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Exam 10: Long-Term Liabilities

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Question 71

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Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease after the first year of its ten-year life?

A) Accumulated depreciation on the leased asset
B) Lease obligation in the Current Liability section
C) Lease obligation in the Long-Term Liability section
D) Rent expense on the income statement

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Question 72

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Which of the following statements is true with regard to early retirement of bonds?

A) If the carrying value of the bonds is higher than the redemption price,the issuing firm must record a loss.
B) Firms always find it advantageous to retire bonds issued at lower rates with bonds issued at higher rates.
C) It is always advantageous to carry out early retirement for bonds issued at a premium but not for bonds issued at a discount.
D) Any gain or loss resulting from early retirement of bonds would appear on the income statement of the issuing company.

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Question 73

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Line Corporation's balance sheet showed the following amounts for their liability and stockholders' equity accounts: Current Liabilities,$5,000;Bonds Payable,$1,500;Lease Obligations,$2,000;and Deferred Income Taxes,$300.Total stockholders' equity was $6,000.The debt-to-equity ratio is

Sewickley Company Use the Liabilities section of Sewickley Company's balance sheet to answer the questions that follow. $\begin{array}{c}\text {Sewickley Company}\\\text {Consolidated Balance Sheets}\\ \text {(in millions)}\\\begin{array}{lrr}&\quad\quad\text { December 31,} \\&2018 & 2017 \\\text { Current liabilities }\\\text { Short-term borrowings } & \$ 354 & \$ 202 \\\text { Accounts payable and other current liabilities } & 4,461 & 4,529 \\\text { Income taxes payable } & \underline{183} & \underline{64} \\\text { Total current liabilities } & \$ 4,998 & \$ 4,795\\\\\text { Long-term debt } & \$ 2,651 & \$ 3,009 \\\text { Other long-term li abilities } & 3,876 & 3,960 \\\text { Deferred income taxes (assume all are long-term) } & 1,496 & 1,367\end{array}\end{array}$ -Review the consolidated balance sheets of Sewickley Company. Required (1)Which long-term liability would also be listed in the Short-Term Liability section? Why? (2)What percent of the total liabilities for 2018 and 2017 are long-term liabilities? What implication does this have?

Which of the following statements is correct?

In an operating lease,the lessee is not required to record the right to use the property as an asset or to record the obligation for payments as a liability.

On January 2,2017,Roof Master Construction,Inc.issued $500,000,ten-year bonds for $574,540.The bonds pay interest on June 30 and December 31.The face rate is 8%,and the market rate is 6%.At the maturity date,besides an interest payment,Roof Master would repay the bondholders

If bonds were initially issued at a premium,the carrying value of the bonds on the issuer's books will

Stock investors view equity as a claim against the company that must be satisfied before they get a return on their money.

Frank Crawford Corporation's balance sheet showed the following amounts: Current Liabilities,$15,000;Bonds Payable,$8,000;Lease Obligations,$9,000;and Notes Payable,$5,600.Total stockholders' equity was $17,000.The debt-to-equity ratio is

An investor views a high debt-to-equity ratio and a low times interest earned ratio as favorable signs of a company's abilities to meet its long-term obligations.

An amortized premium is computed annually when a bond is issued for other than its face value.For a bond issued at a premium,how will this component change under the effective interest method as the bond approaches maturity?

All liabilities that are not classified as current liabilities are classified as long-term.

Stanton Heights Corporation issued $95,000 face value bonds at a discount of $5,000. The bonds contain a call price of 102. Stanton Heights decides to redeem the bonds early when the unamortized discount is $2,750. Required 1. Calculate Stanton Heights Corporation’s gain or loss on the early redemption of the bonds. 2. Describe how the gain or loss would be reported on the income statement and in the notes to the financial statements.

On January 1,2017,the Long-Term Liability section of Eden Company's balance sheet showed a balance of $35,000 in the Bonds Payable account.On December 31,2017,the balance in that same account was $20,000.This change would appear on the statement of cash flows as an

Convertible bonds normally sell at a higher price than nonconvertible bonds.

The carrying value is computed annually when a bond is issued for other than its face value.For a bond issued at a discount,how will this component change as the bond approaches maturity?

The effective interest method amortizes premium or discount in a manner that produces a(n)__________ rate of interest from period to period.

If bonds are issued at 101.25,this means that

Premium on Bonds Payable is a balance sheet item for Ohio Products Company.How would it most likely be classified on the balance sheet?