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Exam 10: Accounting for Long-Term Liabilities

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Question 121

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An installment note is a liability of the issuing company that requires a series of payments to the lender.

A) True
B) False

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Question 122

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On January 1,a company issues 8%,5-year,$300,000 bonds that pay interest semiannually each June 30 and December 31.On the issue date,the annual market rate of interest is 6%.Compute the price of the bonds on their issue date.The following information is taken from present value tables:

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Question 123

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A company purchased two new delivery vans for a total of $250,000 on January 1,Year 1.The company paid $40,000 cash and signed a $210,000,3-year,8% note for the remaining balance.The note is to be paid in three annual end-of-year payments of $81,487 each,with the first payment on December 31,Year 1.Each payment includes interest on the unpaid balance plus principal. (1)Prepare a note amortization table using the format below: (2)Prepare the journal entries to record the purchase of the vans on January 1,Year 1 and the second annual installment payment on December 31,Year 2.

________ bonds are bonds that mature at more than one date,often in a series,and thus are usually repaid over a number of periods.

The contract rate on previously issued bonds changes as the market rate of interest changes.

An annual rate of 4% is applied as a semiannual rate of 1%.

________ bonds have specific assets of the issuing company pledged as collateral.

On January 1,$300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock.The entry to record the conversion of the bonds includes all of the following entries except:

Callable bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.

On January 1,a company issued a $500,000,10%,8-year bond payable,and received proceeds of $473,845.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The amount of discount amortized each period is $1,634.69.

One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible.