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Exam 12: Long-Term Liabilities

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Question 91

Multiple Choice

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The interest rate on which cash payments to bondholders are based is the ________.

A) market rate
B) discount rate
C) stated rate
D) amortization rate

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Question 92

Multiple Choice

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On January 1,2016,Demarest Company purchased equipment and signed a six-year mortgage note for$80,000 at 15%.The note will be paid in equal annual installments of $21,139,beginning January 1,2017.Calculate the portion of principal amount paid on the third installment.(Round your answer to the nearest whole number. )

A) $12,086
B) $12,000
C) $21,139
D) $9,053

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Question 93

Essay

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In order to expand its business,the management of Vereos,Inc.issued a long-term notes payable for $50,000.The note will be paid over a 10-year period with equal annual principal payments,beginning in one year.The annual interest rate is 12%.Prepare the journal entry for the issuance of the note.

Which of the following describes a secured bond?

A note payable can either be classified as a long-term liability or a short-term liability,depending on the discretion of the accountant.

FICA-OASDI Taxes Payable would normally be shown on the balance sheet under long-term liabilities.

Which of the following statements is true if a bond is issued at an amount less than its face value?

Hillsborough Glassware Company issues $1,042,000 of its 14%,10-year bonds at 97 on February 28,2017.The bonds pay interest on February 28 and August 31.Assume that Hillsborough uses the straight-line method for amortization.What net amount will be reported for the bonds on the August 31,2017 balance sheet?

The effective-interest amortization method allocates an amount of bond discount or premium,based on the market interest rate at issuance,to each interest period over the life of the bond.

Hernandez Carpets Company buys a building for $115,000,paying $30,000 cash and signing a 30-year mortgage note for $85,000 at 11%.Prepare the journal entry for the purchase.

On December 31,2017,Lopez Sales has a Bonds Payable balance of $72,000 and a Premium on Bonds Payable balance of $4,000.On the balance sheet,how will this information be shown?

On January 1,2017,Davie Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued at par.Prepare the journal entry to issue bonds.

List the two categories of liabilities reported on the balance sheet and provide an example of each.

Secured bonds give bondholders the right to take specified assets of the issuer if the issuer fails to pay principal or interest.

On the maturity date,the bondholder is paid the face amount of the bond plus the last interest payment.

If bonds with a face value of $204,000 are issued at par,the amount of cash proceeds is ________.

On January 1,2017,Citywide Sales issued $25,000 in bonds for $29,800.These are eight-year bonds with a stated rate of 15% and pay semiannual interest.Citywide Sales uses the straight-line method to amortize the bond premium.On June 30,2017,when Citywide makes the first payment to bondholders,what is the amount that will be reported as Interest Expense?

When computing the present value of a bond,which interest rate is used? Why?

A mortgage payable is a long-term debt that is backed with a security interest in specific property.

The future value is the bond's market price.