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Exam 9: Long-Term Liabilities

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Question 51

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Match these terms with their definitions. a.Bond i.Lessor b.Contract, coupon, stated rate j.Leverage c.Discount k.Long-term debt d.Effective interest rate method l.Market rate, yield e.Face value, par value, principal m.Maturity f.Interest amortization n.Premium g.Lease o.Straight-line method h.Lessee -The process used to determine the amount of interest to be recorded in each of the periods the liability is outstanding.

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Question 52

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A bond issuing at 101.25 means that the bond

A) sold for $101.25.
B) sold at a discount.
C) sold for $1,012.50.
D) stated rate is lower than the market rate of interest.

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Question 53

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Refer to Kalahari Limited. The semiannual cash payment on the bonds is

The two promises made by a bond issuer to the purchaser of the bond are to pay periodic interest and to ___________________.

The current portion of long-term debt would appear on the balance sheet as

An advantage of financing with debt rather than stock is that interest expense is ____________________ for tax purposes.

Under the effective interest method of amortization, the interest expense for each period is the carrying value times the ____________________.

Which of the following statements regarding bonds payable is true?

-Refer to King Cotton Company. Which one of the liabilities shown in the balance sheets is used in the calculation of the debt-to-equity ratio? If we can assume that the stockholders' equity total remained relatively constant for the two years, how would the ratio change (increase/decrease)from 2012 to 2013? What would this say about the company's financial position?

Refer to King Cotton Company. Describe briefly how each of the following long-term liabilities arises; i.e., what kind of transaction produces the resulting long-term liability? You may want to include the appropriate journal entry (ignore amounts)in your description.

On January 1, 2013, a company buys equipment for $666,633 with a 14% installment note to pay off the debt with 6 semiannual payments over three years. The payments are $139,857. Required:

Bonds are issued at a ____________________ when the issue price exceeds the face value.

In 2013, Karaoke Tunes issued $200,000 of bonds for $190,200. If the stated rate of interest was 6.5% and the market rate of interest was 7.1%, how would the company calculate the discount at the time the bonds were issued using the effective interest method?

The Premium on Bonds Payable account is shown on the balance sheet as

When the yield rate of interest is greater than the stated rate, then the bond will be issued at a discount.

Obligations that extend beyond one year are referred to as ____________________.

Match these terms with their definitions. a. Callable bonds f. Mortgage bonds b. Capital lease g. Notes payable c. Convertible bonds h. Operating lease d. Debenture bonds i. Secured bonds -Give the borrower the option to pay off the debt prior to maturity.

Match these terms with their definitions. a.Bond i.Lessor b.Contract, coupon, stated rate j.Leverage c.Discount k.Long-term debt d.Effective interest rate method l.Market rate, yield e.Face value, par value, principal m.Maturity f.Interest amortization n.Premium g.Lease o.Straight-line method h.Lessee -The party who has the use of a leased asset.

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

In an operating lease, the lessor retains the risks and obligations of ownership.