Deck 10: Financing: Long-Term Liabilities

Question 1

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. What is the approximate present value of $500 to be received in 1 year if interest is 8 percent compounded annually?

A) $415
B) $423
C) $460
D) $463

Answer 1

D

Question 2

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Assuming an annual interest rate of 10 percent, what factor from the tables would be used to calculate the present value of a specified payment to be received nine years from today?

A) 0.4241
B) 0.4224
C) 2.3579
D) 2.3674

Answer 2

A

Question 3

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. What is the approximate present value of $100 to be received in 2 years if interest is 10 percent compounded annually?

A) $83
B) $90
C) $110
D) $121

Answer 3

A

Question 4

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. For a 10-year bond paying semiannual interest, how many compounding periods are there over the life of the bond?

A) 5
B) 10
C) 15
D) 20

Question 5

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following has the smallest present value?

A) $2,000 discounted for 4 years at 8 percent compounded annually
B) $2,000 discounted for 4 years at 8 percent compounded semiannually
C) $3,000 discounted for 4 years at 8 percent compounded annually
D) $3,000 discounted for 4 years at 8 percent compounded semiannually

Question 6

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. You are purchasing a home. You know the monthly mortgage payment amount that you can afford, and you want to calculate the corresponding mortgage total amount. The technique you will use is the

A) Future amount of $1
B) Present value of $1
C) Future amount of an annuity of $1
D) Present value of an annuity of $1

Question 7

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Arsenio plans to invest $10,000 at the end of each of the next ten years. Assume that Arsenio will earn interest at an annual rate of 6 percent compounded annually. The investment at the end of ten years would be (rounded)

A) $137,390
B) $131,808
C) $106,000
D) $100,000

Question 8

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The present value of $2,500 to be received in 4 years when interest is 12 percent compounded quarterly is computed by discounting at

A) 12 percent for 4 periods
B) 6 percent for 8 periods
C) 4 percent for 12 periods
D) 3 percent for 16 periods

Question 9

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The two major categories of liabilities on a typical balance sheet are

A) Current Liabilities and Long-Term Liabilities
B) Wages Payable and Long-Term Liabilities
C) Accounts Payable and Notes Payable
D) Current Liabilities and Bonds Payable

Question 10

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The present value of $1 discounted for 12 years at 9 percent compounded annually is 0.3555. The present value of an annuity of $1 discounted for 12 years at 9 percent compounded annually is 7.1607. Given this information, how much must be invested today so that $100 can be received each year for 12 years if money is worth 9 percent compounded annually?

A) $13.97
B) $35.55
C) $281.29
D) $716.07

Question 11

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following statements is FALSE?

A) A liability is an item that involves a future transfer of resources.
B) A liability is an item that is measurable in monetary terms.
C) A liability is an item that represents an obligation of an enterprise.
D) A liability is an item that must be paid in cash.

Question 12

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The present value of $1 discounted for 10 years at 8 percent compounded annually is 0.4632. The present value of an annuity of $1 discounted for 10 years at 8 percent compounded annually is 6.7101. Given this information, the present value of $80 to be received in 10 years at 8 percent compounded annually is

A) $11.92
B) $37.06
C) $172.71
D) $536.81

Question 13

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. You have just purchased an automobile for $15,000 and will be financing it at 12 percent interest compounded monthly for 5 years. Your monthly payment will be

A) $4,161.15
B) $3,068.49
C) $1,802.02
D) $333.67

Question 14

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Assuming an annual interest rate of 8 percent, what factor from the tables would be used to calculate the amount that should be deposited in a bank today to grow to a specified amount nine years from today?

A) 0.5002
B) 0.5019
C) 1.9926
D) 1.9990

Question 15

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The present value of $1,000 to be received in 3 years when interest is 12 percent compounded quarterly is computed by discounting at

A) 3 percent for 12 periods
B) 12 percent for 3 periods
C) 4 percent for 9 periods
D) 6 percent for 6 periods

Question 16

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Assuming an interest rate of 12 percent, an ordinary annuity of eight annual $30,000 payments will grow to

A) $74,279
B) $149,029
C) $368,991
D) $569,314

Question 17

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. An investor wants to withdraw $8,000 (including principal) from an investment fund at the end of each year for 10 years. How should the investor compute the required initial investment at the beginning of the first year if the fund earns 10 percent compounded annually?

A) $8,000 times the amount of an annuity of $1 at 10 percent at the end of each year for 10 years
B) $8,000 divided by the amount of an annuity of $1 at 10 percent at the end of each year for 10 years
C) $8,000 times the present value of an annuity of $1 at 10 percent at the end of each year for 10 years
D) $8,000 divided by the present value of an annuity of $1 at 10 percent at the end of each year for 10 years

Question 18

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. If Cheng Corporation can invest $10,000 at 10 percent interest compounded annually, approximately how many years will it take for the $10,000 to grow to $20,000?

A) Slightly more than 5 years
B) Slightly more than 7 years
C) Slightly more than 10 years
D) Slightly more than 25 years

Question 19

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The present value of an annuity of $500 for 10 years at 10 percent interest compounded annually is

A) Less than $5,000
B) Greater than $5,000
C) Exactly $5,000
D) Not determinable from the above data

Question 20

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following has the smallest present value?

A) $3,500 discounted for 6 years at 8 percent compounded annually
B) $3,500 discounted for 6 years at 8 percent compounded semiannually
C) $3,500 discounted for 6 years at 8 percent compounded quarterly
D) $4,000 discounted for 6 years at 8 percent compounded annually

Question 21

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following is prepared to identify how much of each mortgage payment is interest and how much is principle reduction?

A) Mortgage depreciation schedule
B) Mortgage amortization schedule
C) Mortgage depletion schedule
D) Mortgage reduction schedule

Question 22

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Suppose you want to determine the payments you will have to make on a loan for a house. The house will cost $100,000, and your bank requires a 20 percent down payment. The remainder will be financed at 12 percent compounded annually for 25 years. What will be the annual payment?

A) $750
B) $4,704
C) $5,882
D) $10,200

Question 23

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. An $18,000, 8 percent (payable annually), one-year note is accepted by the bank on April 1. If the note is prematurely repaid on November 1 of the same year (without penalty), how much interest is paid?

A) $700
B) $840
C) $980
D) $1,440

Question 24

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The following entry is made to record the first monthly payment on a $60,000, 9 percent mortgage:
Given this entry, the amount of interest included with this payment is

A) $450
B) $32
C) $482
D) Not determinable without more information

Question 25

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. If equipment is purchased by issuing a 10-year, $200,000 interest bearing note at a stated rate of 8 percent (payable annually), the first interest payment, assuming it has not been previously accrued, would be entered in the accounting records by

A) Crediting interest expense for $16,000
B) Debiting notes payable for $16,000
C) Debiting cash for $16,000
D) Debiting interest expense for $16,000

Question 26

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following is LEAST likely to be classified as a current liability?

A) Wages Payable
B) Income Taxes Payable
C) Unemployment Taxes Payable
D) Bonds Payable

Question 27

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Generally accepted accounting principles specify that a long-term noncancelable lease for a period equal to the life of the equipment is

A) An operating lease
B) Essentially equivalent to a purchase
C) Not mentioned in the financial statements unless payment is reasonably possible
D) Expensed in the year signed

Question 28

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. If equipment is purchased by issuing a 10-year, $200,000 interest bearing note at a stated rate of 8 percent (payable annually), the transaction would be entered in the accounting records by crediting

A) Notes payable for $29,806
B) Notes payable for $92,640
C) Notes payable for $185,280
D) Notes payable for $200,000

Question 29

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Assume you are going to purchase a house. You have $40,000 to use as a down payment and can afford a payment of $16,000 per year for 30 years. If interest is 8 percent per year, what is the largest purchase price of the house that you can buy?

A) $20,795
B) $225,156
C) $260,000
D) $220,125

Question 30

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. If no interest payments are made on a note, then the difference between the present value of the cash flows associated with the note and the face value of the note represents

A) Principal
B) Amortization
C) Interest
D) Principal reduction

Question 31

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. A 4-month, $6,500 note payable at 9 percent incurs interest (rounded to nearest dollar) of

A) $195
B) $146
C) $292
D) $585

Question 32

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The entry to record the annual lease payment on a capitalized lease includes a

A) Credit to Lease Obligation
B) Debit to Cash
C) Credit to Depreciation Expense
D) Debit to Interest Expense

Question 33

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Byers Corporation purchased equipment by issuing a 10-year, $400,000 interest-bearing note at a stated rate of 10 percent (payable annually). Given this information and assuming that a market interest rate of 8%, the equipment would be entered in the accounting records at

A) $400,000
B) $453,680
C) $422,620
D) $431,059

Question 34

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Interest expense on a 6-month, 8 percent, $6,000 note payable would be approximately

A) $360
B) $120
C) $480
D) $240

Question 35

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. A long-term, noncancelable lease for a period that is equal to the life of the leased asset is accounted for as a(n)

A) Operating lease
B) Rental agreement
C) Capital lease
D) None of these are correct

Question 36

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following is LEAST likely to be classified as a long-term liability?

A) Salaries payable
B) Mortgage payable
C) Lease obligations
D) Deferred income taxes payable

Question 37

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following is an example of off-balance-sheet financing?

A) Mortgages
B) Bonds
C) Operating leases
D) Notes payable

Question 38

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. A 1-year, $15,000, 12 percent (payable annually) note is signed on April 1. If the note is prematurely repaid on September 1 of the same year, how much interest expense is incurred?

A) $1,800
B) $900
C) $750
D) $600

Question 39

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. At the end of each year, a mortgage is reported under how many sections of the balance sheet?

A) 1
B) 2
C) 3
D) 4

Question 40

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following is NOT true?

A) Bonds allow a company to borrow a lot of money from a lot of different people
B) Notes involve borrowing a lot of money from one lender
C) Mortgages typically have a higher interest rate because of collateral on the loan
D) Leases typically require a lower down payment as there are no risks associated with product obsolescence

Question 41

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The effective interest rate on bonds is lower than the stated rate when bonds sell

A) At maturity value
B) Above face value
C) Below face value
D) At face value

Question 42

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The issuance price of a bond does NOT depend on the

A) Face value of the bond
B) Riskiness of the bond
C) Method used to amortize the bond discount or premium
D) Effective interest rate

Question 43

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Bonds that have a pledge of company assets are called

A) Secured bonds
B) Debenture bonds
C) Registered bonds
D) Convertible bonds

Question 44

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Bonds usually sell at a discount when

A) Investors are willing to invest in the bonds at the stated interest rate
B) Investors are willing to invest in the bonds at rates that are lower than the stated interest rate
C) Investors are willing to invest in the bonds only at rates that are higher than the stated interest rate
D) A capital gain is expected

Question 45

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Callable bonds

A) Can be redeemed by the issuer at any time at a specified price
B) Can be converted to stock
C) Mature in a series of payments
D) Mature in one single sum on a specified future date

Question 46

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following is one of the ways bonds can be categorized?

A) The extent to which bondholders are protected
B) How the bond interest is paid
C) How the bonds mature
D) All of these are correct

Question 47

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Debentures are

A) Unsecured bonds
B) Secured bonds
C) Ordinary bonds
D) Serial bonds

Question 48

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. A 10-year capital lease requiring payments of $25,000 per year is signed. The entry to record the first payment would probably include a

A) Debit to Lease Obligation that is of a larger amount than the debit to Interest Expense
B) Debit to Lease Obligation that is of a smaller amount than the debit to Interest Expense
C) Debit to Lease Obligation that is of a smaller amount than the debit to Cash
D) Debit to Lease Obligation that is of a larger amount than the credit to Cash

Question 49

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. On January 1, Cromwell Corp. leased a mainframe computer from Fairview Company for $42,000 per year (payable on each December 31) for 10 years. The lease is a capital lease, and the current market rate of interest is 12 percent. The market value of the computer is $237,300, which is equal to its discounted present value at 12 percent. Given this data, interest expense on the lease for the first year is

A) $42,000
B) $28,476
C) $25,200
D) $13,524

Question 50

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. To compute the price to pay for a bond, you use

A) Only the present value of $1 concept
B) Only the present value of an annuity of $1 concept
C) Both the present value of $1 concept and the present value of an annuity of $1 concept
D) Neither the present value of $1 concept and the present value of an annuity of $1 concept

Question 51

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The amount of a company's future operating lease payments must be disclosed in the

A) Current liabilities section of the balance sheet
B) Long-term liabilities section of the balance sheet
C) Notes to the financial statements
D) Operating expenses section of the income statement

Question 52

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. When a company issues bonds that promise only to pay the face amount at the maturity date, the bonds issued are called

A) Junk bonds
B) Debenture bonds
C) Term bonds
D) Zero coupon bonds

Question 53

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. On January 1, Cromwell Corp. leased a mainframe computer from Fairview Company for $42,000 per year (payable on each December 31) for 10 years. The lease is a capital lease, and the current market rate of interest is 12 percent. The market value of the computer is $237,300, which is equal to its discounted present value at 12 percent. Given this data, the amount of the lease obligation at the end of the first year is

A) $237,300
B) $420,000
C) $208,824
D) $223,776

Question 54

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following is NOT a synonymous term to the others?

A) Principal
B) Face value
C) Maturity value
D) Future value

Question 55

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. High-risk bonds issued by companies in weak financial condition are called

A) Zero coupon bonds
B) Junk bonds
C) Debenture bonds
D) Coupon bonds

Question 56

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. If the effective interest rate equals the stated interest rate, a bond will sell at

A) A premium
B) A discount
C) Face value
D) Unable to determine from the data given

Question 57

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Bonds usually sell at a premium when

A) Investors are willing to invest in the bonds at the stated interest rate
B) Investors are willing to invest in the bonds at rates that are lower than the stated interest rate
C) Investors are willing to invest in the bonds only at rates that are higher than the stated interest rate
D) The bond issuer expects a capital gain

Question 58

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. When do bonds usually sell at a premium?

A) When the market rate of interest is greater than the stated rate of interest on the bonds
B) When the stated rate of interest on the bonds is greater than the market rate of interest
C) When the price of the bonds is less than their maturity value
D) When the market rate of interest is equal to the stated rate of interest on the bonds

Question 59

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The effective interest rate on bonds is higher than the stated rate when bonds sell

A) At face value
B) Above face value
C) Below face value
D) At maturity value

Question 60

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The effective interest rate on bonds is also called

A) The stated rate
B) The yield rate
C) The nominal rate
D) None of these are correct

Question 61

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Just before bonds are retired, the balance in the Bonds Payable account is equal to the bond's

A) Face value
B) Face value plus any discount or premium amortized
C) Issuance price
D) Face value plus interest to be paid

Question 62

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. On January 1, 2012, Lawton Corporation issued 10-year, $1,000,000 bonds with a stated interest rate of 10%. The effective interest rate is 10% and interest is paid semi-annually on January 1 and July 1. The journal entry to record the bond issuance would include a

A) Debit to Cash of $1,000,000
B) Credit to Cash of $1,000,000
C) Debit to Bonds Payable of $1,000,000
D) Credit to Bond Interest Expense of $1,000,000

Question 63

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following is NOT used to evaluate a company's financial leverage?

A) Debt ratio
B) Times interest earned ratio
C) Debt-to-equity ratio
D) All of these are used to evaluate a company's financial leverage

Question 64

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The entry to record a bond retirement at maturity usually involves

A) No gain or loss
B) A credit to Gain on Retirement
C) A debit to Loss on Retirement
D) A credit to Bonds Payable

Question 65

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Hakeem, Inc. reported the following data in its 2011 financial statements: total liabilities $38,400; total stockholders' equity, $19,200; net income, $4,320; income tax expense, $2,880; and interest expense, $2,400. The debt-to-equity ratio is

A) 0.50
B) 0.67
C) 3.00
D) 2.00

Question 66

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 7 percent. These bonds will be issued for

A) $200,000
B) More than $200,000
C) Less than $200,000
D) An unknown price; more information is needed

Question 67

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Hakeem, Inc. reported the following data in its 2011 financial statements: total liabilities $38,400; total stockholders' equity, $19,200; net income, $4,320; income tax expense, $2,880; and interest expense, $2,400. The debt ratio is

A) 50%
B) 67%
C) 300%
D) 200%

Question 68

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 9 percent. These bonds will be issued for

A) $200,000
B) More than $200,000
C) Less than $200,000
D) An unknown price; more information is needed

Question 69

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. When bonds are first issued, the liability is entered in the Bonds Payable account at the bond's

A) Face value
B) Face value plus any discount
C) Issuance price when that amount is greater or less than face value
D) Face value plus accrued interest

Question 70

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. LaFluer Corporation issued $400,000 of 15-year bonds on January 1. The bonds pay interest on January 1 and July 1 with a stated rate of 8 percent. If the market rate of interest at the time the bonds are sold is 6 percent, what will be the issuance price (approximate) of the bonds?

A) $478,406
B) $399,992
C) $400,005
D) $632,205

Question 71

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. If a gain occurs on the early retirement of bonds, it is

A) Not reported in the financial statements
B) Reported on the income statement
C) Only reported in the notes to the financial statements
D) Reported on the balance sheet

Question 72

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. On January 1, 2012, Lawton Corporation issued 10-year, $1,000,000 bonds with a stated interest rate of 10%. The effective interest rate is 10% and interest is paid semi-annually on January 1 and July 1. The journal entry to record the first semi-annual interest payment on July 1, 2012 would include a

A) Debit to Cash of $50,000
B) Credit to Bonds Payable of $50,000
C) Debit to Bonds Interest Expense of $50,000
D) Credit to Bonds Interest Expense of $50,000

Question 73

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. The method of bond amortization that results in a varying amount of amortization each period is the

A) Straight-line amortization
B) Effective-interest amortization
C) Accelerated amortization
D) None of these are correct

Question 74

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Flute Corporation issued $200,000, 10-year, 9 percent bonds at a time when the market rate of interest was 12 percent. These bonds will be issued for

A) $200,000
B) More than $200,000
C) Less than $200,000
D) An unknown price; more information is needed

Question 75

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. LaFluer Corporation issued $400,000 of 15-year bonds on January 1. The bonds pay interest on January 1 and July 1 with a stated rate of 8 percent. If the market rate of interest at the time the bonds are sold is 10 percent, what will be the issuance price (approximate) of the bonds?

A) $371,126
B) $369,664
C) $339,154
D) $338,520

Question 76

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. A bond retired before maturity usually involves a

A) Debit to Gain on Retirement of Bond
B) Credit to Bond Interest Expense
C) Debit to Cash
D) Debit to Bonds Payable

Question 77

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. On January 1, 2012, Lawton Corporation issued 10-year, $1,000,000 bonds with a stated interest rate of 10%. The effective interest rate is 10% and interest is paid semi-annually on January 1 and July 1. The journal entry to record the retirement of the bonds on January 1, 2022, assuming all interest has been accounted for, would include a

A) Debit to Cash of $1,000,000
B) Credit to Bonds Payable of $1,000,000
C) Debit to Bonds Payable of $1,000,000
D) Credit to Bond Interest Expense of $1,000,000

Question 78

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Which of the following ratios is used to evaluate a company's ability to meet its periodic interest payments?

A) Times interest paid ratio
B) Times interest earned ratio
C) Times interest recorded ratio
D) Times interest expensed ratio

Question 79

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. Hakeem, Inc. reported the following data in its 2011 financial statements: total liabilities $38,400; total stockholders' equity, $19,200; net income, $4,320; income tax expense, $2,880; and interest expense, $2,400. The times interest earned ratio is

A) 4.0 times
B) 1.8 times
C) 2.8 times
D) 3.0 times

Question 80

Instructions: Use the present value and future value tables included in Appendix 8 and on the textbook companion website. If the market rate of interest is 12 percent and a company is issuing long-term bonds paying 10 percent, at what percent would those liabilities have to be discounted, assuming semiannual compounding?

A) 5 percent
B) 6 percent
C) 10 percent
D) 12 percent