Question 1

Indicate whether each of the following statements is true or false.a)EBIT stands for earnings before income taxes.b)EBIT can be used in the computation of the return-on-assets ratio.c)A low times-interest-earned ratio is a sign of a high-risk company.d)Dividends are deductible in the determination of taxable income.e)Interest is deducted on the income statement but is ignored on the tax return.

Accepted Answer

b)True c)True d)False e)Fa)This is false. EBIT stands for earnings before interest and taxes.b)This is true. The return-on-assets ratio is commonly computed by dividing EBIT by total assets.c)This is true. A low times-interest-earned ratio indicates that a company may have difficulty making required interest payments.d)This is false. Dividends are not tax deductible.e)This is false. Interest is deducted on both the income statement and the tax return.

Question 2

On January 1, Year 1, Mayberry Company borrowed cash from Central Bank by issuing a $75,000 face value 3-year installment note payable that carried a 9% interest rate. The note is to be repaid by making annual cash payments of $29,629.11, which includes both principal and interest. The payments are to be made on December 31 of each year.Required:a)Prepare an amortization schedule for the term of the loan, showing the amounts to be paid on principal and interest for Year 1, Year 2, and Year 3 and the loan balance at the end of each year. (Round your answers to two decimal points.)b)What amount of interest expense will be shown on the Year 2 income statement?c)What amount of liability for the note will be shown on the balance sheet as of December 31, Year 2?

Accepted Answer

The answer of On January 1, Year 1, Mayberry Company...

Question 3

Rodgers Equipment Company sold a ten-year, 6% bond issue at 102.5. Rodgers received proceeds of $256,250 from the sale of these bonds.Required:Determine the face value of these bonds.

Accepted Answer

The answer of Rodgers Equipment Company sold a ten-year, 6%...

Question 4

On January 1, Year 1, Hanover Corporation issued bonds with a face value of $300,000 and a 10-year term to maturity. On that date, the market interest rate was 7%. The bonds were issued at 103.5. Interest in the amount of $22,495 is payable in cash on December 31 of each year. Hanover Corporation uses the effective interest method to amortize discounts and premiums on bonds. (Round all intermediate calculations to two decimal places and final answers to whole dollars.)Required:a)Determine the amount of the premium on the bonds when they were issued.b)(1)Determine the amount of interest expense for Year 1.b)(2)Determine the amount of premium amortization for Year 1.c)Determine the carrying value of the bonds on December 31, Year 1.d)Determine the amount of interest expense for Year 2.
Answer Key
Test name: chapter 10

Accepted Answer

The answer of On January 1, Year 1, Hanover Corporation...

Question 5

San Jose Company issued ten-year 8% bonds with a face value of $100,000, for $107,023.58 on January 1, Year 1 when the market (effective)rate of interest was 7%. The bonds pay annual interest each December 31. San Jose uses the effective interest method to amortize bond discounts and premiums. (Round all intermediate calculations and final answers to two decimal places.)Required:a)Determine the annual amount of cash that will be paid to bondholders for interest?b)Calculate the amounts of:(1)Interest expense in Year 1(2)Premium amortization in Year 1(3)Carrying amount of the liability on December 31, Year 1c)Calculate the amounts of:(1)Interest expense in Year 2(2)Premium amortization in Year 2(3)Carrying amount of the liability at December 31, Year 2?d)Determine the total amount of interest that will be recorded in interest expense over the life of the bond.

Accepted Answer

The answer of San Jose Company issued ten-year 8% bonds...

Question 6

On July 1, Year 1, Morrison Company issued bonds with a face value of $200,000, a stated rate of interest of 8%, and a 10-year term to maturity. The bonds were issued at 92. Interest is payable semiannually on January 1, and July 1.

Accepted Answer

The answer of On July 1, Year 1, Morrison Company...

Question 7

Greenwood Company issued bonds with a face value of $150,000, a stated interest rate of 6% bonds, and a 10-year maturity term. Interest is payable in cash on December 31 of each year. The bonds were sold at 103.5. The company uses the straight-line method to amortize bond discounts and premiums.Required:Calculate the amount of annual interest expense

Accepted Answer

The answer of Greenwood Company issued bonds with a face...

Question 8

On January 1, Year 1, Hawk Company borrowed $100,000 from the Community Bank, issuing a three-year, 8% note payable. Payments of $38,803.35 are to be made each year on December 31. The payment will include both the interest and a portion of the principal. (Round your answers to two decimal points.)Required:Using the table below, prepare an amortization schedule for the note.

Accepted Answer

The answer of On January 1, Year 1, Hawk Company...

Question 9

Stanton Company issued ten-year 7% bonds with a face value of $100,000, for $96,567.94 on January 1, Year 1, when the market (effective)rate of interest was 7.5%. The bonds pay annual interest each December 31. Stanton uses the effective interest method to amortize bond discounts and premiums. (Round your answers to two decimal places.)Required:a)Determine the annual amount of cash that will be paid to bondholders for interest.b)Calculate the amounts of:(1)Interest expense in Year 1(2)Discount amortization in Year 1(3)Carrying amount of the liability on December 31, Year 1c)Calculate the amounts of:(1)Interest expense in Year 2(2)Premium amortization in Year 2(3)Carrying amount of the liability at December 31, Year 2?d)Determine the total amount of interest that will be recorded in interest expense over the life of the bond.

Accepted Answer

The answer of Stanton Company issued ten-year 7% bonds with...

Question 10

Marvin Corporation issued $500,000 of 8%, 10-year bonds for 98 on January 1, Year 1. Interest is payable annually on December 31. The company uses the straight-line method to amortize bond discounts and premiums.Required:a)Prepare the liabilities section of the balance sheet at December 31, Year 1.b)Determine the amount of interest expense reported on the Year 1 income statement.c)Prepare the operating activities section of the Year 1 statement of cash flows.

Accepted Answer

The answer of Marvin Corporation issued $500,000 of 8%, 10-year...

Question 11

Compute the amount of cash a company will receive from the following bond issues.Required:a)________ Issued $200,000 of 5-year, 8% bonds at 98b)________ Issued $800,000 of 4-year, 9% bonds at 95c)________ Issued $400,000 of 10-year, 8% bonds at 102.5c)________ Issued $100,000 of 5-year, 12% bonds at 103

Accepted Answer

The answer of Compute the amount of cash a company...

Quiz 10: Accounting for Long-Term Debt

Rodgers Equipment Company sold a ten-year, 6% bond issue at 102.5. Rodgers received proceeds of $256,250 from the sale of these bonds.Required:Determine the face value of these bonds.

On July 1, Year 1, Morrison Company issued bonds with a face value of $200,000, a stated rate of interest of 8%, and a 10-year term to maturity. The bonds were issued at 92. Interest is payable semiannually on January 1, and July 1.

Compute the amount of cash a company will receive from the following bond issues.Required:a) Issued $200,000 of 5-year, 8% bonds at 98b) Issued $800,000 of 4-year, 9% bonds at 95c) Issued $400,000 of 10-year, 8% bonds at 102.5c) Issued $100,000 of 5-year, 12% bonds at 103