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Exam 10: Long-Term Liabilities

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Question 1

Multiple Choice

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Match the following bond and long-term liability related terms to the appropriate definition. -Bonds that are backed by the general creditworthiness of the issuer and are not backed by specific collateral.

A) Long-term liability
B) Face value
C) Debenture bonds
D) Serial bonds
E) Callable bonds
F) Face rate of interest
G) Market rate of interest
H) Bond issue price
I) Premium
J) Discount
K) Effective interest method of amortization
L) Carrying value
M) Gain or loss on redemption

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Question 2

Multiple Choice

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When using the indirect method for preparing the statement of cash flows, all of the following will appear in the operating activities section except:

A) Increase in deferred tax
B) Depreciation expense on leased assets.
C) Interest expense.
D) An increase in long-term liabilities.

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Question 3

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When a bond is issued at a discount, the interest expense each year is less than the cash payment for interest.

Bennington Corp. issued a $40,000, 10-year bond at the face rate of 8%, paid semiannually. How much cash will the bond investors receive at the end of the first interest period?

The bond issue price equals the of the cash flows that the bond will produce.

Which of the following terms does not describe the interest rate printed on the bond certificate?

For a capital lease, the lessee must record both an asset and a liability. The amount of the asset is subsequently reduced by the process of __________________________.

Caron Industries received authorization on December 31, 2014, to issue $7,000,000 face value of 6%, 10-year bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest, April 1, 2015. The bonds are callable by Caron at any time at 102. REQUIRED: Caron exercises the call provision and retires one-half of the bond issue on July, 1, 2017. Identify the accounting equation effects to record this transaction on July 1, 2017.

The bond issue price is determined by calculating the

For 2015, Wasabi Company has accounting revenues of $6,000. However, because of temporary differences between tax and accounting, $1,000 of this is not subject to tax. If expenses are $3,000 for both tax and accounting, and the tax rate is 40%, what is the amount of tax payable to the IRS?

All changes in long-term liabilities are reflected in the financing activities category of the statement of cash flows.

Match the following bond and long-term liability related terms to the appropriate definition. -Bonds that may be redeemed or retired before their specified due date.

Stockton Corporation has made an accounting entry to record deferred taxes as a liability resulting from temporary differences between accounting income and taxable income. Which of the following statements is true?

On January 1, 2015, Chain, Inc. issued $400,000, 10-year, 10% bonds for $354,200. The bonds pay interest on June 30 and December 31. The market rate is 12%. The interest expense on the bonds at June 30, 2015 is

When a bond is retired early and the redemption price is greater than the bond's carrying value, there will be an ______________________ on redemption.

Bonds are sold at a premium if the

Connor Martin Corporation's balance sheet showed the following amounts: Current Liabilities, $10,000; Bonds Payable, $3,000; Lease Obligations, $4,000; and Notes Payable, $600. Total stockholders' equity was $12,000. The debt-to-equity ratio is:

Caron Industries received authorization on December 31, 2014, to issue $7,000,000 face value of 6%, 10-year bonds. The interest payment dates are June 30 and December 31. All the bonds were issued at par, plus accrued interest, April 1, 2015. The bonds are callable by Caron at any time at 102. REQUIRED: Identify the accounting equation effects of the transaction to record the issuance of bonds on April 1, 2015. Apr. 1,

is either the bond's face value minus any unamortized discount or plus any unamortized premium.

A bond payable is dated January 1, 2015, and is issued on that date. The face value of the bond is $120,000, and the face rate of interest is 6%. The bond pays interest semiannually. The bond will mature in five years. REQUIRED: 1. What will be the issue price of the bond if the market rate of interest is 6% at the time of issuance? 2. What will be the issue price of the bond if the market rate of interest is 10% at the time of issuance?