonds before their maturity date by issuing _______________ bonds.