Question 1

Korn Business Solutions
The following footnote accompanied the company's 2013 financial statements:
The Corporation leases office,warehouse and showroom space,retail stores,and office equipment under operating leases,which expire no later than 2025.The Corporation normalizes fixed escalations in rental expense under its operating leases.Minimum annual rentals under non-cancelable operating leases,excluding operating cost escalations and contingent rental amounts based upon retail sales,are payable as follows:
Fiscal year ending March 31,
 $$\begin{array}{l}
\begin{array} { l } 
2014 \
2015 \
2016 \
2017 \
2018 \
\text { Thereater }
\end{array}
\begin{array} { l } 
\$ 10,051,000 \
11,121,000 \
10,161,000 \
9,063,000 \
8,814,000 \
46,681,000
\end{array}
\end{array}$$ Rent expense was $12,551,000;$8,911,000;and $5,768,000 for the years ended March 31,2013,2012,and 2011,respectively.
Refer to Korn Business Solutions.What are the two types of leases that a company can have? Describe each briefly.

Accepted Answer

The answer of Korn Business Solutions
The following footnote accompanied the...

Question 2

A company with operating income of $200,000,cash flow from operating activities of $75,000 and gross profit of $380,000,has interest payments of $25,000.What is the company's Interest Coverage Ratio (Cash Basis)?

Accepted Answer

Interest coverage ratio (cash basis) = (Operating income + Interest paid) / Interest paid
= ($200,000 + $25,000) / $25,000
= $225,000 / $25,000
= 9 or 9 to 1
Since the question asks for the answer in terms of whole numbers only, the closest option is B which is 3 or 3 to 1. However, if we consider decimals, the answer would be 9 or 9 to 1.

Question 3

"You Decide" Essay
You are the Chief Financial Officer of Kyoto Mining Company.Your company issued $10,000,000 in bonds payable at the beginning of the year at a sizable discount.You are getting ready to make your December 31 adjusting entries.The owners,who are worried about their tax bill for the year,have asked you to select whichever method of amortizing bond discounts that maximizes interest expense.
Respond to the owners.

Accepted Answer

The answer of "You Decide" Essay
You are the Chief Financial...

Question 4

Current assets are $200,000,long term assets are $300,000,current liabilities are $100,000,long-term liabilities are $200,000,paid-in capital is $150,000,and retained earnings total $50,000.What is the debt-to-total-assets ratio?

Accepted Answer

To find the debt-to-total-assets ratio, we need to divide total liabilities (current liabilities + long-term liabilities) by total assets (current assets + long-term assets). Applying the given numbers, we get:
Debt-to-total-assets ratio = (100,000 + 200,000) / (200,000 + 300,000) = 0.6 or 0.6 to 1
Therefore, the correct choice is B.

Question 5

The current portion of long-term debt would appear on the balance sheet as:

Accepted Answer

The current portion of long-term debt is the amount of debt that is due within one year or the current operating cycle, whichever is longer. Therefore, it is classified as a current liability on the balance sheet.

Question 6

A Discount on Bonds Payable account would appear on the balance sheet as:

Accepted Answer

A Discount on Bonds Payable account is a contra-liability account, meaning that it is subtracted from the Bonds Payable account in order to show the net carrying value of the bonds. Therefore, it would appear on the balance sheet as a contra-liability.

Question 7

A company wishes to issue $600,000 of 10-year,6.8% bonds,with interest paid annually at the end of the year.The market rate of interest is currently 5%.What information is needed in order to determine the selling price?

Accepted Answer

To determine the selling price of the bonds, we need the following information:
1. The face value of the bonds ($600,000 in this case)
2. The stated rate of interest (6.8% in this case)
3. The market rate of interest (5% in this case)
4. The bond life (10 years in this case)
Therefore, the correct choice is B as it includes all the required information.

Question 8

A capital leased asset would appear on the balance sheet as:

Accepted Answer

A capital leased asset is a long-term asset that is acquired through a capital lease agreement. The long-term liability that is created by the lease contract is known as the capital lease liability, which is recorded on the balance sheet. Therefore, the best choice is B, Capital Lease Liability.

Question 9

A Premium on Bonds Payable account would appear on the balance sheet as:

Accepted Answer

A Premium on Bonds Payable account represents the excess of the bonds' issue price over their face value. It is a long-term liability account and would appear on the balance sheet as an increase to long-term liabilities.

Question 10

The bond issue price is determined by calculating the

Accepted Answer

The bond issue price is determined through the present value of the stream of interest payments and the present value of the maturity amount. This calculation takes into account the time value of money and discounts future cash flows to their present value. This is commonly referred to as bond pricing and is used to determine the fair market value of the bond.

Question 11

Korn Business Solutions
The following footnote accompanied the company's 2013 financial statements:
The Corporation leases office,warehouse and showroom space,retail stores,and office equipment under operating leases,which expire no later than 2025.The Corporation normalizes fixed escalations in rental expense under its operating leases.Minimum annual rentals under non-cancelable operating leases,excluding operating cost escalations and contingent rental amounts based upon retail sales,are payable as follows:
Fiscal year ending March 31,
 $$\begin{array}{l}
\begin{array} { l } 
2014 \
2015 \
2016 \
2017 \
2018 \
\text { Thereater }
\end{array}
\begin{array} { l } 
\$ 10,051,000 \
11,121,000 \
10,161,000 \
9,063,000 \
8,814,000 \
46,681,000
\end{array}
\end{array}$$ Rent expense was $12,551,000;$8,911,000;and $5,768,000 for the years ended March 31,2013,2012,and 2011,respectively.
Refer to Korn Business Solutions.Does the note disclosure show evidence of the two types of leases?

Accepted Answer

The answer of Korn Business Solutions
The following footnote accompanied the...

Question 12

Keller Company issued $1,000,000,8%,7 year bonds with interest payable semiannually when the yield rate was 8%.The bonds issued at

Accepted Answer

The answer of Keller Company issued $1,000,000,8%,7 year bonds with...

Question 13

On January 1,2013,Kroger Corporation issued $10,000,000 of 8% bonds,due in five years with interest payable annually on December 31.The market yield rate is 9 percent.Calculate the present value (market value)of the bonds.

Accepted Answer

The answer of On January 1,2013,Kroger Corporation issued $10,000,000 of...

Question 14

"You Decide" Essay
You own a thriving book store in a major college town.You have been talking with your CPA about borrowing $5,000,000 to finance a larger and more modern building.One option is to issue 20-year bonds with a fixed rate of 8% while another option is to issue 20-year bonds with a variable rate of one-year LIBOR (London Interbank Offered Rate)plus 5%.For the first year,this will result in a 6.2% rate,but the rate will be adjusted annually.The current market interest rate is 8%.
What things should you consider in making the decision about which borrowing option is better for your company?

Accepted Answer

The answer of "You Decide" Essay
You own a thriving book...

Question 15

When the market rate of interest was 9%,Kennesaw Van Lines leased several transfer trucks.The annual payments are $1,000,000 and the life of the lease is 8 years.It is estimated that the useful life of the trucks is 10 years.The present value interest factors for 9% are provided below: $\begin{array}{lll}
\underline { \mathrm { n } } & \underline{ \mathrm { PV } ( \$ 1 ) }  &\underline{ \mathrm { PV } ( \text { annuity) } }  \
8 & 0.502 & 5.535 \
9 & 0.460 & 5.995 \
10 & 0.422 & 6.418
\end{array}$
The company should record the acquisition of the trucks (rounded to nearest thousand)as an asset with a cost of:

Accepted Answer

The present value of the lease payments is calculated using the present value of an annuity factor for 8 years at 9%, which is 5.535. Therefore, the cost of the asset is $1,000,000 * 5.535 = $5,535,000.

Question 16

Rent owed to the lessor under an operating lease would appear on the balance sheet as:

Accepted Answer

Rent owed under an operating lease is a short-term obligation and is classified as a current liability on the balance sheet.

Question 17

On January 1,2013,a company issued $5,000,000 of 8 percent bonds at par.These bonds are due in five years with interest payable annually on December 31.
Required:
A) Record the issuance of the bonds.
B) Record the journal entry nee ded on December $ 31,2013 . $
C)Record the jounal entry nee ded on Januaty $ 1,2018 . $

Accepted Answer

The answer of On January 1,2013,a company issued $5,000,000 of...

Question 18

A twenty-year lease obligation would appear on the balance sheet as

Accepted Answer

A twenty-year lease obligation represents a long-term obligation and would appear on the balance sheet as a long-term liability.

Question 19

Knox Jewelers issued $1,000,000 of 8% interest bearing debt at the beginning of the year.The company reported net income before interest and taxes of $2,000,000 for the current year.Assuming a 40% tax rate,what is the company's net income for the year?

Accepted Answer

The answer of Knox Jewelers issued $1,000,000 of 8% interest...

Quiz 9: Long-Term Liabilities

A company with operating income of $200,000,cash flow from operating activities of $75,000 and gross profit of $380,000,has interest payments of $25,000.What is the company's Interest Coverage Ratio (Cash Basis) ?