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Exam 14: Long-Term Liabilities

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Question 51

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On January 1, 2017, Simpson Sales issued $25,000 in bonds for $31,800. These are eight-year bonds with a stated rate of 9% and pay semiannual interest. Simpson Sales uses the straight-line method to amortize the bond premium. Immediately after the issue of the bonds, the ledger balances are as follows: After the first interest payment on June 30, 2017, what is the balance of Premium on Bonds Payable? (Round your intermediate answers to the nearest dollar.)

A) debit of $425
B) debit of $7,650
C) credit of $700
D) credit of $6,375

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Question 52

Multiple Choice

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On July 1, 2017, Miniature Company has bonds with balances as shown below. If the company retires the bonds for $72,150, what will be the effect on the income statement?

A) loss on retirement of $7,150
B) gain on retirement of $7,150
C) sales revenue of $65,000
D) no effect on net income

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Question 53

Multiple Choice

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A bond is issued at premium ________.

The balance sheet shows the balance in Bonds Payable plus any discount or minus any premium.

On March 1, 2016, Vantage Services issued a 9% long-term notes payable for $30,000. It is payable over a 14-year term in $2,143 principal installments on March 1 of each year, beginning March 1, 2017. Each yearly installment will include both principal repayment of $2,143 and interest payment for the preceding one-year period. The journal entry to pay the first installment will include a debit to Interest Expense for $2,700.

Going Places Adventure Travel signed a 14%, 10-year note for $160,000. The company paid an installment of $2,600 for the first month. After the first payment, what is the principal balance? (Do not round any intermediate calculations, and round your final answer to the nearest dollar.)

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.

On January 1, 2016, Alldredge Company purchased equipment and signed a six-year mortgage note for $194,000 at 15%. The note will be paid in equal annual installments of $51,262, beginning January 1, 2017. Calculate the portion of interest expense paid on the third installment. (Round your answer to the nearest whole number.)

On December 1, 2016, Fine Dining Products borrowed $86,000 on a 5%, 10-year note with annual installment payments of $8,600 plus interest due on December 1 of each succeeding year. On December 1, the principal amount was recorded as a long-term note payable. What amount of the note payable will be shown as current portion of Long-Term Note Payable on the balance sheet as of December 31, 2016? (Round your answer to nearest whole number.)

The balance in the Bonds Payable account is a credit of $24,500. The balance in the Premium on Bonds Payable account is a credit of $1,000. The balance sheet will report the bond balance as $23,500.

Using the effective-interest amortization method, the calculation for the amount of premium amortization is the difference between the cash paid and the calculated interest expense.

The debt to equity ratio of four companies is given below. Based on the debt to equity ratio, which of the following companies has the least financial risk?

Hillsborough Glassware Company issues $1,061,000 of its 11%, 10-year bonds at 96 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?

On December 1, 2016, Gardner Products borrowed $83,000 on a 8%, 10-year note with annual installment payments of $8,300 plus interest due on December 1 of each subsequent year. Which of the following describes the first installment payment made on December 1, 2017? (Round your answer to the nearest whole number.)

When a bond is issued at a premium, the interest expense calculation using the effective-interest amortization method uses the carrying amount of the bonds and the market rate of interest.

Which of the following describes a serial bond?

On March 1, 2016, Mandau Services issued a 7% long-term notes payable for $21,000. It is payable over a 3-year term in $7,000 principal installments on March 1 of each year, beginning March 1, 2017. Each yearly installment will include both principal repayment of $7,000 and interest payment for the preceding one-year period. What is the amount of total cash payment that Mandau will make on March 1, 2017?

The issue price of a bond-whether it is issued at par, premium, or discount-has an effect on the principal repayment at maturity.

Provide a definition of each of the following types of bonds.

The Lakeland Company issues $515,000 of its 9%, 10-year bonds at 102 on March 31, 2017. The bond pays interest on March 31 and September 30. On September 30, 2017, how much cash did the company pay to the bondholders?