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Exam 9: Long-Term Liabilities

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Question 71

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The entry to record a monthly payment on an installment note such as a car loan:

A) Increases expense,decreases liabilities,and decreases assets.
B) Increases expense,increases liabilities,and increases assets.
C) Increases expense,decreases liabilities,and increases assets.

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

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Question 72

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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 market annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate. ) $\begin{array} { | c | r | r | r | r | } \hline \text { Date } & \begin{array} { r } \text { Cash } \\\text { Paid }\end{array} & \begin{array} { r } \text { Interest } \\\text { Expense }\end{array} & \begin{array} { r } \text { Increase } \\in\\\text { Carrying } \\\text { Value }\end{array} & \begin{array} { r } \text { Carrying } \\\text { Value }\end{array} \\\hline 1 / 1 / 2018 & & & & \$ 8,640,967 \\\hline 6 / 30/12018 & \$ 300,000 & \$ 345,639 & \$ 45,639 & 8,686,606 \\\hline 12 / 31 / 2018 & 300,000 & 347,464 & 47,464 & 8,734,070 \\\hline 6 / 30/2019 & 300,000 & 349,363 & 49,363 & 8,783,433 \\\hline 12 / 31 / 2019 & 300,000 & 351,337 & 51,337 & 8,834,770 \\\hline\end{array}$

A) 3%.
B) 4%.
C) 6%.
D) 8%.

E) B) and C)
F) A) and B)

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Question 73

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Selected financial data for Company A is provided below: What is the times interest earned ratio for Company A? $\begin{array} { | l | r | } \hline \text { ( in milions) } & \text { Compary } A \\\hline \text { Sales } & \$ 66,176 \\\hline \text { Interest expense } & 676 \\\hline \text { Tax expense } & 1,362 \\\hline \text { Net income } & \$ 2,620 \\\hline\end{array}$

The balance sheet of Sub America reports total assets of $400,000 and $450,000 at the beginning and end of the year,respectively.The return on assets for the year is 10%.What is Sub America's net income for the year?

Operating leases are contractual agreements where the lessor owns the asset and the lessee simply uses the asset temporarily.

Bonds payable should be reported as a long-term liability in the balance sheet at:

Tony Hawk's Adventure (THA) issued callable bonds on January 1,2018.THA's accountant has projected the following amortization schedule from issuance until maturity: What is the annual market interest rate on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate) $\begin{array} { | c | r | r | r | r | } \hline \text { Date } & \begin{array} { r } \text { Cash } \\\text { Paid }\end{array} & \begin{array} { r } \text { Interest } \\\text { Expense }\end{array} & \begin{array} { r } \text { Increase in } \\\text { Carrying } \\\text { Value }\end{array} & \begin{array} { r } \text { Carrying } \\\text { Value }\end{array} \\\hline 1 / 1 / 2018 & & & & \$ 194,758 \\\hline 6 / 30 / 2018 & \$ 7,000 & \$ 7,790 & \$ 790 & 195,548 \\\hline 12 / 31 / 2018 & 7,000 & 7,822 & 822 & 196,370 \\\hline 6 / 30 / 2019 & 7,000 & 7,865 & 865 & 197,225 \\\hline 12 / 31 / 2019 & 7,000 & 7,889 & 889 & 198,114 \\\hline 6 / 30 / 2020 & 7,000 & 7,925 & 925 & 199,039 \\\hline 12 / 31 / 2020 & 7,000 & 7,961 & 961 & 200,000 \\\hline\end{array}$

Selected financial data for Company B is provided below: What is the times interest earned ratio for Company B? $\begin{array} { | l | r | } \hline \text { ( in milions) } & \text { Compamy B } \\\hline \text { Sales } & \$ 47,220 \\\hline \text { Interest expense } & 287 \\\hline \text { Tax expense } & 1,042 \\\hline \text { Net income } & \$ 1,783 \\\hline\end{array}$

The market interest rate does not change over time.Market rates change continuously.Announcements by the Federal Reserve regarding its intentions to increase the federal funds rate,political unrest,an increase in the price of oil,and fears of growing inflation can all cause an increase in market interest rates.

Bonds can be secured or unsecured.Likewise,bonds can be term or serial bonds.Which is more common?

As a company's level of debt increases,bankruptcy risk increases.

Seaside issues a bond with a stated interest rate of 10%,face value of $50,000,and due in 5 years.Interest payments are made semi-annually.The market rate for this type of bond is 12%.What is the issue price of the bond?

Profits generated by the company are a(n) :

Operating leases occur when the lessee essentially buys an asset and borrows the money through a lease to pay for the asset.Capital leases occur when the lessee essentially buys an asset and borrows the money through a lease to pay for the asset.

Which of the following is true for bonds issued at a discount?

The stated interest rate is the rate quoted in the bond contract used to calculate the cash payments for interest.

Leverage enables a company to earn a higher return using debt than without debt.

Which of the following definitions describes a term bond?

When bonds are issued at a premium and the effective interest method is used for amortization,at each interest payment date,the interest expense:

The market value of bonds moves in the opposite direction of interest rates.