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Exam 10: Accounting for Long-Term Debt

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Question 51

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[The following information applies to the questions displayed below.] On January 1, Year 1, Victor Company issued bonds with a $250,000 face value, a stated rate of interest of 6%, and a 5-year term to maturity. The bonds sold at 95. Interest is payable in cash on December 31 of each year. Victor uses the straight-line method to amortize bond discounts and premiums. -What is the amount of interest expense appearing on the income statement for the year ending December 31,Year 3?

A) $17,500
B) $12,500
C) $14,250
D) $15,000

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

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Question 52

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The times-interest-earned ratio is usually calculated as the ratio of net income to interest expense.

A) True
B) False

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Question 53

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[The following information applies to the questions displayed below.] On January 1, Year 1, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at 102. Interest payments are due each December 31. Pierce uses the straight-line method to amortize bond discounts and premiums. -Which of the following shows the effect of the bond issuance on January 1,Year 1?

[The following information applies to the questions displayed below.] On January 1, Year 1, Echols Company borrowed $100,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $25,045.65. -Which of the following shows how the borrowing of cash from Sun Bank on January 1,Year 1,affects the elements of the financial statements?

Which of the following describes the characteristics of a convertible bond?

Thrasher Company reported income before taxes of $180,000.The company is in a 30% income tax bracket.Also,Thrasher's income statement contained a charge for interest expense amounting to $60,000.Based on this information alone,what is the company's times-interest-earned ratio?

On January 1,Year 1,Strang Incorporated issued bonds with a face value of $500,000,a stated rate of interest of 8%,and a 5-year term to maturity.The effective rate of interest was 10%.Interest is payable in cash on June 30 and December 31 of each year.Which of the following statements is true?

Spokane Company called in bonds at a price that was above the carrying value of the bond liability.Which of the following shows how this event will affect the elements of the financial statements?

[The following information applies to the questions displayed below.] On January 1, Year 1, Wayne Company issued bonds with a face value of $600,000, a 6% stated rate of interest, and a 10-year term. Interest is payable in cash on December 31 of each year. Wayne uses the straight-line method to amortize bond discounts and premiums. -Assuming Wayne issued the bond for 102.5,what is the amount of interest expense that will be reported on the income statement for the year ending December 31,Year 1?

The times-interest-earned ratio is calculated by which of the following?

Bruce Company experienced an accounting event that was recorded in the company's general journal as indicated below: Which of the following shows how this event affects the elements of the financial statements?

Companies that issue bonds are required to pay the face value of the bonds at maturity and to make fluctuating periodic interest payments based on the market interest rate.

Johansen Company issued a bond at a discount.Which of the following shows how the issuance of the bonds affects the elements of the financial statements?

Which of the following statements is true regarding the straight-line method of amortizing discounts and premiums on bonds?

If bonds with a face value of $200,000 are issued at 98,the amount of cash received from issuing the bonds is $204,082.

Amortization of a discount on bonds payable is an asset use transaction.

Jacobs Company issued bonds with a $300,000 face value on January 1,Year 1.The bonds were issued at 102 and carried a 5-year term to maturity.They had a 9% stated rate of interest that was payable in cash on December 31st of each year.Jacobs uses the straight-line method to amortize bond discounts and premiums.Based on this information alone,how does the recognition of interest expense during Year 1 affect the company's accounting equation?

Which of the following is one of the main advantages of using long-term debt financing instead of equity financing?

Loans that require payment of interest at regular intervals and payment of principal at maturity are installment notes.

Which of the following conditions indicate a company has a relatively high level of financial risk?