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Exam 14: Long Term Liabilities

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Question 81

True/False

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Leases of short-term assets are operating leases,and leases of long-term assets are capital leases.

A) True
B) False

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Question 82

Multiple Choice

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Greco Co.issued ten-year term bonds on January 1,20x5,with a face value of $1,600,000.The face interest rate is 6 percent and interest is payable semi-annually on June 30 and December 31.The bonds were issued for $1,381,920 to yield an effective annual rate of 8 percent.The effective interest method of amortization is to be used.The carrying value of the bonds payable on the December 31,20x5,balance sheet date should be

A) $1,392,824.
B) $1,396,472.
C) $1,396,764.
D) $1,381,920.

E) B) and D)
F) B) and C)

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Question 83

Multiple Choice

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A bond with a face value of $1,000 has a current price quote of 89.00.This bond is selling for

Entering into a lease is an example of off-balance-sheet financing.

When a bond sells at a discount,what is probably true about the market interest versus the face interest rate? Discuss.

Which of the following is an example of off-balance-sheet financing?

When bonds are issued at a discount,the total interest cost of the bonds over the life of the bonds is equal to the amount of

Regardless of whether the straight-line method or the effective interest method is used,the carrying value of a term bond issued at a discount will increase continually over the life of the bond.

When bonds are converted to stock,no gain or loss is recognized.

Tire Corp.had income before income taxes of $4,000,000 and interest expense of $450,000.Calculate Tire's interest coverage ratio,rounded to one decimal place.

When bonds have been issued at a discount the periodic amortization of the discount will

All of the following are advantages of issuing bonds rather than stock except

The debt to equity ratio is expressed in terms of dollars.

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,when the market rate of interest is 8 percent.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the issuance includes

Bondholders are creditors of the issuing corporation.

Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,and sells them on the same date for their face value.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the issuance includes

On March 1,20x5,Darby Corporation sold 102 of its 9 percent,$1,000 bonds for a price of 96 plus accrued interest.The accrued interest amounted to $1,000.If a balance sheet were to be prepared at the end of the day,March 1,20x5,the carrying value reported for the bonds payable would be

Term bonds are of shorter duration than serial bonds.

The amount of unamortized discount at the end of an interest period is equal to the amount of the unamortized discount at the beginning of the period minus the amount of discount that was amortized during the period.

When bonds are sold at face value between interest dates,the result is a debit to the Cash account that