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Exam 9: Long-Term Liabilities

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Question 51

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Interest expense on bonds payable is calculated as the:

A) Face amount times the stated interest rate.
B) Face amount times the market interest rate.
C) Carrying value times the market interest rate.

D) A) and B)
E) A) and C)

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Question 52

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Which of the following leases is just like a rental?

A) An operating lease.
B) A capital lease.
C) Both an operating and a capital lease.

D) All of the above
E) A) and B)

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Question 53

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How would the carrying value of bonds payable change over time for bonds issued at a discount and for bonds issued at a premium?

For bonds issued at a premium,the difference between interest expense and the cash paid increases the carrying value of the bonds.For bonds issued at a premium,the difference between interest expense and the cash paid decreases the carrying value of the bonds.

How does the amortization schedule for an installment note such as a car loan differ from an amortization schedule for bonds?

An amortization schedule for a bond issued at a discount:

Losses have the effect of reducing net income,while gains increase net income.

Discount-Mart issues $10 million in bonds on January 1,2018.The bonds have a ten-year term and pay interest semiannually on June 30 and December 31 each year.Below is a partial bond amortization schedule for the bonds: What is the stated annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate. ) $\begin{array} { | c | r | r | r | r | } \hline \text { Date } & \begin{array} { r } \text { Cash } \\\text { Paid }\end{array} & \begin{array} { r } \text { Interest } \\\text { Expense }\end{array} & \begin{array} { r } \text { Increase } \\\text { in } \\\text { Carrying } \\\text { Value }\end{array} & \begin{array} { r } \text { Carrying } \\\text { Value }\end{array} \\\hline 1 / 1 / 2018 & & & & \$ 8,640,967 \\\hline 6 / 30 / 2018 & \$ 300,000 & \$ 345,639 & \$ 45,639 & 8,686,606 \\\hline 12 / 31 / 2018 & 300,000 & 347,464 & 47,464 & 8,734,070 \\\hline 6 / 30 / 2019 & 300,000 & 349,363 & 49,363 & 8,783,433 \\\hline 12 / 31 / 2019 & 300,000 & 351,337 & 51,337 & 8,834,770 \\\hline\end{array}$

Bonds are the most common form of corporate debt.

Given the information below,which bond(s) will be issued at a discount? $\begin{array} { | l | c | c | c | c | } \hline & \text { Bond 1 } & \text { Bond 2 } & \text { Bond 3 } & \text { Bond 4 } \\\hline \begin{array} { l } \text { Stated Rate of } \\\text { Return }\end{array} & 5 \% & 7 \% & 12 \% & 10 \% \\\hline \begin{array} { l } \text { Market Rate of } \\\text { Return }\end{array} & 7 \% & 8 \% & 12 \% & 9 \% \\\hline\end{array}$

The cash interest payment each period is calculated as the:

For a bond issue that sells for less than the bond face amount,the stated interest rate is:

Camp Elim obtains a $125,000,6%,five-year loan for a new camp bus on January 1,2018.If the monthly payment is $2,416.60,by how much will the carrying value decrease when the first payment is made on January 31,2018?

In each succeeding payment on an installment note:

Companies that are believed to have high bankruptcy risk generally receive higher credit ratings and pay a lower interest rate for borrowing.Companies that are believed to have high bankruptcy risk generally receive low credit ratings and must pay a higher interest rate for borrowing.

In each succeeding payment on an installment note:

An amortization schedule provides a summary of the cash interest payments,interest expense,and changes in carrying value for each period.

A home loan with fixed monthly payments and the house as collateral most closely represents which of the following bond characteristics?

Which of the following is not a reason why some companies lease rather than buy?

Return on assets is calculated as net income divided by the ending balance for total assets.Return on assets is calculated as net income divided by average total assets.