Question 1

Interest expense is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

Accepted Answer

When a bond is issued at a discount, the interest expense increases over time as the bond approaches maturity due to the amortization of the discount.

Question 2

Match the following bond and long-term liability related terms to the appropriate definition.
-Bonds that do not all have the same due date. A portion of the bonds comes due each time period.

Accepted Answer

Serial bonds are bonds that do not all have the same due date. A portion of the bonds comes due each time period.

Question 3

All of the following are considered to be long-term liabilities for Parsons Company except:

Accepted Answer

Bonds issued due in 10 years, payments for a long-term lease, and a note payable due in five years are all examples of long-term liabilities. The current year portion of deferred taxes is typically classified as a current liability, as it is expected to be paid off within the next year.

Question 4

Which of the following statements is false with respect to bonds?

Accepted Answer

Bonds can be bought and sold on the secondary market before their maturity date.

Question 5

Match the following bond and long-term liability related terms to the appropriate definition.
-The interest rate stated on the bond certificate. It is also called the nominal or coupon rate.

Accepted Answer

The face rate of interest is the interest rate stated on the bond certificate. It is also called the nominal or coupon rate.

Question 6

Cash interest payment is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

Accepted Answer

The cash interest payment remains constant because it is based on the bond's face value and the stated interest rate, regardless of whether the bond is issued at a discount or premium.

Question 7

Match the following bond and long-term liability related terms to the appropriate definition.
-The process of transferring a portion of premium or discount to interest expense. This method transfers an amount resulting in a constant effective interest rate.

Accepted Answer

The effective interest method of amortization is the process of transferring a portion of premium or discount to interest expense. This method transfers an amount resulting in a constant effective interest rate.

Question 8

Improv Corporation decides to redeem its $100,000 face value bonds when the carrying value is $107,019.48. The bonds are redeemed on December 31, 2015, at 102.
REQUIRED:
1. Calculate Improv Corporation's gain or loss on the early redemption of the bonds.
2. Identify the accounting equation effects to be recorded at the time of bond redemption.

Accepted Answer

The answer of Improv Corporation decides to redeem its $100,000...

Question 9

Match the following bond and long-term liability related terms to the appropriate definition.
-Bonds that may be redeemed or retired before their specified due date.

Accepted Answer

Callable bonds are specifically designed to be redeemed or retired by the issuer before their maturity date.

Question 10

When using the indirect method for preparing the statement of cash flows, all of the following will appear in the operating activities section except:

Accepted Answer

An increase in long-term liabilities would appear in the financing activities section of the statement of cash flows under the indirect method, not in the operating activities section. The operating activities section includes adjustments for non-cash items such as depreciation and deferred taxes, as well as changes in current assets and liabilities.

Question 11

Connor Martin Corporation's balance sheet showed the following amounts: Current Liabilities, $10,000; Bonds Payable, $3,000; Lease Obligations, $4,000; and Notes Payable, $600. Total stockholders' equity was $12,000. The debt-to-equity ratio is:

Accepted Answer

Debt-to-Equity Ratio = (Total Liabilities) / (Total Stockholders' Equity)
Total Liabilities = Current Liabilities + Bonds Payable + Lease Obligations + Notes Payable = $10,000 + $3,000 + $4,000 + $600 = $17,600

Debt-to-Equity Ratio = $17,600 / $12,000 = 1.47 (rounded to two decimal places)

Therefore, the answer is B) 1.47.

Question 12

A bond with a face value of $10,000 is issued at a discount of $800 on January 1, 2014. The face rate of interest on the bond is 7%.
REQUIRED:
1. Was the market rate at the time of issuance greater than 7% or less than 7%?
2. If a balance sheet is presented on January 1, 2014, how will the bonds appear on the balance sheet?
3. If a balance sheet is presented on December 31, 2014, will the amount for the bonds be higher or lower than on January 1, 2014?

Accepted Answer

The answer of A bond with a face value of...

Question 13

Match the following bond and long-term liability related terms to the appropriate definition.
-The excess of the face value of bonds over the issue price. It occurs when the market rate on the bonds exceeds the face rate.

Accepted Answer

Discount on bonds payable is the excess of the face value of bonds over the issue price, occurring when the market rate of interest on the bonds exceeds the face rate of interest.

Question 14

Match the following bond and long-term liability related terms to the appropriate definition.
-The interest rate that bondholders could obtain by investing in other bonds that are similar to the issuing firm's bonds.

Accepted Answer

The market rate of interest is the rate that investors could earn from other investments with similar risk, making it the correct match for the definition provided.

Question 15

Match the following bond and long-term liability related terms to the appropriate definition.
-The difference between the carrying value and the redemption price at the time bonds are redeemed. This amount is presented as an income statement account.

Accepted Answer

Gain or loss on redemption is recognized in the income statement and represents the difference between the carrying value of the bonds at the time they are redeemed and the redemption price.

Question 16

Match the following bond and long-term liability related terms to the appropriate definition.
-The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.

Accepted Answer

The carrying value of a bond is calculated as its face value plus any unamortized premium or minus any unamortized discount. This reflects the current book value of the bond on the issuer's balance sheet.

Question 17

Frank Crawford Corporation's balance sheet showed the following amounts: Current Liabilities, $15,000; Bonds Payable, $8,000; Lease Obligations, $9,000; and Notes Payable, $5,600. Total stockholders' equity was $17,000. The debt-to-equity ratio is:

Accepted Answer

The answer of Frank Crawford Corporation's balance sheet showed the...

Question 18

Amortized discount is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

Accepted Answer

As a bond issued at a discount approaches maturity, the amortized discount increases because the bond's carrying value is adjusted upwards towards its face value over time.

Question 19

Match the following bond and long-term liability related terms to the appropriate definition.
-The total of the present value of the cash flows produced by a bond. It is calculated as the present value of the annuity of interest payments plus the present value of the principal.

Accepted Answer

The bond issue price is the total of the present value of the cash flows produced by a bond, calculated as the present value of the annuity of interest payments plus the present value of the principal.

Question 20

Carrying value is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

Accepted Answer

The carrying value of a bond issued at a discount increases over time as the discount is amortized, bringing the carrying value closer to the bond's face value by maturity.

Quiz 10: Long-Term Liabilities

Interest expense is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

Match the following bond and long-term liability related terms to the appropriate definition. -Bonds that do not all have the same due date. A portion of the bonds comes due each time period.

All of the following are considered to be long-term liabilities for Parsons Company except:

Which of the following statements is false with respect to bonds?

Match the following bond and long-term liability related terms to the appropriate definition. -The interest rate stated on the bond certificate. It is also called the nominal or coupon rate.

Cash interest payment is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

Match the following bond and long-term liability related terms to the appropriate definition. -The process of transferring a portion of premium or discount to interest expense. This method transfers an amount resulting in a constant effective interest rate.

Match the following bond and long-term liability related terms to the appropriate definition. -Bonds that may be redeemed or retired before their specified due date.

When using the indirect method for preparing the statement of cash flows, all of the following will appear in the operating activities section except:

Connor Martin Corporation's balance sheet showed the following amounts: Current Liabilities, $10,000; Bonds Payable, $3,000; Lease Obligations, $4,000; and Notes Payable, $600. Total stockholders' equity was $12,000. The debt-to-equity ratio is:

Match the following bond and long-term liability related terms to the appropriate definition. -The excess of the face value of bonds over the issue price. It occurs when the market rate on the bonds exceeds the face rate.

Match the following bond and long-term liability related terms to the appropriate definition. -The interest rate that bondholders could obtain by investing in other bonds that are similar to the issuing firm's bonds.

Match the following bond and long-term liability related terms to the appropriate definition. -The difference between the carrying value and the redemption price at the time bonds are redeemed. This amount is presented as an income statement account.

Match the following bond and long-term liability related terms to the appropriate definition. -The face value of a bond plus the amount of unamortized premium or minus the amount of unamortized discount.

Frank Crawford Corporation's balance sheet showed the following amounts: Current Liabilities, $15,000; Bonds Payable, $8,000; Lease Obligations, $9,000; and Notes Payable, $5,600. Total stockholders' equity was $17,000. The debt-to-equity ratio is:

Amortized discount is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?

Match the following bond and long-term liability related terms to the appropriate definition. -The total of the present value of the cash flows produced by a bond. It is calculated as the present value of the annuity of interest payments plus the present value of the principal.

Carrying value is computed annually when a bond is issued for other than its face value. For a bond issued at a discount, how will this component change as the bond approaches maturity?