FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 10: Accounting for Long-Term Liabilities

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 91

Short Answer

Review LaterAdd Note

Review Later

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

Correct Answer

verified

Show Answer

Question 92

True/False

Review LaterAdd Note

Review Later

The debt-to-equity ratio enables financial statement users to assess the risk of a company's financing structure.

A) True
B) False

Correct Answer

verified

Show Answer

Question 93

True/False

Review LaterAdd Note

Debentures always have specific assets of the issuing company pledged as collateral.

The carrying (book) value of a bond at the time when it is issued is always equal to its par value.

A company issued 9%, 10-year bonds with a par value of $100,000. Interest is paid semiannually. The market interest rate on the issue date was 10%, and the issuer received $95,016 cash for the bonds. On the first semiannual interest date, what amount of cash should be paid to the holders of these bonds for interest?

____________________ bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.

On January 1, a company issues 8%, 5 year, $300,000 bonds that pay interest semiannually each June 30 and December 31. On the issue date, the annual market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables: $\begin{array}{|l|c|}\hline \text { Present value of an annuity for } 10 \text { periods at } 3 \% & 8.5302 \\\hline \text { Present value of an annuity for } 10 \text { periods at } 4 \% & 8.1109 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 3 \% & 0.7441 \\\hline \text { Present value of } 1 \text { due in } 10 \text { periods at } 4 \% & 0.6756 \\\hline\end{array}$

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity factor for 7 years at 9% is 5.0330. The present value of the loan is:

On July 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring equal payments each June 30 of $37,258. What is the appropriate journal entry to record the issuance of the note?

If an issuer sells bonds at a date other than an interest payment date:

Identify the advantages and disadvantages of bond financing.

When the contract rate on a bond issue is less than the market rate, the bonds will generally sell at a discount.

What is a lease? Explain the difference between an operating lease and a capital lease.

A bond sells at a discount when the:

The equal total payments pattern for installment notes consists of changing amounts of interest but constant amounts of principal over the life of the note.

A _______________________ is a contractual agreement between an employer and its employees for the employer to provide benefits (payments) to employees after they retire.

The factor for the present value of an annuity for 6 years at 10% is 4.3553. This implies that an annuity of six $2,000 payments at 10% would equal $8,710.60.

Payments on an installment note normally include the accrued interest expense plus a portion of the amount borrowed.

Sharma Company's balance sheet reflects total assets of $250,000 and total liabilities of $150,000. Calculate the company's debt-to-equity ratio.

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