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Exam 15: Long-Term Liabilities

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Question 21

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Which one of the following amounts increases each period when accounting for long-term notes payable?

A) Cash payment
B) Interest expense
C) Principal balance
D) Reduction of principal

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Question 22

Multiple Choice

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Which of the following is not a condition under which the lessee must record the lease of an asset?

A) The lease contains a bargain purchase option.
B) The lease transfers ownership of the property to the lessee.
C) The lease term is equal to 60% of the economic life of the lease property.
D) The present value of the lease payments is 90% of the fair market value of the leased property.

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Question 23

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If the market interest rate is greater than the contractual interest rate, bonds will sell at a discount.

The present value of a $10,000, 5-year bond, will be less than $10,000 if the

A mortgage note payable with a fixed interest rate requires the borrower to make installment payments over the term of the loan. Each installment payment includes interest on the unpaid balance of the loan and a payment on the principal. With each installment payment, indicate the effect on the portion allocated to interest expense and the portion allocated to principal.

The carrying value of bonds is calculated by adding the balance of the Discount on Bonds Payable account to the balance in the Bonds Payable account.

On January 1, 2010, $3,000,000, 5-year, 10% bonds, were issued for $2,910,000. Interest is paid semiannually on January 1 and July 1. If the issuing corporation uses the straight-line method to amortize discount on bonds payable, the monthly amortization amount is

A method of amortizing bond discount or premium that allocates an equal amount each period is the ________________ method.

Presented below are three different aircraft lease transactions that occurred for Midwest Airways in 2010. All the leases start on January 1, 2010. In no case does Midwest receive title to the aircraft during or at the end of the lease period; nor is there a bargain purchase option. Instructions (a) Which of the above leases are operating leases and which are capital leases? Explain your answer. (b) How should the lease transaction with Winsor Insurance be recorded in 2010? (c) How should the lease transaction with Gray Leasing be recorded in 2010?

Each of the following accounts is reported as long-term liabilities except

Herman Company received proceeds of $188,500 on 10-year, 8% bonds issued on January 1, 2009. The bonds had a face value of $200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Herman uses the straight-line method of amortization. Herman Company decided to redeem the bonds on January 1, 2011. What amount of gain or loss would Herman report on its 2011 income statement?

Bond discount should be amortized to comply with

The present value of a bond is also known as its

In the balance sheet, mortgage notes payable are reported as

Bryce Company has $1,500,000 of bonds outstanding. The unamortized premium is $21,600. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?

On January 1, Porter Corporation issued $600,000, 6%, 5-year bonds at face value. Interest is payable semiannually on July 1 and January 1. Instructions Prepare journal entries to record the (a) Issuance of the bonds. (b) Payment of interest on July 1, assuming no previous accrual of interest. (c) Accrual of interest on December 31.

Taylor Corporation issued $2 million, 10-year, 6% bonds on January 1, 2010. Instructions Prepare the entry to record the sale of these bonds, assuming they were issued at (a) 98. (b) 103.

The statement that "Bond prices vary inversely with changes in the market interest rate" means that if the

Franco Corporation reports the following selected financial statement information at December 31, 2010: Instructions Calculate the debt to total assets and times interest earned ratios.

If a $1 million, 10%, 10-year bond issue was sold at 97, the cash proceeds from the issuance of the bonds amounted to $________________.