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Exam 10: Long-Term Liabilities

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Question 21

True/False

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The issue price of a bond is always present valued using the market rate of interest.

A) True
B) False

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Question 22

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

A) True
B) False

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Question 23

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On January 2, 2015, Wynn Corporation sold $750,000 of bonds for $745,000.The bonds will mature in 10 years and pay interest annually on December 31.Wynn properly recorded the payment of interest and amortization of the discount using the effective interest method.Which of the following statements is true about the carrying value of the bonds and/or the unamortized discount at the end of 2015?

On January 1, 2015, Corner Store, Inc.issued $400,000, 10-year, 10% bonds for $354,200.The bonds pay interest on June 30 and December 31.The market rate is 12%.The cash payment on June 30, 2015 is

Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%.This means that the bonds were issued

When a bond is issued at a discount, the interest expense each year is less than the cash payment for interest.

If bonds are issued at 101.25, this means that

The amortization of bond discount increases the effective interest expense incurred each period for the issuer while amortization of bond premium decreases it.

Review the consolidated balance sheets of Backkus Metal Company. REQUIRED: 1) What are the total long-term liabilities for the two years presented? 2) What is the percent increase/decrease of long-term liabilities from 2014 to 2015? Which liability appears to have caused the greatest change?

In calculating deferred income taxes, occur when an item is included in the tax calculation and is never included for financial accounting purposes, or vice versa.

Review the consolidated balance sheets of Backkus Metal Company. REQUIRED: Which one of the liabilities shown in the balance sheets is used in the calculation of the debt-to-equity ratio? If we can assume that the stockholders' equity total remained relatively constant for the two years, how would the ratio change increase/decrease) from 2014 to 2015? What would this say about the company's financial position?

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

The Discount on Bonds Payable account is shown on the balance sheet as

Convertible bonds normally sell at a higher price than non-convertible bonds.

Bonds are typically issued in denominations of $10,000.

The result of using the effective interest method of amortization of discount on bonds is that the

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

The asset leased under an operating lease requires the lessee to record depreciation expense.

Which of the following statements regarding leases is false?

Most investors would prefer to see equity rather than debt on the balance sheet.